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A federal judge in California signaled on Wednesday that he will likely certify a class of approximately 200,000 homeowners in a lawsuit alleging that State Farm underpays property insurance claims by depreciating sales tax when calculating replacement costs.

U.S. District Judge William H. Orrick, presiding in the Northern District of California, noted that a common legal issue predominates in the case — the legality of State Farm’s sales tax depreciation practice, which reduces the "actual cash value" benefits paid to insured homeowners.

Judge Orrick referenced his own 2017 ruling favoring plaintiffs in a similar case and acknowledged contrasting recent rulings by California state courts. “I made a call on this. I’m a fan of Judge Highberger. He made a different call, but I’m sticking with mine,” Orrick stated during a hearing in San Francisco.

The case, filed in March 2023 by homeowners Melissa Pitkin and Dan Grout, challenges State Farm’s policy of depreciating sales tax in claims related to losses from property damage — including losses sustained in the 2020 Northern California wildfires. The plaintiffs allege this practice violates California Insurance Code Section 2051.

In opposition, State Farm maintains that it lawfully calculates actual cash value and argues that class certification is inappropriate due to the individualized nature of claims, damages, and policy limits. However, plaintiffs’ attorneys contend that State Farm applies sales tax depreciation uniformly across claims, making the case suitable for class action treatment.

If certified, the class would include nearly 200,000 California homeowners who suffered covered losses under State Farm policies and received reduced payments due to the sales tax depreciation method.

Representing the plaintiffs are teams from Cotchett Pitre & McCarthy LLP, Welty Weaver & Currie PC, and the Murray Law Firm. State Farm is represented by Sheppard Mullin Richter & Hampton LLP.

The litigation is styled Melissa Pitkin et al. v. State Farm General Insurance Co. et al., case number 3:23-cv-00924, pending in the U.S. District Court for the Northern District of California.