Advance Trust & Life Escrow Servs. v. N. Am. Co. for Life & Health Ins.

• Decision Date: 22 March 2022
• Docket Number: Case No. 4:18-cv-00368-SMR-HCA
• Citation: 592 F.Supp.3d 790
• Parties: ADVANCE TRUST & LIFE ESCROW SERVICES, LTA, as securities intermediary for Life Partners Position Holder Trust, on behalf of itself and all others similarly situated, Plaintiff, v. NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE, Defendant.
• Court: U.S. District Court — Southern District of Iowa

592 F.Supp.3d 790

ADVANCE TRUST & LIFE ESCROW SERVICES, LTA, as securities intermediary for Life Partners Position Holder Trust, on behalf of itself and all others similarly situated, Plaintiff,

v.NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE, Defendant.

Case No. 4:18-cv-00368-SMR-HCA

United States District Court, S.D. Iowa, Central Division.

Signed March 22, 2022

R. Ronald Pogge, Robin G. Maxon, Hopkins & Huebner PC, Des Moines, IA, Glenn C. Bridgman, Pro Hac Vice, Krysta Kauble Pachman, Pro Hac Vice, Lora J. Krsulich, Pro Hac Vice, Nicholas N. Spear, Pro Hac Vice, Steven G. Sklaver, Pro Hac Vice, Susman Godfrey LLP, Los Angeles, CA, Ryan C. Kirkpatrick, Pro Hac Vice, Seth Ard, Pro Hac Vice, Susman Godfrey LLP, New York, NY, for Plaintiff Advance Trust & Life Escrow Services, LTA.

Michael A. Dee, Brown Winick Graves Gross and Baskerville P.L.C., Des Moines, IA, Andrew G. Phillips, Pro Hac Vice, Andrew J. Tuck, Pro Hac Vice, Max Paul Marks, Pro Hac Vice, Alston & Bird LLP, Atlanta, GA, Rachel Adi Naor, Pro Hac Vice, Thomas A. Evans, Pro Hac Vice, Alston & Bird LLP, San Francisco, CA, Samuel J. Park, Pro Hac Vice, Alston & Bird LLP, Los Angeles, CA, William H. Higgins, Pro Hac Vice, Alston & Bird LLP, Charlotte, NC, for Defendant.

ORDER ON MOTIONS

STEPHANIE M. ROSE, CHIEF JUDGE

Before the Court are several motions: (1) Plaintiff's Motion for Class Certification, [ECF No. 92]; (2) Defendant's Motion to Exclude the declaration of Plaintiff's expert, Howard Zail, [ECF No. 117]; (3) Defendant's Motion to Exclude the declaration of Plaintiff's expert, Robert Mills, [ECF No. 119]; and (4) Plaintiff's Motion to Strike Four New Witnesses, [ECF No. 128]. Defendant requested oral argument on the Motions, but the Court finds they can be resolved without it. See LR 7(c).

I. BACKGROUND¹

This case involves the calculation of monthly deductions from two universal life ("UL") insurance products² ("Class Policies") issued by Defendant North American Company for Life and Health Insurance ("North American" or "Defendant"). [ECF No. 93 at 7] (sealed). Plaintiff Advance Trust & Life Escrow Services, LTA, ("Advance Trust" or "Plaintiff") owns a universal life insurance policy ("Representative Policy") that was issued in Florida by North American. Advance Trust is suing in its capacity as securities intermediary for Life Partners Position Holder Trust.³

Universal life insurance is a type of permanent life insurance. Contrasted with standard term life insurance, the Class Policies combine a death benefit with an investment, savings, or interest-bearing component ("Savings Component"). Typically, life insurance policies such as the Class Policies deposit premium payments into the Savings Component and the insurer will deduct policy-authorized monthly charges. The Class Policies are flexible-premium policies, meaning there is no fixed monthly premium the insured must pay to keep their policy active, aside from the specified monthly charges. If the funds in the policy account are insufficient to pay these monthly charges, the policy will go into grace and lapse after the grace period expires.

Among these charges, and the one at issue in this case, is the Cost of Insurance ("COI"). The COI is known in the insurance industry by the term "mortality charge." [ECF No. 29 ¶ 3]. COI charges serve to compensate the insurer for the risk that an insured will die in a particular policy year. Once calculated, the COI charge is deducted from the policy account at the beginning of each month. The formula for calculating the COI is described in the policy:

COST OF INSURANCE . The cost of insurance for the Insured is determined on a monthly basis. Such cost is calculated as (1) times (2), where:

(1) is the cost of insurance rate as described in the Cost of Insurance Rates section.

(2) is the net amount at risk, as defined in the Changing Death Benefit Options provision.

[ECF No. 94-12 at 10–11] (sealed).⁴ The provision addressing the considerations for calculation of the COI provides:

COST OF INSURANCE RATES: The monthly cost of insurance rate is based on the sex, attained age, and rating class of the Insured. Policy duration is also a factor in determining the monthly cost of insurance rates ... Monthly cost of insurance rates are determined by us, based on our expectations as to future mortality experience. Any change in cost of insurance rates applies to all individuals of the same class as the Insured. Under no circumstances are cost of insurance rates for insureds in that standard risk class greater than those shown in the Table of Guaranteed Maximum Insurance Rates.

Id.

Plaintiff's claim is that North American breached the terms of the policies by failing to reduce the COI rates over the span of three decades, despite an improvement in the mortality rate during that same time period, even though the policies provide that COI charges are "calculated using a rate based on expectations as to future mortality."⁵ ("EFME") [ECF No. 29 ¶¶ 24–38].

Plaintiff brings one count for breach of contract based on two theories of breach. The first theory asserts that North American violated the policy terms by considering more than just its EFME in setting the COI rates ("Consideration Theory").⁶ The second theory is that because COI rates are "based on" North American's EFME, the rates "must be adjusted downward if those expectations improve following any monthly or annual review." Id. ¶ 21 ("Improvement Theory"). After an extended discovery period, Plaintiff filed this Motion for Class Certification, which Defendant resists. Both parties also filed motions seeking to strike or exclude witnesses.

II. ANALYSIS

A. Preliminary Matters–Motions to Exclude and Motion to Strike

Before turning to the class certification issue, there are several motions that need to be addressed. After Plaintiff filed its Motion for Class Certification, the parties each filed motions seeking to exclude witnesses. Defendant asks for the exclusion of the expert declarations of Howard Zail and Robert Mills. Plaintiff in turn requests that the Court strike the declarations of four insurance agents offered by Defendant. [ECF No. 128].

1. Plaintiff's Motion to Strike

First, the Court will take up Plaintiff's Motion to Strike. [ECF No. 128]. Citing to the parties’ obligations under Federal Rule of Civil Procedure 26, Plaintiff argues that Defendant failed to disclose discoverable information—four declarations filed in support of Defendant's Resistance to Class Certification—which prejudiced its case by preventing it from developing evidence and harming its ability to properly brief its Motion for Class Certification. Defendant responds that the declarations were a direct response to a new theory of breach, disclosed by Plaintiff for the first time at the class certification stage, so the late disclosure was substantially justified or, at a minimum, harmless and unprejudicial to Plaintiff's case. Additionally, Defendant argues that Plaintiff did not attempt to cure its prejudice, instead waiting around to file a motion to strike requesting the "drastic sanction" of excluding the witnesses altogether.

Rule 26 obligates all parties "without awaiting a discovery request, provide to the other parties ... the name and, if known address and telephone number of each individual likely to have discoverable information ... that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment." Fed. R. Civ. P. 26(a)(1)(A)(i). After a disclosure has been made pursuant to Rule 26(a), a party "must supplement its disclosure or response" if it learns that the disclosure is incomplete or incorrect and the other party has not been informed of the deficiency. Fed. R. Civ. P. 26(e). If a party does not comply with its Rule 26(a) disclosure obligations, "the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed. R. Civ. P. 37(e).

The witnesses at issue are four insurance agents who attest they have sold North American Classic Term UL policies to policyholders. [ECF Nos. 116-32–116-34; 116-55] (sealed). In its Motion, Plaintiff claims that it expressly questioned North American's corporate representative, Jeremy Bill, about whether he had knowledge relating to communications from North American or its agents to policyholders regarding the terms of these policies. Plaintiff asserts that it specifically asked about agent communications because counsel for North American had previously used agent declarations to oppose class certification in a prior case before this Court. [ECF No. 129 at 6] (citing Taylor , 2019 WL 7500238, at *2, *11 ). Bill denied any knowledge about such communications. During initial disclosures, Defendant did not list any of the four insurance agents as witnesses. [ECF No. 130] (Spear Decl.) (sealed). After two years and several deadline extensions, discovery on class certification closed on March 4, 2021. Chief United States Magistrate Judge Helen C. Adams granted a final extension on May 24, 2021 to extend the deadline to file a class certification motion but explicitly told the parties that she would "not grant either party any further extensions and each party and its counsel should govern themselves accordingly to meet these deadlines ." [ECF No. 96 at 2] (emphasis in original).

Plaintiff says that it averred in its Motion for Class Certification that Defendant had not produced any individualized evidence about contract interpretation, which it based on Defendant not disclosing the identity of any witnesses, as well as Bill's testimony that he had no information about agent communications with policyholders. Defendant then filed the declarations in support of its Resistance to Class Certification, revealing the witnesses for the first time. Plaintiff now moves to exclude.

In response to Plaintiff's Motion to Strike and its...