Berry v. Federal Kemper Life Assur. Co.

• Decision Date: 23 July 2004
• Docket Number: No. 23,186.,23,186.
• Citation: 99 P.3d 1166,136 N.M. 454
• Parties: Charles BERRY, for himself and all others similarly situated, Plaintiff-Appellee, v. FEDERAL KEMPER LIFE ASSURANCE COMPANY, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

99 P.3d 1166

136 N.M. 454

Charles BERRY, for himself and all others similarly situated, Plaintiff-Appellee, v. FEDERAL KEMPER LIFE ASSURANCE COMPANY, Defendant-Appellant.

No. 23,186.

Court of Appeals of New Mexico.

July 23, 2004.

Certiorari Denied September 17, 2004.

Paul G. Bardacke, John M. Eaves, Peter S. Kierst, Kerry C. Kiernan, Karen S. Mendenhall Eaves, Bardacke, Baugh, Kierst & Larson P.A., Dennis M. McCary, Floyd D. Wilson, Alan R. Wilson, McCary, Wilson & Pryor, Alan Konrad, Albuquerque, NM, for Appellee.

David F. Cunningham, Rubin Katz Law Firm, P.C., Santa Fe, NM, J. Kevin McCall, Clark C. Johnson, Suzanne J. Prysak, Jenner & Block, LLP, Chicago, IL, for Appellant.

Victoria E. Fimea, American Council of Life Insurers, Washington, D.C., George Ruhlen, Mayer, Brown, Rowe & Maw, Santa Fe, NM, Evan M. Tager, Craig W. Canetti, Mayer, Brown, Rowe & Maw, Washington, D.C., for Amicus Curiae American Council of Life Insurers.

Betty D. Montgomery, Attorney General, Scott Myers, Lawrence D. Pratt, Assistant Attorney Generals, Columbus, OH, Ann Maloney Conway, Cynthia A. Braun, Huffaker & Conway, P.C., Albuquerque, NM, for Amicus Curiae Lee Covington, II, Superintendent, Ohio Dep't of Insurance.

Randal W. Roberts, Simone, Roberts & Weiss, P.A., Albuquerque, NM, for Amicus Curiae National Association of Insurance Commissioners.

Certiorari Denied, No. 28,850, September 17, 2004.

OPINION

BUSTAMANTE, Judge.

{1} The district court certified a nationwide class action against Federal Kemper Life Assurance Company (Kemper) seeking damages assertedly caused by Kemper's modal premium program for life insurance policies. Kemper appealed from the certification order pursuant to Rule 1-023(F) NMRA 2004. Affirming in part and reversing in part, we address a number of issues of first impression under New Mexico's class action rule, including: (1) standards for consideration of Rule 1-023(A) requirements of numerosity, commonality, typicality, and adequate representation; (2) the difficulties posed by multistate class actions; and (3) appropriate methods for considering and resolving the questions of predominance and superiority under Rule 1-023(B)(3).

FACTS AND PROCEDURES

{2} This is one of several class action cases pending in New Mexico asserting various claims by insureds against insurance companies based on their modal premium schemes. Reflecting variations in policy language and marketing approach, the suits are not identical but they generally assert that the defendant insurers have failed to properly inform their policy holders of the different rates charged when premiums are paid more often than once a year.

{3} In this case, the First Amended Complaint alleges that because Plaintiff Charles Berry (Berry) chose to pay semi-annually, Kemper charged him $122 more per year than the "Guaranteed Maximum Premiums after the First Policy Year" stated in the policy. Coupling this basic factual assertion with allegations that Kemper intentionally or otherwise failed to disclose the dollar value of, or an equivalent interest rate for, the different premiums, Plaintiff pleaded a number of potential causes of action, including: Count 1, common law breach of contract; Count 2, common law breach of duty to disclose material facts; Count 3, common law breach of duty of good faith and fair dealing during contract performance; Count 4, unjust enrichment; and Count 5, violation of New Mexico's Unfair Practices Act. The district court limited its certification to the breach of contract and the good faith and fair dealing theories.

{4} The common law breach of contract claim relies on the language of the class representative's Kemper policy. Pertinent portions of the policy are attached to this opinion as Appendix 1. The class emphasizes the language on the "Policy Specifications" page specifying "Total Premiums" for the first year—broken down by payment made— and the language immediately following, which provides "Annual `current premiums after the first policy year' are shown beginning on the next page. Annual `guaranteed maximum premiums after the first policy year' are shown on the pages that follow `current premiums after the first policy year.'" The following page of the policy is labeled "Current Premiums After First Policy Year" and, under the column headed "Total Annual Premiums," lists $3050 as the amount payable through year ten of the policy.

{5} The class also relies on a definitional provision that includes an integration clause and a list of the items that make up the contract between Kemper and its insured.

This policy, with any proper changes, is the entire contract between you and us. Only our president, vice-president, secretary, or assistant secretary can change, modify, or waive any provisions of this policy.

This policy includes: 1. the Policy Specifications; 2. the attached application; and 3. any supplemental applications, riders, amendments or endorsements made a part of this policy.

{6} Kemper, of course, acknowledges these terms of its standard form policy. In response, Kemper points to Berry's application for coverage in which he agreed to make semi-annual payments in the amount of $1586, combined with a policy provision that incorporates the application and makes it "a part of this policy." Kemper argues these provisions prove Berry unqualifiedly agreed to the premium he has been paying since the policy went into force.

{7} Kemper also emphasizes the "Premium Payment Section" of the policy which includes this language: "After the first policy year, the semi-annual, quarterly, or preauthorized monthly payments for each policy year will be determined on the same basis as that used to determine the premium for the selected mode for the first policy." Kemper argues this provision makes it clear the premium amount set in the policy application will continue for the initial ten-year guaranteed rate term.

{8} The failure-to-disclose and breach of the duty of good faith counts are based on assertions that Kemper does not inform insureds they will pay more if they choose to pay their premiums on a schedule other than once a year. Kemper responds that the arithmetic difference between annual and other modes of payment is obvious on the face of its policies. Kemper also asserts that at least some selling agents explain the dollar difference in premium rates during the sale process. Kemper acknowledges that the dollar difference between premium modes is never expressed as an interest rate or APR.

{9} Apart from discovery wrangles, the procedural history of the case is relatively simple. Kemper filed a motion to stay or dismiss "based on the primary jurisdiction and filed rate doctrines," seeking to have the entire matter referred to the New Mexico Superintendent of Insurance. The district court denied the motion and Kemper has not sought to appeal that denial. Some of Kemper's arguments in support of this motion do appear here in support of its position that federalism concerns and principles of state sovereignty prohibit recognition of a nationwide class.

{10} Kemper also filed a second motion to dismiss pursuant to Rule 1-012(B)(6) NMRA 2004, prior to filing an answer. Following briefing, the district court denied the motion in its entirety. The district court's rationale in denying the motion is not directly relevant to this appeal, except in one respect. One paragraph of the Order denying dismissal states: "As to Defendant's argument that the language of the insurance policy was clear such as to preclude breach of contract, common law disclosure or Unfair Practices Act claims, it appears there were omissions raising issues of ambiguity and materiality precluding dismissal under Rule 1-012(B)(6)." As will become clear, this language has become a bone of contention between the parties on appeal.

{11} Plaintiff filed his motion for class certification on the heels of the district court's oral denial of Kemper's motion to dismiss. The motion proposed certification of a class "composed of all persons who reside in the United States who, at any time between January 1, 1985, and the date of class certification, have made premium payments to [Kemper] with respect to an individual life insurance policy on a monthly, quarterly, or semi-annual basis." The motion also requested certification of a fifteen-state subclass—including New Mexico—for Plaintiff's Unfair Trade Practices claims asserting that the statutory provisions in these jurisdictions were "comparable to, and consistent with, New Mexico's."

{12} The motion to certify was litigated primarily on paper. The parties stipulated to the documentary evidence the district court should consider. The parties also designated portions of deposition testimony for the district court to review rather than present live testimony.

{13} The record thus compiled reveals that Kemper's term life insurance policy forms issued at least since 1994—including class representative Berry's—were identical in all aspects pertinent to this case. That is, with minor variations, all of the policy forms address the annual and modal premium structure as described above. Only the forms issued in Pennsylvania provide specific instructions in the policy about how an insured can calculate the modal premium amount. The district court excluded residents of Pennsylvania from the class.

{14} The record also reveals that the life insurance application forms Kemper used for the policies involved here were the same, with small variations. All of the application forms request the applicant to select a premium payment mode. While some forms did not disclose all of the premium payment modes available, most allowed a choice of monthly, quarterly, semi-annual, or annual to be selected. None of the application forms provided any information about the specific dollar amount of each payment made, or the dollar difference between modes, and none expressed the difference in cost as an annual...