“Proving Under-Payment, Not Merely Under-Valuation” – The Third Circuit’s New Predominance Benchmark in Drummond v. Progressive

1. Introduction

The Third Circuit’s precedential opinion in Leon Drummond, et al. v. Progressive Specialty Insurance Co., No. 24-1267 (3d Cir. July 7, 2025) reshapes the landscape for class actions challenging insurers’ total-loss valuation practices. Three Pennsylvania policyholders alleged that Progressive’s use of a “Projected Sold Adjustment” (PSA) depressed the actual cash value (ACV) paid on totaled vehicles statewide, and the district court certified two Rule 23(b)(3) damages classes. On interlocutory appeal, however, the Court of Appeals reversed, holding that:

“Because whether Progressive under-compensated a given insured hinges on individual evidence of that vehicle’s true ACV, plaintiffs cannot establish liability with common proof, and predominance is lacking.”

The ruling creates a clear benchmark: a plaintiff class attacking a single component of an insurer’s valuation model must demonstrate that the alleged defect translates into uniform under-payment, not simply uniform application. Absent that showing, individual issues overwhelm common ones.

2. Summary of the Judgment

• Issue on Appeal – Whether the district court erred in certifying two statewide damages classes when proof of breach of contract required individualized determinations of underpayment.
• Holding – Yes. The class could not satisfy Rule 23(b)(3) because determining whether each class member was paid less than ACV would require claimant-specific evidence; class-wide resolution of Progressive’s liability is therefore impossible.
• Disposition – Class-certification order reversed; case remanded.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

1. Comcast Corp. v. Behrend, 569 U.S. 27 (2013)
   • Provided the two-track predominance test (liability & common damages methodology). The Third Circuit relied heavily on the first track—common proof of injury—to reject certification.
   
2. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008)
   • Reinforced that courts must resolve factual disputes impacting certification, even if they overlap merits. Used here to fault the district court for stopping at the “legitimacy” of PSAs instead of probing individualized underpayment.
   
3. Newton v. Merrill Lynch, 259 F.3d 154 (3d Cir. 2001)
   • Established that class certification is unsuitable where the “essential elements” of a claim require person-specific proof. The panel applied this axiom to breach and damages elements of Pennsylvania contract law.
   
4. Lara v. First Nat’l Ins., 25 F.4th 1134 (9th Cir. 2022)
   • An almost identical total-loss valuation case. The Ninth Circuit held that later upward offsets to initial downward adjustments destroy predominance. The Third Circuit found Lara “squarely on point.”
   
5. Jama v. State Farm, 113 F.4th 924 (9th Cir. 2024)
   • Distinguished between an across-the-board unlawful deduction (certifiable) and a condition adjustment subject to individualized effects (uncertifiable). The Third Circuit analogized the PSA to Jama’s condition adjustment.
   

3.2 The Court’s Legal Reasoning

The panel’s reasoning can be distilled into three propositions:

1. Framing the Correct Question – Predominance must be evaluated with respect to the elements of the cause of action. For breach of contract, that means breach (non-performance) and resulting damages (underpayment). The district court erred by focusing on whether PSAs were “legitimate” in the abstract.
2. Three Hypothetical Scenarios – Progressive could satisfy its contractual duty even while applying PSAs if: (a) other guide sources (NADA) offset the PSA, or (b) final condition adjustments reversed the impact, or (c) the PSA was numerically irrelevant in light of larger upward factors. Because these possibilities exist, one cannot know from common proof alone whether any given insured was underpaid.
3. Class Definition Reveals the Predominance Flaw – Plaintiffs defined the class as everyone whose “ACV was decreased based on PSAs.” Yet “ACV” in that phrase referred to Progressive’s settlement figure, not the real-world cash value. Thus the class sweeps in members who, despite a PSA reduction, ultimately received ACV or more. Each claimant’s vehicle history, mileage, options, post-loss salvage election, deductible, and final step adjustments would have to be examined.

3.3 Anticipated Impact of the Decision

• Insurance Litigation – Plaintiffs challenging total-loss valuation methodologies must now (at least within the Third Circuit) marshal an across-the-board injury model—e.g., a uniform deduction forbidden by statute—rather than attack a single component of a multi-step process.
• Class-Action Strategy – Defense counsel will likely highlight post-processing adjustments or offsetting factors to create individualized questions. Plaintiffs may respond with narrower class definitions (e.g., policyholders whose final payments fell below a specified metric) or by pairing their contract claims with statutory per-se violations.
• Rule 23 Doctrine – The opinion deepens alignment with the Ninth Circuit’s Lara/Jama dichotomy and clarifies that predominance demands injury-in-fact be provable collectively—even if the standing of named representatives is uncontested.
• Beyond Insurance – Any consumer class attacking pricing algorithms (mortgages, utilities, gig-economy compensation) must confront this “under-payment versus under-valuation” distinction.

4. Complex Concepts Simplified

Actual Cash Value (ACV)

The dollar amount needed to buy a replacement vehicle of similar age and condition immediately before the loss—essentially, fair market value, not replacement cost.

Projected Sold Adjustment (PSA)

A downward percentage discount applied to dealer list prices of comparable cars, predicting that most vehicles sell below the advertised price.

Predominance (Rule 23(b)(3))

Common questions must outweigh individual ones with respect to proving liability and damages. If each class member’s claim hinges on unique facts, predominance fails.

Comcast “Two-Track” Test

1) Injury/causation must be provable with common evidence; 2) Damages must be measurable with a method common to the class.

WCTL Dual-Source Report

Mitchell software averages (i) its own list-price database (after PSAs) and (ii) NADA values to produce a base figure, which Progressive later tweaks for condition, salvage, and deductibles.

5. Conclusion

The Third Circuit’s opinion in Drummond does not merely reverse a certification order; it crystallizes a guiding rule: a class cannot be certified where proving the defendant’s liability for under-compensating each member requires individualized, vehicle-specific determinations. Litigants and courts must separate valuation methodology from payment outcome. Until plaintiffs can demonstrate that a challenged practice necessarily depresses every class member’s payout below their rightful entitlement, Rule 23(b)(3) predominance will remain an insurmountable hurdle.