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A California federal judge indicated on Wednesday that he is likely to certify a class of nearly 200,000 homeowners in a lawsuit alleging that State Farm underpays property insurance claims by depreciating sales tax when calculating replacement costs. The decision signals a significant development in ongoing litigation accusing State Farm of violating California insurance laws.

U.S. District Judge William H. Orrick, presiding over the case in the Northern District of California, stated that a common legal issue predominates: whether State Farm’s practice of depreciating sales tax—thereby reducing the "actual cash value" benefits paid to policyholders—is lawful.

“I made a call on this. I’m a fan of Judge Highberger. He made a different call, but I’m sticking with mine,” Judge Orrick said, referencing a 2017 ruling he issued supporting plaintiffs in a similar case and contrasting it with a recent state court ruling favoring State Farm.

The class action was filed by homeowners Melissa Pitkin and Dan Grout, who lost their Northern California home in a 2020 wildfire. The couple claims State Farm improperly reduced their personal property claim payments by depreciating sales tax, which they assert violates California Insurance Code Section 2051. They seek to represent a class of approximately 191,362 California homeowners with similar claims.

State Farm denies all liability, arguing it properly calculated actual cash value payments in accordance with state law. The insurer also contends that the diverse circumstances of individual claims require separate review, opposing class certification.

Plaintiffs’ counsel, Tyson Redenbarger of Cotchett Pitre & McCarthy LLP, argued in court that State Farm applies its sales tax depreciation policy uniformly to all claims, making this case well-suited for class treatment.

“The policy applies to everyone equally,” Redenbarger said. “This case is perfectly suited for class certification.”

The case is Melissa Pitkin et al. v. State Farm General Insurance Co. et al., Case No. 3:23-cv-00924, U.S. District Court for the Northern District of California (San Francisco).