Azar v. Prudential Ins. Co. of America

• Decision Date: 17 January 2003
• Docket Number: No. 22,133.,22,133.
• Parties: Jemil D. AZAR, Ronald J. Solimon, and Re/Max Advantage, Ltd., a New Mexico limited partnership, for themselves and all others similarly situated, Plaintiffs-Appellees, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

68 P.3d 909

133 N.M. 669

2003 NMCA 62

Jemil D. AZAR, Ronald J. Solimon, and Re/Max Advantage, Ltd., a New Mexico limited partnership, for themselves and all others similarly situated, Plaintiffs-Appellees, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.

No. 22,133.

Court of Appeals of New Mexico.

January 17, 2003.

Certiorari Denied March 4, 2003.

Paul Bardacke, John M. Eaves, Peters S. Kierst, Kerry Kiernan, Karen S. Mendenhall, Eaves, Bardacke, Baugh, Kierst & Kiernan, P.A., Dennis M. McCary, Floyd D. Wilson, Alan R. Wilson, Barbara Pryor, McCary, Wilson & Pryor Alan K. Konrad, Law Offices of Alan Konrad, Albuquerque, NM, for Appellees.

Edward Ricco, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, Edward M. Rosenfeld, Bryan Cave LLP, Santa Monica, CA, for Appellant.

Victoria E. Fimea, American Council of Life Insurers, Washington, DC, George Ruhlen, Mayer, Brown & Platt, Santa Fe, NM, Evan M. Tager, Craig W. Canetti, David M. Gossett, Mayer, Brown & Platt Washington, DC, for Amicus Curiae American Council of Life Insurers.

Certiorari Denied, No. 27,910, March 4, 2003.

OPINION

FRY, Judge.

{1} This case is one of approximately twenty putative class actions in New Mexico in which life insurance policyholders allege that insurers have failed to adequately disclose to policyholders the additional cost of paying their premiums in installments—also called "modal" or "fractional" premiums — instead of once annually. In particular, policyholders claim that insurers have a duty to disclose, both before the policy is issued and in the policy itself, the following information: (1) the dollar amount difference between paying premiums annually and in monthly, quarterly, or semi-annual installments, and (2) the effective "annual percentage rate" of interest (APR) allegedly charged to policyholders electing to pay their premiums more frequently than annually.

{2} In this case, Defendant Prudential Insurance Company of America (Prudential) applied for interlocutory appeal from the trial court's order (1) denying Prudential's motion for summary judgment on the issue of whether it owed a duty of disclosure to Plaintiffs; (2) denying Prudential's motion to refer underlying issues of fact to the "primary jurisdiction" of the Insurance Division of the New Mexico Public Regulation Commission (Insurance Division); and (3) granting partial summary judgment in favor of Plaintiffs on the issue of liability as to their claims under the New Mexico Unfair Practices Act, NMSA 1978, §§ 57-12-1 to -22 (1967, as amended through 1999) (UPA), the New Mexico Unfair Insurance Practices Act, §§ 59A-16-1 to -30 (1984, as amended through 1999, prior to 2001 amendment) (UIPA), and New Mexico common law. We granted the application and allowed the American Council of Life Insurers (ACLI) to file an amicus curiae brief.

{3} The interlocutory appeal raises five main issues: (1) whether the federal Truth in Lending Act, 15 U.S.C. §§ 1601-1693 (2002) (TILA), preempts Plaintiffs' state law claims; (2) whether the trial court erred in concluding, as a matter of law, that Prudential owed a duty to disclose both dollar amount and APR information to Plaintiffs under both New Mexico statutory and common law; (3) whether Prudential was denied due process of law when the trial court sua sponte granted summary judgment in favor of Plaintiffs on essentially all their New Mexico claims even though only one Plaintiff had moved for summary judgment on only his UPA claim; (4) whether the trial court erred by weighing and deciding disputed issues of fact or in granting summary judgment prematurely without allowing Prudential a reasonable opportunity to develop additional material facts; and (5) whether the Insurance Division has primary jurisdiction to consider any of the underlying factual issues in this case.

{4} For the reasons that follow, we affirm the trial court's denial of Prudential's motion for summary judgment, reverse the grant of partial summary judgment in favor of Plaintiffs, and remand for further proceedings consistent with this opinion.

I. BACKGROUND

A. Facts

{5} Plaintiffs Jemil D. Azar, Ronald J. Solimon, and Re/Max Advantage, Ltd. each purchased life insurance policies from Prudential. Prudential gave Plaintiffs the option of paying their premiums monthly, quarterly, semi-annually, or annually. Two of the Plaintiffs, Azar and Solimon, elected to pay their premiums on a monthly basis. Azar paid a monthly premium of $63.50—a total of $762 per year. Solimon paid a monthly premium of $39.50—a total of $474 per year. The third Plaintiff, Re/Max, paid a premium of $1,036 twice a year—a total of $2,072 per year.

{6} Prudential, however, charged an additional fee if policyholders elected to pay their premiums more frequently than annually. Prudential asserts that this additional fee reflects several factors, including (1) the increased administrative costs of processing multiple payments; (2) the higher lapse rate for policyholders opting to pay on a periodic basis; and (3) the loss of investment income that Prudential otherwise would have earned with an annual premium paid in advance. Consequently, Azar, whose annual premium would have been $675, paid an additional $87 per year as a result of paying his premium monthly. Solimon, whose annual premium would have been $419, paid an additional $55 per year as a result of paying his premium monthly. Re/Max, whose annual premium would have been $2,000, paid an additional $72 per year as a result of paying its premium semi-annually. According to Dr. Brian McDonald, Plaintiffs' economic expert, Azar, Solimon, and Re/Max paid APRs of approximately 27.4%, 20.8%, and 14.4%, respectively, as a result of paying their premiums more frequently than annually.

{7} In advancing the theory that policyholders are entitled to the disclosure of modal premium charges in terms of an APR or annual interest rate both before and after policies are issued, Plaintiffs rely chiefly on the views of Joseph M. Belth, professor emeritus of insurance in the Kelley School of Business at Indiana University. Since the late 1970's, Professor Belth has advocated the disclosure of fractional premium charges in terms of both dollars and an APR, similar to that required of creditors under TILA, on the premise that this is information a policyholder needs in order to decide which premium payment frequency option is best for that particular policyholder. Professor Belth contends that, if consumers have APR information as a point of reference, then they can make better informed choices about how to pay for their annual premiums—whether from a savings account, investment, loan, or credit card with a lower APR—and can more easily compare the different modal premium charges of insurance companies. Despite his vigorous campaign and efforts to require such disclosures in life insurance products, it appears the professor's theories and proposals have been rejected or dismissed by most state insurance regulators in the country and by Congress.

{8} Prudential, on the other hand, claims that it adequately disclosed its modal premium charges in the policies and the related documents furnished to Plaintiffs. In particular, it claims that the modal premium charges were authorized by a clause in each policy providing as follows:

CHANGE OF FREQUENCY You may ask us in writing to have premiums fall due either more or less often. If we agree, we will make the change and tell you what the new premiums are and when they are due. The more often premiums are due, the larger the total amount that will have to be paid for a contract year.

(Emphasis added.) Each Plaintiff also received a policy summary or "Statement of Contract Cost and Benefit Information" setting forth the annual premium amount for the policy. The summaries, in turn, referred Plaintiffs to a separate schedule of premiums in the policies stating the installment premium amounts. Two of the Plaintiffs, Solimon and Re/Max, apparently received additional documents or illustrations comparing their annual premiums to their modal premiums.

{9} It appears that none of the applications for insurance completed by Plaintiffs disclosed the cost of the different premium payment modes available to them or any corresponding APR figures. However, the policies issued to Plaintiffs provided a ten-day right to cancel the policy:

Not later than ten days after you get this contract, you may return it to us. All you have to do is take it or mail it to one of our offices or to the agent who sold it to you. The contract will be canceled from the start and we will give back your money promptly.

The form of policy issued to Plaintiffs was approved by the New Mexico Insurance Division and thus was determined to be in compliance with the requirements of the New Mexico Insurance Code.

B. Proceedings

{10} On August 13, 1999, Plaintiffs, acting on behalf of a purported nationwide class of policyholders, sued Prudential in the Thirteenth Judicial District Court, claiming that Prudential failed to disclose material facts about the additional cost of paying premiums on an installment basis. Plaintiffs filed an amended complaint on October 14, 1999.

{11} The amended complaint alleges that Prudential "knowingly failed to state or disclose" to Plaintiffs "material facts" regarding the premium payment options available to them under the policies, including "the dollar amount and the effective annual rate of additional premium, interest, finance charge or time price differential" they were required to pay when electing to pay their premiums on an other than annual basis. The amended complaint alleges that Prudential's failure to disclose material facts constituted: (1) a breach of Prudential's fiduciary duties; (2) a breach of the implied covenant of good faith and fair dealing; (3) fraudulent concealment; (4) unjust enrichment; (5) unfair or deceptive practices in violation of the...