United States District Court for the District of Columbia
July 1, 2004.
JEROME ROBINSON-SMITH, Plaintiff,
GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: PAUL FRIEDMAN, District Judge
This matter is before the Court on defendant's motion for
summary judgment and plaintiff's motion for summary judgment on
the issue of liability. The Court heard oral argument on the
motions on May 19, 2004. Upon consideration of the parties'
motions for summary judgment, the oppositions, the replies, and
the arguments of counsel, the Court concludes that plaintiff's
motion for summary judgment on the issue of liability should be
granted and defendant's motion for summary judgment should be
A. Posture of the Case
Plaintiffs allege that defendant Government Employees Insurance
Company ("GEICO") has, since at least June 15, 1998, violated the
Fair Labor Standards Act, 29 U.S.C. § 201 et seq. ("FLSA"),
by failing to pay plaintiff Jerome Robinson-Smith and all other
persons employed as Auto Damage Adjusters and Resident Auto
Damage Adjusters time and one-half their regular rates of pay for all hours worked in excess of 40
hours per week. See Complaint at ¶ 1. These individuals have
been classified as exempt by GEICO. See id.
The Complaint is brought as a collective action pursuant to
29 U.S.C. § 216(b) on behalf of plaintiff Jerome Robinson-Smith and
all other persons who are or have been employed by defendant
anywhere in the United States as Auto Damage Adjusters or
Resident Auto Damage Adjusters between June 15, 1998 or November
16, 1998, respectively, and the date of final disposition of this
action. See Complaint at ¶ 2. Section 216(b) provides that an
action to recover liability for violations of Section 206 or
Section 207 of the FLSA may be maintained by "any one or more
employees for and in behalf of himself or themselves and other
employees similarly situated." 29 U.S.C. § 216(b). An employees
does not become a party plaintiff to such an action "unless he
gives his consent in writing to become such a party and such
consent is filed in the court in which such action is brought."
Id. Over 270 employees have filed consents in this case.
Plaintiff alleges that his job has been (1) to inspect damaged
automobiles as to which a claim for indemnity under policies sold
by the defendant has been made or is expected to be made; (2) to
enter a description of the damage into a GEICO computer; (3) to
offer payment for the damage in accord with the amounts provided
by the GEICO computer system; and (4) to perform related tasks
such as photographing damaged vehicles and filling out forms
provided by the defendant relating to their appraisals. See
Complaint at ¶ 9. Plaintiff received a salary and the amount of
his pay did not depend on the number of hours worked. See id.
at ¶ 10. Plaintiff regularly worked in excess of 40 hours per
week. Id. For the Court's convenience, plaintiff has consolidated all of
the statements of facts and the responses thereto made by both
plaintiff and defendant. The Court notes that although there are
lengthy oppositions to many of the asserted facts, most of them
consist solely of the legal implications of the asserted facts.
"In determining a motion for summary judgment, the court may
assume that facts identified by the moving party in its statement
of material facts are admitted, unless such a fact is
controverted in the statement of genuine issues filed in
opposition to the motion." L. Civ. R. 7(h). Because the material
facts regarding plaintiff's job duties are essentially
uncontested, there are no genuine issues of material fact, and
resolution of the issue of liability on cross-motions for summary
judgment therefore is appropriate.
B. Uncontested Material Facts
GEICO underwrites and sells automobile insurance directly to
consumers. See Plaintiff's Consolidated Statement of Facts
Presented by Both Plaintiff and Defendant, and Plaintiff's
Statement of Facts in Reply to Defendant's Statement of Facts in
Support of its Motion to Dismiss ("Con. Stmt. Facts") at 1. GEICO
also services insurance policies sold by other GEICO entities.
See id. at 102. GEICO receives claims on less than ten
percent of its policies. See id. at 4. Auto damage claims
account for 60 percent of GEICO's loss payments. See id. at
GEICO has a "Claims Home Office" which is responsible for the
policy and oversight of the claims function for GEICO. See Con.
Stmt. Facts at 104. The auto damage division establishes auto
damage policies. See id. at 106. GEICO regions are called
"profit centers," and there is an auto damage director for each
"profit center." See id. at 107. Auto damage adjusters, plaintiffs in this case, report to supervisors
who report to auto damage managers who report to auto damage
directors. See id. at 110.
Auto damage adjusters assess, negotiate and settle automobile
damage claims made to GEICO. See Con. Stmt. Facts at 15. Level
I adjusters, such as plaintiff, have settlement authority up to
$10,000. See id. at 15. Level II adjusters have settlement
authority up to $15,000. See id. An auto damage adjuster can
recommend settlements in excess of his settlement authority.
See id. at 17. The majority of adjusters' time is spent
inspecting vehicles, writing estimates, and traveling to and from
inspection sites. See id. at 142.*fn1 The adjusters do
not determine whether GEICO is liable for a given claim and do
not have the authority to deny liability, but they do determine
the value of a claim once it has been determined that the claim
should be paid. See id. at 143, 147. Adjusters may stop
payment on certain damage items if they determine that those
damage items were not caused by the accident. See id. at 147.
When evaluating a damaged part, the adjuster first determines
whether the damage was caused by the accident. See id. at 25.
If the damage is accident related, the adjuster assesses the cost
of fixing the damage. See id. at 28. The adjuster must also
determine whether the vehicle has "hidden damage" which cannot be
detected without disassembling the car. See Con. Stmt. Facts at
60. GEICO auto damage adjusters write estimates using software
called "Pathways," which is licensed by Certified Collateral
Corporation ("CCC") and is installed on the adjusters' laptop
computers. See Con. Stmt. Facts at 21. The software uses
databases to locate information on items such as parts prices.
See id. at 22. Paint times and material costs are stored in
the computers. See id. at 179. The information in the
computer is essentially the same as the information GEICO
adjusters previously looked up in books. See id. at 22. The
software does provide certain prompts to aid the adjusters. For
example, the software indicates when a vehicle becomes a total
loss, when a more cost effective part is available, and when it
would be more cost effective to replace a part. See id. The
adjuster must determine, without the aid of computer programs,
formulas or tables, the amount of labor time that a repair will
require. See id. Adjusters make this determination based on
their training and knowledge. See id. at 33. Procedural pages
are stored in the computer, however, and describe the repair
procedures to be followed in repairing parts. See id. at 173.
If the auto damage adjuster makes a manual entry, or an entry
which conflicts with the software's suggestions, the software
program will mark the entry with an asterisk or pound sign. See
id. at 154.
If the adjuster determines that a part can be repaired safely,
the adjuster determines whether the part should be repaired or
replaced. See Con. Stmt. Facts at 31. If a customer requests
replacement of a part even though repair is appropriate, an auto
damage adjuster would grant the request without consulting his
supervisor if it were clear that the discrepancy was sufficiently
small that the supervisor would approve it. See id. at 35.
If the adjuster determines that a part must be replaced, then
he must determine what type of part to use. See Con. Stmt.
Facts at 38. A part can be replaced with a new part made by the manufacturer of the car ("OEM part"), a new part made
by someone else ("aftermarket part"), or a non-damaged used OEM
part ("LKQ part"). See id. GEICO has policies which dictate
use of OEM parts with respect to certain parts of cars. See
id. at 246. The adjuster must determine what type of part to
use and whether to take a depreciation deduction when replacing a
worn part with a new one. See id. at 38, 41. Depreciation
guidelines are set out in the Auto Damage Handbook, but in some
cases the depreciation determination is left to the discretion of
the adjuster. See id. at 186. For example, the Auto Damage
Handbook states that "carpets, floor mats, upholstery,
headliners, convertible tops and other soft trim will be
depreciated based on the pre-loss condition as established by the
adjuster." Id. at 45 (quoting Auto Damage Handbook at 115). The
parties agree that GEICO has guidelines for these types of
decisions, but disagree on the amount of discretion left to the
adjusters. See id. Working with repair shops, there is some
leeway, but auto damage adjusters must still conform with GEICO
guidelines. See id. at 50-51.
Adjusters also must determine whether the vehicle is a total
loss. See Con. Stmt. Facts. at 59. The computer software will
flag a vehicle as a total loss if the estimated repair cost
exceeds 75 percent of the market value. See id. at 156. If a
vehicle is a total loss, the adjuster orders a valuation estimate
from CCC and then makes certain additions and subtractions
pursuant to GEICO policies and guidelines to determine the final
value. See id. at 62. When owners want a higher total loss
settlement, an auto damage adjuster would not consult his
supervisor, so long as he knew the supervisor would approve the
additional credit. See id. at 67. The frequency with which
adjusters call their supervisors for approval depends on the
adjuster. See id. at 78. About once a month, a supervisor rides along with the adjuster for
feedback and training purposes. See id. at 81.
A. Summary Judgment Standard
Summary judgment shall be granted if the pleadings,
depositions, answers to interrogatories and admissions on file,
together with the affidavits or declarations, if any, demonstrate
that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law.
See FED. R. CIV. P. 56(c). Material facts are those that "might
affect the outcome of the suit under the governing law. . . ."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When
considering a summary judgment motion, "the evidence of the
non-movant is to be believed, and all justifiable inferences are
to be drawn in [its] favor." Id. at 255; see also
Washington Post Co. v. United States Dep't of Health and Human
Services, 865 F.2d 320, 325 (D.C. Cir. 1989).
On a motion for summary judgment, the non-moving party's
opposition must consist of more than mere unsupported allegations
or denials and must be supported by affidavits or other competent
evidence setting forth specific facts showing that there is a
genuine issue for trial. See FED. R. CIV. P. 56(e); Celotex
Corp. v. Catrett, 477 U.S. 317, 324 (1986). The non-moving party
is "required to provide evidence that would permit a reasonable
jury to find" in its favor. Laningham v. United States Navy,
813 F.2d 1236, 1242 (D.C. Cir. 1987). If the non-movant's
evidence is "merely colorable" or "not significantly probative,"
summary judgment may be granted. Anderson v. Liberty Lobby,
Inc., 477 U.S. at 249-50. To defeat summary judgment, the
non-moving party must have more than "a scintilla of evidence to
support [its] claims." Freedman v. MCI Telecommunications Corp.,
255 F.3d 840, 845 (D.C. Cir. 2001); see Ben-Kotel v. Howard
University, 319 F.3d 532, 536 (D.C. Cir. 2003).
B. Fair Labor Standards Act
Plaintiff argues that he is not an exempt employee under the
Fair Labor Standards Act and thus is entitled to unpaid overtime
and other damages. See Plaintiff's Motion for Summary Judgment
and Request for Hearing on Motion ("Pl. Mot.") at 1. Section
207(a) of the Fair Labor Standards Act provides that employees
are to be paid at a rate of one and one-half times their "regular
rate" for hours worked in excess of 40 in one week, unless they
are subject to certain exemptions enumerated in Section 213.
29 U.S.C. § 207(a). Section 213 explains that the provisions of
Section 207 do not apply to "any employee employed in a bona fide
executive, administrative, or professional capacity."
29 U.S.C. § 213(a)(1). Defendant argues that plaintiff falls into the
"administrative" exemption and thus is not entitled to overtime
pay. See Defendant's Motion for Summary Judgment ("Def. Mot.")
at 16. The exemptions enumerated in Section 213 "are to be
narrowly construed against the employers seeking to assert them"
and are to be "limited to those establishments plainly and
unmistakably within their terms and spirit." Arnold v.
Kanowsky, 361 U.S. 388, 392 (1960); see also Prakash v.
American University, 727 F.2d 1174, 1178 (D.C. Cir. 1984)
(noting that the "bona fide professional capacity" exemption is
to be construed narrowly).
The Department of Labor has promulgated regulations to
elaborate on the criteria for the administrative exemption. See
29 C.F.R. § 541 (2003). These regulations currently provide a
"short test" for employees who earn more than $250 per week and
are paid on a salary basis. See id.*fn2 Under the short test, an employee
employed in a bona fide administrative capacity is one whose
primary duty consists of (1) "[t]he performance of office or
non-manual work directly related to management policies or
general business operations of his employer or his employer's
customers," and (2) the performance of work "requiring the
exercise of discretion and independent judgment." See
29 C.F.R. § 541.2(a), (e).
On April 23, 2004, revisions to these regulations were approved
as a final rule. Although these new regulations are not effective
until August 23, 2004, they are instructive with respect to the
Department of Labor's interpretation of the requirements of the
administrative exemption. See Defining and Delimiting the
Exemptions for Executive, Administrative, Professional, Outside
Sales and Computer Employees, 69 Fed. Reg. 22,122 (April 23,
2004) (to be codified at 29 C.F.R. pt. 541) ("August 2004
Regulations"). The general criteria for employees employed in a
bona fide administrative capacity are essentially the same under
the August 2004 Regulations as under the current regulations.
See id. at 22,262.*fn3
C. Test for Administrative Exemption
Both the Department of Labor in its regulations and the courts
explain that, in accordance with the test described above, an
employee must meet three requirements before he or she will be
deemed "exempt" from the overtime pay provision of the Fair Labor
Standards Act: (1) the salary requirement; (2) the requirement
that the employee's primary duty consists of work directly related to management policies or general business
operations; and (3) the requirement that the employee's primary
duty includes the exercise of discretion and independent
judgment. If an employee meets all three requirements, then he or
she is properly classified as exempt under the administrative
exemption and is not entitled to overtime pay.
1. Salary Test
The parties agree that at the time of his resignation plaintiff
earned $41,000 per year and thus satisfies the salary requirement
for administrative exemption. See Con. Stmt. Facts at 8.
Defendant, at oral argument, repeatedly maintained that
plaintiff's salary, at almost twice the $23,660 salary that will
be the cut-off for automatic non-exemption as of August 2004, is
a clear indicator that plaintiff is an exempt employee in other
words, that he is not entitled to overtime pay. The Court
disagrees. Although it is true that the Department of Labor's
final rule noted that "the salary paid to an employee is the
`best single test' of exempt status," it went on to explain that
the salary test simplifies enforcement "by providing a ready
method of screening out the obviously nonexempt employees."
August 2004 Regs. at 22,165. An employee whose salary is below
the level set by the regulations therefore is automatically
non-exempt, and thus is entitled to overtime pay, whereas an
employee whose salary is above the minimum level must be
The new regulations define "highly compensated employees,"
those who can be considered almost automatically exempt, as those
earning total annual compensation of $100,000. See August 2004
Regs. at 22,269. Plaintiff's salary therefore establishes him as
neither automatically exempt nor automatically non-exempt. The
Court is not persuaded that plaintiff's $41,000 salary carries
extraordinary weight when determining whether plaintiff is exempt. If the Department of Labor had intended the salary level
to be the dispositive factor, it would not have established in
its new regulations an almost $80,000 salary window within which
the test for administrative exemption is to be applied.
2. Directly Related to Management Policies or General Business
The primary duty of an employee exempt from the overtime pay
requirement must consist of "[t]he performance of office or
non-manual work directly related to management policies or
general business operations of his employer or his employer's
customers." 29 C.F.R. § 541.2(a), (e). The Code of Federal
Regulations specifically notes that "claim agents and adjusters"
may and thus, by implication, in some cases may not satisfy
this requirement. The title of a job does not by itself determine
whether or not the employee bearing it is exempt. "Titles can be
had cheaply," and are "of little or no assistance in determining
the true importance of an employee to the employer or his exempt
or nonexempt status." 29 C.F.R. § 541.202(b)(1).
Because the title of a job is not dispositive, it is necessary
to go through the analysis provided in the Code of Federal
Regulations to determine whether a given employee performs work
that is "directly related to management policies or general
business operations." According to the regulations, the work must
be "of substantial importance to the management or operation of
the business." 29 C.F.R. § 541.205(a). This includes "those types
of activities relating to the administrative operations of a
business as distinguished from `production' or, in a retail or
service establishment, `sales' work." 29 C.F.R. § 541.205(a). The
August 2004 Regulations clarify the rather vague "production"
language of the current regulations to say that "an employee must
perform work directly related to assisting with the running or
servicing of the business, as distinguished, for example, from
working on a manufacturing production line or selling a product in a retail or service establishment." See
August 2004 Regs at 22,262-63. The current regulations then
explain that "servicing" a business may include "advising the
management, planning, negotiating, representing the company,
purchasing, promoting sales, and business research and control."
29 C.F.R. § 541.205(a). Servicing work is not limited to those
who formulate policies, but extends to those "whose
responsibility it is to execute or carry . . . out [the
policies]." Id. at § 541.205(c). If an employer cannot
demonstrate that its employee's duties satisfy this requirement,
then that employee is not exempt and is entitled to overtime pay.
3. Discretion and Independent Judgment
To qualify for the administrative exemption, an employee's work
also must include the exercise of discretion and independent
judgment. See 29 C.F.R. § 541.3(e). The Code of Federal
Regulations defines the phrase "the exercise of discretion and
independent judgment" to mean that the person "has the authority
or power to make an independent choice, free from immediate
direction or supervision and with respect to matters of
significance." 29 C.F.R. § 541.207(a). It "involves the
comparison and the evaluation of possible courses of conduct and
acting or making a decision after the various possibilities have
been considered." Id.
The current regulations note that the term is often misapplied
to situations involving "the use of skill in applying techniques"
and to "decisions relating to matters of little consequence."
29 C.F.R. § 541.207(b). The regulations caution that "[a]n employee
who merely applies his knowledge in following prescribed
procedures or determining which procedure to follow" is not
exercising discretion and independent judgment "even if there is
some leeway in reaching a conclusion." Id. at § 541.207(c)(1).
In the context of employees that "grade" a certain commodity for
which there are established standards, for example, the
regulations note: Often, after continued reference to the written
standards, or through experience, the employee
acquires sufficient knowledge so that reference to
written standards is unnecessary. The substitution of
the employee's memory for the manual of standards
does not convert the character of the work performed
to work requiring the exercise of discretion and
29 C.F.R. § 541.207(c)(3). Thus, the use of skill in the work
performed or the decision made does not necessarily mean that
"discretion and independent judgment" is being exercised.
The August 2004 Regulations specifically note that "[t]he
exercise of discretion and independent judgment must be more than
the use of skill in applying well-established techniques,
procedures or specific standards described in manuals or other
sources." August 2004 Regs. at 22,263. The new regulations go on
to explain that exempt status is not available for employees who
simply apply these techniques "within closely prescribed limits
to determine the correct response to an inquiry or set of
circumstances." Id. at 22,273.*fn4 Once again, if the employer cannot demonstrate that its employee's duties satisfy
this requirement, then the employee is not exempt and is entitled
to overtime pay.
D. Status of GEICO Auto Damage Adjusters Under the Relevant Test
The regulations promulgated by the Department of Labor to
interpret the FLSA's use of the term "bona fide administrative
capacity" are owed deference by the courts because they contain
the agency's reasonable interpretation of an ambiguous statute.
See Christensen v. Harris County, 529 U.S. 576, 586 (2000)
(Under FLSA, court "must give effect to [the Department of
Labor's] regulation containing a reasonable interpretation of an
ambiguous statute"); see also Mortensen v. County of
Sacramento, 368 F.3d 1082, 1086 (9th Cir. 2004); O'Brien v.
Town of Agawam, 350 F.3d 279, 291 n. 22 (1st Cir. 2003); Vela
v. City of Houston, 276 F.3d 659, 667 (5th Cir. 2001); Ball v.
District of Columbia, 795 F. Supp. 461, 465 (D.D.C. 1992).
The courts to have considered the status of insurance claims
adjusters have analyzed their duties under the regulations
promulgated by the Department of Labor and have ruled that
certain types of insurance claims adjusters are exempt under
the administrative exemption to the FLSA and therefore are not
entitled to overtime pay. See In re Farmers Insurance Exchange
Claims Representatives' Overtime Pay Litigation, 300 F. Supp.2d 1020,
1028 (D.Or. 2003) ("In re Farmers") (certain types of
claims representatives exempt under the FLSA); Palacio v. Progressive Insurance Co., 244 F. Supp.2d 1040,
1045 (C.D. Cal. 2002) (agent exempt where she "assessed
liability, weighed evidence, determined credibility, reviewed
insurance policies, negotiated with attorneys and claimants, and
made recommendations to management based on skills, knowledge and
training acquired over the course of several years.");
Jastremski v. Safeco Insurance Co., 243 F. Supp.2d 743, 745
(N.D. Ohio 2003) (adjuster exempt where he was assigned an
insurance claim, contacted the claimant, reviewed the policy to
determine if the claimed loss was covered, determined the dollar
value of the claim and negotiated a settlement); Munizza v.
State Farm Mutual Automobile Insurance Co., No. C94-5345RJB,
1995 U.S. Dist. LEXIS 22362 (W.D. Wash. 1995) (claims specialist
is exempt employee).
The August 2004 Regulations include "insurance claims adjuster"
as an example of an employee who could meet the requirements for
an administrative exemption from the overtime pay requirements.
The new regulation states:
Insurance claims adjusters generally meet the duties
requirements for the administrative exemption,
whether they work for an insurance company or other
type of company, if their duties include activities
such as interviewing insureds, witnesses and
physicians; inspecting property damage; reviewing
factual information to prepare damage estimates;
evaluating and making recommendations regarding
coverage of claims; determining liabilities and total
value of a claim; negotiating settlements; and making
recommendations regarding litigation.
August 2004 Regs. at 22,263. The new regulations note that this
subsection, like the case law, does not rely on the job title of
"claims adjuster." See id. at 22,144. "Rather, there must be
a case-by-case assessment to determine whether the employee's
duties meet the requirement for exemption." Id. The subsection
"identifies the typical duties of an exempt claims adjuster,"
id., rather than mandating that every claims adjuster is, by
definition, exempt. The Department of Labor cites the decisions
in Jastremski v. Safeco Insurance Co. and Palacio v.
Progressive Insurance Co. as examples of cases in which the
courts have applied these factors to analyze and determine
whether a given claims adjuster is exempt from the overtime pay
requirement. See August 2004 Regs. at 22,144-45.
The GEICO auto damage adjusters inspect property damage,
prepare damage estimates, and negotiate settlements within
certain limits. Although the parties dispute the amount of time
spent negotiating settlements, they agree that the majority of
adjusters' time is spent inspecting vehicles, writing estimates,
and traveling to and from inspection sites. See Con. Stmt.
Facts at 142.*fn5 The auto damage adjusters do not interview
witnesses and physicians, they do not make recommendations
regarding coverage of claims, they do not determine liability and
they do not make recommendations regarding litigation. They
therefore do not perform the majority of the duties included in
the description of "insurance claims adjuster" found in the
August 2004 Regulations and cannot be automatically classified as
The first question under the Department of Labor Regulations
test for determining the applicability of the administrative
exemption is whether GEICO auto damage adjusters are paid on a
salary basis and earn in excess of $250 per week. There is no
dispute between the parties that plaintiffs' salary clearly
satisfies this requirement for exemption. The Court next must determine whether GEICO auto damage
adjusters' primary duties are "directly related to management
policies or general business operations of his employer or his
employer's customers." 29 C.F.R. § 541.2(a), (e). According to
the regulations, in order for an employee to qualify for the
administrative exemption, his primary duty must be "of
substantial importance to the management or operation of the
business." 29 C.F.R. § 541.205(a). This includes "those types of
activities relating to the administrative operations of a
business as distinguished from `production' or, in a retail or
service establishment, `sales' work."
29 C.F.R. § 541.205(a).*fn6 Paraphrasing and referencing
29 C.F.R. § 541.205(a), most courts have agreed that insurance adjusters, including auto
physical damage adjusters, do work that is "of substantial
importance to [the employer's] business operations and management
policies." In re Farmers Insurance Exchange Claims
Representatives' Overtime Pay Litigation, 300 F. Supp.2d at
1048; see also Palacio v. Progressive Insurance Co.,
244 F. Supp.2d at 1048 (agent's primary duties were directly related to
management policies or general business operations); Jastremski
v. Safeco Insurance Co., 243 F. Supp. at 751 (plaintiff's duties
were administrative where he advised management of his findings,
planned how to handle claims and negotiated binding settlements).
Other courts have held that auto damage appraisers perform the
"day-to-day activities of the business" and therefore do not
"administer the business" of the defendant. Reich v. American
International Adjustment Co., 902 F. Supp. at 325. In Reich,
however, the defendant was "in the business of resolving damage
claims." See id. at 325. GEICO is in the business of selling
This Court concludes that the work done by auto damage
adjusters is of substantial importance to GEICO's business
operations and therefore satisfies the second requirement for
exemption under the FLSA. The regulations clarify that
"servicing" a business may include "advising the management,
planning, negotiating, representing the company, purchasing,
promoting sales, and business research and control."
29 C.F.R. § 541.205(a). This activity is not limited to those who formulate
policies, but extends to those "whose responsibility it is to
execute or carry . . . out [the policies]." Id. at §
541.205(c). The auto damage adjusters are not sales staff. They
are engaged in servicing the insurance policies of GEICO
customers and in carrying out the policies formulated by GEICO
with respect to auto damage claims. The Court concludes that the
duties of auto damage adjusters are directly related to GEICO's
management policies and business operations "in that [they] are responsible
to execute or carry out [GEICO's] claims adjusting policies on
behalf of [GEICO] and the policy holders." In re Farmers,
300 F. Supp.2d at 1048. Defendant has also demonstrated that the
work done by the auto damage adjusters is of "substantial
importance" to GEICO in that auto damage claims amount to 60
percent of GEICO's loss payments. See Con. Stmt. Facts at 14.
Defendant thus has satisfied its burden of demonstrating that
plaintiff's salary qualifies him for exemption and that
plaintiff's primary duty is of substantial importance to GEICO's
business operations, fulfilling the first two requirements of the
The final question under the regulations promulgated by the
Department of Labor is whether the primary duty of GEICO auto
damage adjusters includes the exercise of discretion and
independent judgment. See 29 C.F.R. § 541.3(e). A number of
courts have found that claims agents and adjusters may exercise
sufficient discretion and independent judgment to satisfy the
administrative exemption. See Jastremski v. Safeco Insurance
Co., 243 F. Supp.2d at 757 (plaintiff exercised discretion in
deciding how to conduct the claim investigation, including
gathering facts, interviewing witnesses, using field
representatives, and compiling scene diagrams); Palacio v.
Progressive Insurance Co., 244 F. Supp.2d 1040, 1048 (agent
spent over half her time negotiating with claimants and attorneys
and therefore exercised discretion and independent judgment);
Munizza v. State Farm Mutual Automobile Insurance Co., No.
C94-5345RJB, 1995 U.S. Dist. LEXIS 22362 (W.D. Wash. 1995)
(claims specialist employed discretion and independent judgment).
Defendant relies most heavily, however, on the District of
Maryland's decision in Usery v. Government Employees Insurance
Co., No. M-76-111 (D. Md. Feb. 9, 1978) to establish that a court has already ruled that GEICO's auto damage
adjusters exercise sufficient discretion and independent judgment
to be found exempt. See Def. Mot. at 24. The Usery court
Suffice it to say that looking at the evidence as a
whole, it appears to the Court that there is
discretion and the exercise of independent judgment
by the adjuster in, at least, the following areas:
Whether or not parts are to be replaced or repaired.
To some extent, this function involves, as the
Plaintiff suggests, an application of skill; however,
the Court believes that it also involves an
application of judgment together with skill in
reaching the decision. The adjuster, having arrived
at his judgment on a costs to repair or a total loss,
must then negotiate with the claimant or the insured,
as the case may be, with a representative of the
insured or a body shop. That involves the application
of judgment as well in deciding not only the best way
to approach the individual who is on the other side,
but also involves, based on the evidence, compromise,
a decision as to when to compromise and when to hold
firm; and, in this Court's judgment, involves more
than a simple mechanical application of figures
obtained from a manual.
Usery v. Government Employees Insurance Co., No. M-76-111 at 5.
Almost thirty years have passed since the Usery decision, and
GEICO has introduced claim adjustment software in the intervening
years. Although this Court agrees that "[t]he computer does not,
and cannot, exercise discretion and independent judgment for the
adjuster," see Def. Mot. at 29, it cannot be denied that the
auto damage adjusters' duties today involve applying
"well-established techniques, procedures or specific standards
described in manuals or other sources" and that the computer
program aids in compliance with those standards. August 2004
Regs. at 22,263. Regardless of the court's decision in Usery,
this Court is not convinced that a GEICO auto damage adjuster's
current duties demonstrate the exercise of discretion and
independent judgment. In recent cases dealing specifically with auto damage
adjusters, several courts have agreed with this conclusion and
found that, because of the nature of their work, auto damage
adjusters do not exercise sufficient discretion and independent
judgment to be classified as exempt employees. Judge Jones in In
re Farmers explained that:
Certainly [auto physical damage ("APD") claims
representatives ("CR")] use some discretion in
adjusting physical damage claims, but the evidence
established that an APD CR's primary duties require
the use of skill in applying techniques, procedures
and specific standards, not the use of discretion and
independent judgment in matters of consequence.
Significantly, in most cases, a vehicle's VIN number
tells the CR almost everything there is to know about
the vehicle involved. Vehicle damage is finite and
limited to the value of a known entity from standard
sources. Certainly, an APD CR must make choices among
options in adjusting a claim, but with the advent of
[the computer Customer Restoration Network] and the
use of CCC [software], the choices are limited and do
not involve matters of consequence.
In re Farmers, 300 F. Supp. at 1048 (quotations and citations
omitted). Judge Jones found that although the claims
representatives did have to make choices among options in
adjusting a claim, the VIN number was automatically entered into
the system and the choices offered by the software used by the
claims representatives were "limited" and did not involve
"matters of significance." Id. at 1043, 48.*fn7
in Reich agreed. In ruling that auto damage appraisers were not
exempt, it noted that "the use of skill is to be clearly
distinguished from work requiring discretion and independent
judgment." Reich v. American International Adjustment Co., 902 F. Supp. at 324. This Court concludes that the process of estimating
damage claims although requiring the use of knowledge and skill
on the part of the auto damage adjusters does not involve the
exercise of discretion and independent judgment.
The question of negotiating with customers and body shops
presents a slightly more difficult problem. It is clear from the
consolidated statement of material facts that the parties
disagree as to the amount of time auto damage adjusters spend
negotiating. Plaintiff maintains that the percentage of time is
near zero, while defendant maintains, somewhat vaguely, that "a
lot" of time is spent negotiating with repair shops on partial
losses and that there is negotiation on some total losses with
the customers. The parties agree, however, that the majority of
total loss claims involve no negotiation. In both In re Farmers
and Reich, the courts acknowledged that the claims adjusters
were responsible for a certain amount of negotiating, but that
fact did not undermine their conclusions that the auto damage
adjusters and appraisers in question did not exercise discretion
and independent judgment such as would render them exempt
employees. See In re Farmers, 300 F. Supp.2d at 1043 (auto
claims adjusters negotiated on both partial and total losses);
Reich v. American International Adjustment Co., 902 F. Supp. at
324 (appraisers spent 10 to 20 percent of their time negotiating
with repair shops). The court in Reich explained that "[a]ny
discretion the appraisers exercise during negotiations fails to
rise to the level required for [the exemption]" because "they are
guided primarily by their skill and experience and by written
manuals of established labor and material costs." Reich v.
American International Adjustment Co., 902 F. Supp. at
324.*fn8 Regardless of the exact percentage of time GEICO auto damage adjusters spend conducting active negotiations,
those negotiations are so structured by the estimating process
and the GEICO guidelines that the auto damage adjusters'
negotiation duties cannot satisfy the requirement of discretion
and independent judgment.
The Court is not persuaded by Usery and finds the reasoning
of these more recent decisions persuasive. Although some
discretion is certainly exercised by the adjusters, the Court is
satisfied that the vast majority of the adjusters' work consists
of using their training and skills to assess the value of the
damage to the vehicle in accordance with the standards laid out
by GEICO. The adjusters do some negotiating with claimants and
insureds, but that negotiating is limited in scope by both the
information and standards contained in the computer software and
the guidelines and limits on negotiating authority laid out by
GEICO. The Court is satisfied that the primary duties of the auto
damage adjusters "require the use of skill in applying
techniques, procedures and specific standards, not the use of
discretion and independent judgment in matters of consequence."
In re Farmers, 300 F. Supp.2d at 1048. The Court therefore
must conclude that GEICO auto damage adjusters do not exercise
sufficient discretion and independent judgment to qualify for the
administrative exemption and are thus entitled to overtime pay.
Under the three part test established by the Department of
Labor Regulations and applied by the courts, defendant has
satisfied the first two requirements by showing that plaintiff's
salary is sufficiently high to qualify for the administrative
exemption and that plaintiff's primary duty is of substantial
importance to GEICO's business operations. Defendant has failed,
however, to meet the third requirement by demonstrating that
plaintiff's primary duty includes the exercise of discretion and
independent judgment. Because the Court concludes that GEICO auto damage adjusters are not covered by the administrative
exemption of the FLSA, partial summary judgment on the issue of
liability must be granted to plaintiffs.
A Judgment and Order consistent with this Opinion shall issue
this same day.
SO ORDERED. ORDER
For the reasons stated in the Opinion issued this same day, it
ORDERED that plaintiff's motion for partial summary judgment on
the issue of liability  is GRANTED; it is
FURTHER ORDERED that defendant's motion for summary judgment
 is DENIED; it is
FURTHER ORDERED that judgment is entered for plaintiff with
respect to the sole issue of liability; and it is
FURTHER ORDERED that the parties shall submit, on or before
July 30, 2004, a joint report detailing their proposed discovery
schedule on the issue of damages.