582 F.3d 886 (8th Cir. 2009), 08-2626, Rakes v. Life Investors Ins. Co. of America
|Citation:||582 F.3d 886|
|Opinion Judge:||WOLLMAN, Circuit Judge.|
|Party Name:||Robert RAKES, individually, and on behalf of all others similarly situated; Robert Hollander, individually, and on behalf of all others similarly situated, Appellants, v. LIFE INVESTORS INSURANCE COMPANY OF AMERICA, Appellee.|
|Attorney:||Monte L. Rogneby, argued, Bismark, ND, Thomas Q. Purdon and Carey Ann Goetz, Bismark, ND, Brad J. Brady and Matthew L. Preston, Cedar Rapids, IA, Allan Kanner and Conlee S. Whiteley, New Orleans, LA, and Perry Peace Benton, Orange Beach, AL, on the brief, for appellant. Reid L. Ashinoff, argued, ...|
|Judge Panel:||Before WOLLMAN, RILEY, and COLLOTON, Circuit Judges.|
|Case Date:||September 18, 2009|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
Submitted: March 12, 2009.
Robert Rakes and Robert Hollander (plaintiffs), the named plaintiffs in a purported class action lawsuit against Life Investors Insurance Company of America (Life Investors), appeal from the district court's 1 order denying their motion for a continuance under Federal Rule of Civil Procedure 56(f) and granting summary judgment in favor of Life Investors on their claims of fraud and tortious breach of the implied covenant of good faith and fair dealing (bad faith). We affirm.
Rakes and Hollander purchased long term care (LTC) insurance from Life Investors. Their policies were guaranteed renewable for life, and Life Investors reserved the right to change their premiums based on premium class. After their premiums were raised, Rakes and Hollander filed a class action complaint, alleging that Life Investors used inflated lapse rates 2 to purposefully underprice its LTC insurance products and gain market share.
A. Overview of LTC Insurance
LTC insurance provides payment towards the cost of services like nursing home care, assisted living care, and home care. To receive benefits, the policyholder must meet a benefit trigger, such as requiring assistance in two activities of daily living (e.g., bathing, eating, dressing). LTC insurance policies are usually purchased long before the policyholder will require services, when the policyholder is younger and the insurance premiums are lower.
LTC insurance is a relatively new product. It has been available since the mid 1970s and experienced substantial growth in the 1990s. In 2003, the Kaiser Foundation published the report, " Regulation of Private Long-Term Care Insurance: Implementation Experience and Key Issues." 3 The report described the pricing of LTC policies as " subject to considerable uncertainty," and it listed a number of variables-including lapse rates-that affect the reliability of premium calculations. Appellants' Appendix (App.) 296. " As a result [of the variables], two insurers pricing the same policy can come up with very different rates. One using very optimistic assumptions might charge half as much as a more conservative insurer, with the risk of needing rate increases later on." Id.
States regulate LTC insurance, and most states do not allow insurers to raise a policyholder's premium on an individual basis. State regulators might approve a rate increase applicable to an entire class of policyholders, however, if an insurer is
able to show that more revenue is needed to cover current or future costs. When LTC insurance was first introduced, state regulators tended to treat it like health insurance and focused on the affordability of the premiums. According to the Kaiser Report, " [t]here was no examination to assure that premiums were not too low; on the contrary, insurers were discouraged from including any margin for error." Id. The report further remarked that " [s]ome less scrupulous insurers" deliberately set " unrealistically low initial premiums to gain market share, knowing that they might have to raise rates later on." Id. Rakes and Hollander argue that Life Investors falls into this " less scrupulous" category.
LTC insurance rate hikes have sparked class action litigation across the country, with mixed results. E.g., Alvarez v. Ins. Co. of N. Am., No. 06-4326, 2006 WL 3702641 (E.D.Pa. Dec. 12, 2006) (unpublished) (granting defendant life insurance company's motion to dismiss for failure to state a claim on which relief can be granted), aff'd 313 Fed.Appx. 465 (3d Cir.2008) (unpublished); Hanson v. Acceleration Life Ins. Co., No. CIV A3-97-152, 1999 WL 33283345 (D.N.D. Mar.16, 1999) (unpublished) (certifying class action and denying defendant insurance company's motion for judgment on the pleadings), 2000 WL 33340298 (D.N.D. June 21, 2000) (unpublished) (memorandum and final order on approval of settlement); Rose v. United Equitable Ins. Co., 632 N.W.2d 429 (N.D.2001) (reversing grant of defendant insurance company's motion for summary judgment), 651 N.W.2d 683 (N.D.2002) (affirming class certification). The plaintiff in Hanson v. Acceleration Life Insurance Co. experienced a rate increase of more than four hundred percent over nine years. He testified in a hearing before the Senate Special Committee on Aging, and cases like his caused the National Association of Insurance Commissioners to change their model regulations.
B. Factual Background
1. Life Investors
Janet Soppe, Life Investors's LTC division president throughout the 1990s, testified that Life Investors intended that the policies at issue would be level premium policies; that is, the premium would remain the same throughout the life of the policy. Robert Darnell, the actuary who priced the policies that Rakes and Hollander purchased, testified repeatedly that there was no intention to raise premiums and that " there was never discussion of any plan to increase the Life Investors long-term care insurance premium rates." Supplemental Appendix (S.A.) 721. Darnell was confident that all of Life Investors's policies were appropriately priced, and when asked whether Life Investors planned to require policyholders to bear some of the risk of inadequate pricing due to higher than expected claims costs, Darnell responded:
There was no plan for it because the plan was based on the claims cost that we priced in there. We expected our claims cost to be adequate.
Now then if they were not adequate then there's different ways of looking at it. And if there would have been a rate increase then-then the rate increase going forward would take care of it. But there was no plan at all for ever having a rate increase throughout the 90's.
The policies at issue were priced in the 1990s with the actuarial assumption that the projected lapse rate would be a certain percentage in the first policy year and a different, lower percentage thereafter.
The actual lapse rate, however, was lower than expected. Soppe explained that " in the early nineties, mid nineties, there was no discussion in the industry about the concern about lapse rates getting too low" and that lapse rates did not become an issue until the late 1990s or early 2000s. S.A. 2599, 2602. Ross Bagshaw, the president of the LTC division, joined Life Investors in 2000. He analyzed data and reports related to the insurance products at issue, determining that the " lapse assumptions in the pricing and in the reserving were too high." App. 570. Under Bagshaw's direction, the company instituted rate hikes and informed its policyholders that further premium increases were likely.
2. The Named Plaintiffs
Rakes purchased an LTC insurance policy from Life Investors in 1994. Before purchasing the policy, an insurance agent met with Rakes at his home in McLean, Virginia, two or three times. The first page of his policy...
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