Federal Court Certifies Class Challenging State Farm’s Depreciation of Sales Tax When Calculating ACV

    The federal district court agreed that a challenge to State Farm's practice of depreciating sales tax when calculating actual cash value (ACV) benefits payments to policyholders could go forward as a class action. Pitkin, et al. v. State Farm Fire and Cas. Co., 2025 U.S. Dist. LEXIS 134948 (July 15, 2025, N. D. Cal.).

    Plaintiffs sought class certification for all four of their causes of action: declaratory relief, breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of California's Unfair Competition Law. 

    Plaintiffs held a homeowner's policy from State Farm. The police provided for settlement of damaged personal property in several ways, including ACV, market value and replacement cost (RC).

    On August 20, 2020, plaintiffs' home was burned down in the Walbridge Fire. They tendered a claim to State Farm. State Farm accepted the claim and adjusted the loss by paying ACV for personal property losses. Plaintiffs received partial payments for their personal property contents losses. State Farm also sent the plaintiffs "loss payment worksheets" that showed their ACV benefits for their personal property. For all items of property where sales tax was applicable, State Farm depreciated sales tax in calculating ACV. Plaintiffs challenged the practice in this action. 

    The California Insurance Code included provisions to standardize the calculation of actual cash recovery in determining ACV under insurance policies. The statute provided, in part, that "the measure of actual cash value recovery . . . shall be the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less."

    In a prior case, the court held that sales tax was distinct from physical items and not subject to "depreciation." Physical depreciation referred to wear and tear only, and since sales tax was not subject to wear and tear, the depreciation of sales tax when calculating ACV was not permitted under California law. 

    Plaintiffs alleged that State Farm violated California law by depreciating sales tax as a component of RC when calculating ACV, which State Farm did when calculating the replacement cost of plaintiffs' personal property following the fire that destroyed their property. State Farm did not deny that this was its practice, but denied that the practice was unlawful.

    State Farm first challenged plaintiffs' experts, arguing the experts' opinions were speculative and inadmissible. The court disagreed, although State Farm would likely raise the issue again at the conclusion of merits discovery. State Farm would have the opportunity to challenge the experts' testimony and rebuttal opinions during expert discovery.

    Turning to the requirements of Fed. R. Civ. P. 23 (a), State Farm did not challenge plaintiffs putative class on the basis of numerosity. Plaintiffs estimated a class size of 191,362. Commonality was also present as plaintiffs were disadvantaged by State Farm's policies of depreciation of sales tax, an issue common to the putative class.

    Turning to typicality, plaintiffs suffered the same harm that they alleged the punitive class had suffered: reduction in ACV payments by unlawful depreciation of sales tax value. Plaintiffs possessed the same interest as the other putative class members: they sought recovery of the difference between the payment from State Farm and the ACV without sales tax depreciation. Finally, plaintiffs met the adequacy requirement. 

    Plaintiffs also met the requirements of Rule 23 (b). Their claims revolved around what they alleged was State Farm;s failure to pay the amount it owed under its policies because of its unlawful practice of depreciating the value of the sales tax in calculating ACV. These questions pertained to every class member.

    Finally, there was a significant benefit to litigating all claims pertaining to the legality of State Farm's California-wide practice of depreciating sales tax when calculating ACV in one forum. If the putative class members were to pursue their claims in different courts around the state, courts could reach piecemeal and inconsistent rulings on what was otherwise a straightforward legal question,

    Therefore, the following class was certified:

All persons who between March 1, 2019, and the present, were or are a named insured under a property insurance policy issued in California by Defendant, who suffered a covered loss to real or personal property for which they received payment of actual cash value (ACV) benefits that were reduced due to depreciation of sales tax, and who were paid or are reasonably certain to be paid benefits in an amount that is less than the applicable policy limits.