Rose v. United Equitable Ins. Co., No. 20020094

• Decision Date: 03 September 2002
• Docket Number: No. 20020094, No. 20020095.
• Citation: 2002 ND 148,651 N.W.2d 683
• Parties: Frank ROSE, individually and on behalf of all others similarly situated, Plaintiff and Appellee, v. UNITED EQUITABLE INSURANCE COMPANY, United Equitable Life Insurance Company, Defendants, and Standard Life and Accident Insurance Company, Defendant and Appellant. Frank Rose, individually and on behalf of all others similarly situated, Plaintiff and Appellee, v. United Equitable Insurance Company, Defendant and Appellant, United Equitable Life Insurance Company, and Standard Life and Accident Insurance Company, Defendants.
• Court: North Dakota Supreme Court

651 N.W.2d 683

2002 ND 148

Frank ROSE, individually and on behalf of all others similarly situated, Plaintiff and Appellee, v. UNITED EQUITABLE INSURANCE COMPANY, United Equitable Life Insurance Company, Defendants, and Standard Life and Accident Insurance Company, Defendant and Appellant.

Frank Rose, individually and on behalf of all others similarly situated, Plaintiff and Appellee, v. United Equitable Insurance Company, Defendant and Appellant, United Equitable Life Insurance Company, and Standard Life and Accident Insurance Company, Defendants.

Nos. 20020094, 20020095.

Supreme Court of North Dakota.

September 3, 2002.

Monte L. Rogneby (argued) and H. Patrick Weir (on brief), Vogel Law Firm, Bismarck, ND, and Timothy Q. Purdon (appeared) and Thomas A. Dickson (on brief), Dickson & Purdon, Bismarck, ND, for plaintiff and appellee.

Michael F. Braun (argued), Schuyler Roche & Zwirner, Chicago, IL, and Lawrence A. Dopson (appeared), Zuger Kirmis & Smith, Bismarck, ND, for defendant and appellant United Equitable Insurance Company.

Stephen W. Plambeck (argued) and Daniel J. Crothers (appeared), Nilles, Hansen & Davies, Ltd., Fargo, ND, and Scott Daniel (on brief), Greer, Herz & Adams, L.L.P., Galveston, TX, for defendant and appellant Standard Life and Accident Insurance Company.

MARING, Justice.

[¶ 1] United Equitable Insurance Company ("United Equitable") and Standard Life and Accident Insurance Company ("Standard") appealed from an order certifying a class action under N.D.R.Civ.P. 23. We affirm, concluding the district court did not abuse its discretion in certifying the class action.

I

[¶ 2] In 1982, Frank Rose purchased a guaranteed renewable nursing home insurance policy from United Equitable. United Equitable Life Insurance Company ("United Life"), the parent company of United Equitable, sold identical nursing home policies in North Dakota. In 1986, Standard acquired all of the nursing home insurance policies which United Equitable and United Life had issued in North Dakota. After that date none of the three companies issued similar nursing home policies in North Dakota, a practice known as "closing the block" of business for those North Dakota policyholders.

[¶ 3] In 2000, Rose sued United Equitable, Standard, and United Life, on his own behalf and for others similarly situated, alleging constructive fraud, actual fraud, consumer fraud, false advertising, and negligent misrepresentation. Rose alleges the insurers knew at the time the policies were issued that they were improperly underwritten and defectively underpriced. Rose claims the insurers intentionally marketed the policies with knowledge that exorbitant increases in renewal premiums would be necessary in future years of the policies. Rose further claims the insurers misrepresented the reasons for the numerous premium increases, intending these increases to induce policyholders to drop their coverage, and never advised policyholders they had "closed the block" on the nursing home policies. Rose claims the combination of higher premiums and a shrinking pool of insureds to share increased costs of claims resulted in a "death spiral" or "selection spiral," with premiums increasing so dramatically that the remaining policyholders are unable to pay and are forced to relinquish their policies.¹

[¶ 4] In November 2000, the district court granted the insurers' motion to dismiss the complaint, concluding Rose's claims were barred by the statute of limitations. Rose appealed, and we reversed and remanded for further proceedings. Rose v. United Equitable Ins.Co., 2001 ND 154, 632 N.W.2d 429. On remand, the district court granted class certification, including within the class all policyholders who had purchased certain nursing home policies in North Dakota from the insurers. United Equitable and Standard have appealed,² alleging the district court abused its discretion in granting class certification.

II

[¶ 5] An order certifying a class action under N.D.R.Civ.P. 23 is appealable. Ritter, Laber & Assocs., Inc. v. Koch Oil, Inc., 2000 ND 15, ¶ 3, 605 N.W.2d 153 ("Ritter I"); Werlinger v. Champion Healthcare Corp., 1999 ND 173, ¶ 6, 598 N.W.2d 820. The trial court has broad discretion in determining whether to certify a class action under N.D.R.Civ.P. 23. Klagues v. Maintenance Eng'g, 2002 ND 59, ¶ 6, 643 N.W.2d 45; Ritter I, at ¶ 4. The trial court's decision to certify a class action will not be overturned on appeal unless the court has abused its discretion. Klagues, at ¶ 6; Ritter I, at ¶ 4. A trial court abuses its discretion only when it acts in an unreasonable, arbitrary, or unconscionable manner, when its decision is not the product of a rational mental process leading to a reasoned decision, or when it misinterprets or misapplies the law. Klagues, at ¶ 6; Ritter I, at ¶ 4.

[¶ 6] We have traditionally construed N.D.R.Civ.P. 23 to provide an open and receptive attitude toward class actions. Ritter, Laber & Assocs., Inc. v. Koch Oil, Inc., 2001 ND 56, ¶ 5, 623 N.W.2d 424 ("Ritter II"); Ritter I, 2000 ND 15, ¶ 3, 605 N.W.2d 153; Werlinger, 1999 ND 173, ¶ 7, 598 N.W.2d 820. In reviewing an order granting certification, we are guided by the broad and liberal public policy in favor of class actions in this state:

Decisions as to whether class action status should be allowed seem to rest, more than many other judicial determinations, on judicial philosophy, rather than on precedent or statutory language....

We will interpret Rule 23 so as to provide an open and receptive attitude toward class actions.

We believe that Rule 23 is a remedial rule which "continues to have as its objectives the efficient resolution of the claims or liabilities of many individuals in a single action, the elimination of repetitious litigation and possibly inconsistent adjudications involving common questions, related events, or requests for similar relief, and the establishment of an effective procedure for those whose economic position is such that it is unrealistic to expect them to seek to vindicate their rights in separate lawsuits." Wright & Miller, Federal Practice and Procedure: Civil § 1754.

Peterson v. Dougherty Dawkins, Inc., 1998 ND 159, ¶ 10, 583 N.W.2d 626 (quoting Rogelstad v. Farmers Union Grain Terminal Ass'n, 226 N.W.2d 370, 376 (N.D. 1975)).

[¶ 7] A trial court may certify a class action under N.D.R.Civ.P. 23 if the following four requirements are satisfied:

1. The class is so numerous or so constituted that joinder of all members, whether or not otherwise required or permitted, is impracticable;

2. There is a question of law or fact common to the class;

3. A class action should be permitted for the fair and efficient adjudication of the controversy; and

4. The representative parties fairly and adequately will protect the interests of the class.

Klagues, 2002 ND 59, ¶ 7, 643 N.W.2d 45; see also Ritter II, 2001 ND 56, ¶ 6,

623 N.W.2d 424; Ritter I, 2000 ND 15, ¶ 5,

605 N.W.2d 153; Peterson, 1998 ND 159, ¶ 11,

583 N.W.2d 626.

[¶ 8] There is no real dispute that factors (1) and (2) are satisfied in this case. The class consists of some 8,000 policyholders who purchased nursing home policies from the insurers in North Dakota, so joinder of all parties would be impracticable. The claims all relate to alleged fraudulent underwriting of the policies and fraudulent misrepresentations to policyholders in uniform written communications from the insurers. There are clearly questions of law and fact common to the class. The dispute in this case focuses upon factors (3) and (4): the insurers argue the trial court abused its discretion in determining that a class action will provide a fair and efficient adjudication and in concluding that Rose can adequately represent the class.

III

[¶ 9] Rule 23(c)(1), N.D.R.Civ. P., lists thirteen factors for the trial court to consider in determining whether a class action will provide a fair and efficient adjudication of the controversy. Klagues, 2002 ND 59, ¶ 8, 643 N.W.2d 45; Ritter I, 2000 ND 15, ¶ 10, 605 N.W.2d 153. The trial court must weigh the competing factors, and no one factor predominates over the others. Klagues, at ¶ 8; Ritter I, at ¶ 10. The court need not specifically address all thirteen factors. Werlinger, 1999 ND 173, ¶ 56, 598 N.W.2d 820; Peterson, 1998 ND 159, ¶ 14, 583 N.W.2d 626. As we noted in Peterson, at ¶ 15:

In most cases some of the thirteen factors will weigh against certification and some will weigh in favor. It is for the trial court, employing its broad discretion, to weigh the competing factors and determine whether a class action will provide a fair and efficient adjudication of the controversy. Thus, even if Dougherty is correct in its assertion four of the factors weigh against certification, that does not preclude the court from certifying the class action if, in its opinion, those factors are outweighed by other factors supporting certification.

A

[¶ 10] The insurers contend the trial court erred by "mechanically" determining that a majority of the thirteen factors favored class certification. The insurers argue that the court applied a purely mathematical calculation and did not understand that it could give some factors more weight than others: Unfortunately, the court below misapplied this test and instead of weighing the various factors to determine whether on balance they favored or disfavored class certification, the court simply added up the number of factors that it concluded favored class certification and determined that more factors favored class certification than disfavored class certification. As a consequence, the court's Order simply notes "a majority of the thirteen factors weigh in favor of certification." In reaching this result, the court appears to have eliminated completely the essential judicial function of weighing the factors. Instead, the court applied an erroneous, mechanical, mathematical test of whether 7 or more of the 13 factors favor class...