824 A.2d 1249 (R.I. 2003), 2001-241, Zarrella v. Minnesota Mut. Life Ins. Co.

Docket Nº2001-241-Appeal.
Citation824 A.2d 1249
Opinion JudgeWILLIAMS, Chief Justice.
AttorneyDavid A. Wollin, Providence, for Plaintiff., Michael P. DeFanti, Providence, James F. Jordan, for Defendant., Present: WILLIAMS, C.J., GOLDBERG, J., and WEISBERGER, C.J. (Ret.). David A. Wollin, Providence, for Plaintiff. Michael P. DeFanti, Providence, James F. Jordan, for Defendant.
Judge PanelPresent: WILLIAMS, C.J., GOLDBERG, J., and WEISBERGER, C.J. (Ret.).
Case DateMay 13, 2003
CourtSupreme Court of Rhode Island

Page 1249

824 A.2d 1249 (R.I. 2003)

Ann ZARRELLA et al.



No. 2001-241-Appeal.

Supreme Court of Rhode Island

May 13, 2003.

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David A. Wollin, Providence, for Plaintiff.

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Michael P. DeFanti, Providence, James F. Jordan, for Defendant.

Present: WILLIAMS, C.J., GOLDBERG, J., and WEISBERGER, C.J. (Ret.).


WILLIAMS, Chief Justice.

The plaintiff-insured Ann Zarrella (plaintiff) 1 and the defendant-insurer Minnesota Mutual Life Insurance Company (Minnesota Mutual or defendant) have been engaged in a lengthy dispute over the proper surrender value of the plaintiff's life insurance policy. 2 Specifically, the plaintiff appeals from: (1) the Superior Court hearing justice's refusal to certify her case as a class action, and (2) the trial justice's decision to dismiss most of her claims pursuant to Rule 50 of the Superior Court Rules of Civil Procedure judgment as a matter of law. 3 Minnesota Mutual cross-appeals from the jury verdict on negligent misrepresentation and the trial justice's denial of its motion to dismiss for lack of subject matter jurisdiction. The pertinent facts are as follows.


Facts and Travel

In 1986, plaintiff purchased a life insurance policy from Minnesota Mutual on behalf of her husband (Arthur), which named herself as the beneficiary. In 1990, plaintiff purchased a second policy from Minnesota Mutual for herself with Arthur as the named beneficiary. The policies are Adjustable III Life Insurance policies that have (1) flexible death benefits and annual premiums, 4 and (2) a feature that enables the insured to use the policy as an investment tool to accumulate cash value. The policies stated that if market conditions yield an interest rate greater than 4 percent and Minnesota Mutual's mortality cost is lower than the projection of the 1980 Commissioners Standard Ordinary (CSO) actuarial table, 5 Minnesota Mutual may award the policy holder an annual dividend reflecting the market interest rate at the time the insured paid the annual premium. Minnesota Mutual marketed this potential dividend as an award of Ultimate Interest. Minnesota Mutual's policies stated that any annual dividend would be paid to the insured on the policy purchase anniversary date.

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In 1994, plaintiff replaced her insurance agent, Robert Veasey (Veasey) with Joseph Caramadre (Caramadre). Caramadre is an attorney, a certified public accountant and a certified financial planner. He is also a law school friend of her son Paul, who recommended Caramadre to his mother. In 1994, Caramadre asked plaintiff to obtain an in-force illustration 6 from Minnesota Mutual on the policies that she had purchased from Veasey. The plaintiff requested the illustration, and in October 1994, Minnesota Mutual advised her that on December 10, 1994, the cash value of Arthur's policy would be $17,293, subject to an interest-accruing loan in the amount of $691. This figure reflected an annual dividend of $4,362 for 1994. Additionally, the illustration stated that on December 10, 1995, the policy would be worth $20,486, reflecting a predicted annual dividend of $4,861.

Minnesota Mutual sent plaintiff an annual policy review 7 on December 10, 1994. The statement showed that the cash value of Aurthur's policy was $17,353, based upon an actual dividend of $4,421 for 1994. The plaintiff later paid the $691 loan and requested a current policy information statement to confirm the payment. Minnesota Mutual sent the requested statement on February 22, 1995. According to the statement, plaintiff had satisfied the debt and the new adjusted cash value of the policy was $17,766.

In May 1995, upon Caramadre's suggestion, plaintiff decided to replace her Minnesota Mutual policies with policies that Caramadre sold. She chose to replace Arthur's policy with one from Southland Life Insurance Company (Southland) and to replace her policy with one from The Mutual Group (TMG). Caramadre submitted the required paperwork to TMG and Southland. 8

After receiving notice that plaintiff wanted to switch policies, Minnesota Mutual sent plaintiff the following statement:

"So what have you got to lose by giving up your current policy? The answer may be a good deal of money and the security of knowing your policy is backed by a company with impeccable financial strength. Please read the enclosed pamphlet and make an educated comparison before you act. If you have

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any questions, please contact Robert Veasey * * *."

Veasey also attempted to dissuade plaintiff and Caramadre from switching policies, but his efforts were for naught. Acting on Caramadre's advice, plaintiff chose to replace both Minnesota Mutual policies.

On September 9, 1995, Minnesota Mutual sent $16,933 to Southland as payment of the full surrender value of Arthur's policy and advised plaintiff that the exchange had been finalized. When plaintiff received the statement, Caramadre realized that the figure was lower than he expected. By his calculation, plaintiff should have received between $17,293 and $20,486 according to the 1994 and 1995 illustrations. Caramadre sent a letter to Minnesota Mutual demanding an explanation for the lower surrender value. In response, Minnesota Mutual reiterated the terms of the policy contract and stated that dividends are paid, if at all, only on the policy anniversary date. Because plaintiff terminated the policy in August 1995, she was not entitled to the dividend that would have been credited on December 10, 1995, the policy anniversary date. On May 24, 1996, plaintiff and her husband filed suit against Minnesota Mutual to recover the difference between the expected surrender value and the actual surrender value.

In the complaint, plaintiff included counts for breach of contract, negligent misrepresentation and breach of the implied warranty of good faith and fair dealing. The plaintiff asserted that Minnesota Mutual did not disclose that the total cash value of the policies are contingent on the annual dividend, nor did it disclose that if the policy is surrendered between anniversary dates, the insured will not receive a pro rata share of the annual dividend.

Minnesota Mutual filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Superior Court Rules of Civil Procedure. The defendant contended that plaintiff's complaint did not satisfy the $5,000 jurisdictional requirement in G.L.1956 § 8-2-14 because the maximum difference between the expected surrender value and actual surrender value was only $3,500. The plaintiff amended her complaint to include claims for equitable estoppel and fraudulent misrepresentation and asked for a declaratory judgment. The defendant filed a second motion to dismiss pursuant to Rule 12(b)(1). The plaintiff, in response, contended that the potential punitive damages exceeded $5,000. The hearing justice agreed with plaintiff, but ordered her to amend the complaint with greater specificity, which she later did. After Minnesota Mutual answered the second-amended complaint, plaintiff filed a third-amended complaint to add claims for bad faith by refusing to settle, violations of the Racketeer Influence and Corrupt Organizations Act (RICO) and civil liability under G.L.1956 § 9-1-2.

In August 1998, plaintiff moved to certify the case as a class action pursuant to Rule 23 of the Superior Court rules of Civil Procedure. She alleged that the affected class consisted of herself and all persons who purchased an Adjustable III Life Insurance Policy from defendant between 1984 and 1997, and those who had surrendered the policy before the policy's anniversary date for a loss of expected value. The hearing justice denied the motion and plaintiff immediately appealed the ruling to this Court by a writ of certiorari. We denied the writ, and the case proceeded to trial. After discovery, defendant moved for summary judgment, arguing that (1) plaintiff could not succeed on her misrepresentation claim because it was based on a contradiction of a term contained in the integrated insurance contract, and (2) the parol evidence rule prohibits extrinsic evidence that contradicts the terms of a completely integrated contract.

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Minnesota Mutual's motion was denied.

Before trial, defendant filed motions in limine to determine the admissibility of several key pieces of evidence. First, the trial justice declined to rule on the admissibility of a letter from Minnesota Mutual Senior Vice President Richard Lee (Lee) that indicated he had paid pro rata dividends to a policyholder who had surrendered an Adjustable III policy intra-anniversary. Instead, the trial justice reserved judgment until the trial reached the bad-faith claims. Second, the trial justice decided that evidence of the Ultimate Interest method was admissible. The trial justice decided that an instruction guide that clarified the cash value of Adjustable III policies was admissible because it was relevant to the fraudulent and negligent misrepresentation claims. Third, the trial justice determined that an instruction guide on calculating cash value, which defendant issued after this litigation, was not a subsequent remedial measure. The trial justice also ruled, sua sponte, that the contract between plaintiff and Minnesota Mutual was unambiguous. Finally, the trial justice granted defendant's motion to bifurcate the contract and tort claims from the remaining issues. Thus, the jury would proceed to the second phase only if it found that defendant had acted fraudulently.

At the close of plaintiff's case, defendant moved for judgment as a matter of law on all counts. The trial justice granted defendant's motion as it applied to plaintiff's breach of contract and estoppel claims. At the close of all evidence, the...

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