Clark v. The Prudential Ins. Co. Of Am.
| Decision Date | 16 March 2011 |
| Docket Number | Civ. No. 08-6197 (DRD) |
| Parties | BEVERLY CLARK, JESSE J. PAUL, WARREN GOLD, and LINDA M. CUSANELLI, Plaintiffs, v. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
Appearances by:
NAGEL RICE LLP
Bruce Nagel, Esq.
Robert H. Solomon, Esq.
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
Charles N. Freiberg, Esq.
Brian P. Brosnahan, Esq.
David A. Thomas, Esq.
Jacob N. Foster, Esq.
LEVINE, STEINBERG, MILLER & HUVER
Harvey R. Levine, Esq.
Craig A. Miller, Esq.
Attorneys for the Plaintiffs, Beverly Clark, Jesse J. Paul, Warren Gold, and Linda M. Cusanelli
Douglas S. Eakeley, Esq.
Natalie J. Kraner, Esq.
John R. Middleton, Jr., Esq.
GOODWIN PROCTOR LLP
John D. Aldock, Esq.
Richard M. Wyner, Esq.
Mark S. Raffman, Esq.
Attorneys for the Defendant, The Prudential Insurance Company of America
This case concerns allegations of deception and bad faith conduct by a health insurance company. Plaintiffs Beverly Clark, Jesse J. Paul, Warren Gold, and Linda M. Cusanelli have filed a putative class action complaint against The Prudential Insurance Company of America ("Prudential") alleging that Prudential concealed a fatal actuarial defect in their health insurance plans. Prudential now moves to: (1) dismiss all non-disclosure claims arising under California law based on the recent Levine v. Blue Shield of California ("Levine") decision and (2) strike all class action allegations made on behalf of New York, Ohio, or Texas plaintiffs as barred by the filed-rate doctrine. For the reasons set forth below, Prudential's motion to strike will be GRANTED with respect to the New York claims only. Prudential's motion is otherwise DENIED.
In the original Complaint, filed December 17, 2008, the two original plaintiffs, Clark and Paul, asserted three causes of action for: (1) violation of the New Jersey Consumer Fraud Act, N.J. Stat. Ann. 56:8-1 et. seq, ("NJCFA"); (2) breach of fiduciary duty; and (3) breach of the duty of good faith and fair dealing. The substance of Plaintiffs' claims is set forth more fully below, but in essence, Plaintiffs complain that Prudential took actions to render Plaintiffs' health insurance plans actuarially unsustainable. Plaintiffs allege that Prudential then deceived Plaintiffs about the inevitable collapse of their health plans over the course of several years. Because of this deception, Plaintiffs paid above-marked premiums and neglected to secure sustainable lower-cost insurance during a time period when it was available to them.
Prudential moved to dismiss the individual plaintiffs' claims. In an Opinion and Order dated September 14, 2009, the Court granted the motion in part, dismissing all claims except for Clark's claim for breach of the implied covenant of good faith and fair dealing.1 Clark v. Prudential Ins. Co. of Am., Civ. No. 08-6197, 2009 U.S. Dist. LEXIS 84093 (D.N.J. Sept. 14, 2009) (Doc No. 40) ("2009 Op.").
Specifically, the September 2009 Opinion applied New Jersey's choice of law analysis to determine that Clark and Paul's home states at the time they purchased their CHIP policies— California and Indiana, respectively—had the greatest interest in having their laws applied to the consumer fraud, breach of fiduciary duty, and breach of good faith and fair dealing claims. Id. at *47. This Court found that under Indiana law, each of Paul's claims were barred by the applicable statute of limitations. The Court dismissed Clark's consumer fraud claim with leave to re-plead under the appropriate California law; dismissed Clark's breach of fiduciary duty claim for failure to allege that the relationship between Clark and Prudential involved a fiduciary duty under California law; and found that Clark's claim for breach of the duty of good faith and fair dealing stated a claim under California law. Id.
Subsequently, on October 30, 2009, Clark filed an Amended Complaint, asserting claims for unfair competition and breach of the duty of good faith and fair dealing against Prudential under California law. Thereafter, the parties stipulated that Clark and Paul would file a Second Amended Complaint asserting additional claims for common law fraudulent misrepresentation and fraudulent omission. The Second Amended Complaint ("SAC") was filed on November 12, 2009. It was shortly followed by a motion to dismiss from Prudential on December 3, 2009. After that motion was partially briefed, the parties stipulated that the Plaintiffs could file a ThirdAmended Complaint ("TAC"), adding Litwack as a new plaintiff. The parties agreed that the Court would address, during a single motion hearing, the issues raised in both the motion to dismiss the SAC and the motion to dismiss the TAC.
In an opinion dated September 9, 2010, this Court dismissed Litwack's claims with prejudice as barred by the filed rate doctrine as applied under New Jersey law. The September 9, 2010 opinion also dismissed Clark's requests for injunctive relief and treble damages under the UCL, and dismissed Paul's claim that the renewal provision of the CHIP policy contained a misrepresentation. This Court denied Defendant's motion to dismiss all California causes of action for fraudulent omission, unfair competition, and good faith and fair dealing.
On November 5, 2010, the California Court of Appeals rendered a decision in the Levine v. Blue Shield of California case.2 In that decision, the court held that Blue Shield did not owe a duty to disclose to a customer how he or she could restructure his or her health insurance plan as to lower his or her health care premium. The case also dismissed a cause of action under the California Unfair Competition Law ("UCL") for failure to allege a business act that was "either fraudulent, unlawful, or unfair." Id. at 1136.
On November 9, 2010, Plaintiffs filed a Fourth Amended Class Action Complaint ("4AC"). On December 16, 2010, Prudential filed the instant motion to dismiss/strike portions of the 4AC, arguing inter alia that the Levine decision mandated dismissal of the California causes of action and that the New York, Ohio, and Texas class claims were untenable under the filed rate doctrine. Before this motion could be argued, Plaintiffs and Prudential entered into a stipulation under which Plaintiffs would file a Fifth Amended Class Action Complaint ("5AC"). This 5AC added claims by Plaintiffs Carole L. Walcher and Tern L. Drogell. The Parties agreed in their stipulation that this Court's ruling on the instant motion would apply with the same forceto the allegations of the 5AC, and that the instant motion would also be considered a motion to dismiss Plaintiff Drogell's claims as barred by the filed rate doctrine.
The 4AC alleges four claims for relief: (1) fraudulent misrepresentation, on behalf of a Multi-State Fraud Class; (2) fraudulent omissions, on behalf of a Multi-State Fraud Class; (3) breach of the duty of good faith and fair dealing, on behalf of a California Subclass; and (4) violation of California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200, et seq., on behalf of a California Subclass.
The following are the allegations of the 4AC, which are, for the purpose of this motion only, accepted as true and construed in the light most favorable to the Plaintiffs. Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008).
Prudential is, and at all relevant times was, a corporation organized and existing under the laws of the State of New Jersey with its principal place of business in Newark, New Jersey. (4AC ¶ 16.) Prior to 2001, Prudential was a mutual life insurance company. Id. ¶ 17.
Prudential sold an individual health policy, known as the Comprehensive Health Insurance Policy ("CHIP"), to individuals throughout the United States from 1973 through 1981. Id. ¶ 1. CHIP is a major medical insurance policy designed to provide policyholders with coverage for medical expenses, including high or unexpected medical expenses. Id. ¶ 2. The risk of high medical expenses is managed by Prudential through the creation of a risk pool, where a large group shares the risk that certain policyholders will generate higher than expected claims. Id. Large premium increases are generally not necessary in a functioning risk pool because the premiums of healthy low-cost members subsidize the higher costs of less-healthy members. Id.Prudential developed, marketed, and sold CHIP in the District of Columbia and all 50 states of the United States. Id. ¶ 20.
The CHIP stated the following regarding continuation or termination of the policy:
You may continue this Policy in force for successive premium periods of one month each by payment of the premiums as specified in the following paragraphs. However, Prudential may refuse to continue this Policy as of any Policy Date anniversary, but only if Prudential is then refusing to continue all policies with the same provisions and premium rate basis in the jurisdiction where you reside. If Prudential takes this action you will be notified not less than 31 days before the Policy Date anniversary.
In 1981, Prudential ceased selling CHIP to new policyholders (it "closed the block"). Id. ¶ 1. The block closure prevented new policyholders from entering into the CHIP risk pool. Id. ¶ 3. New policyholders are generally healthier, and their premiums subsidize the premiums of less-healthy policyholders, who have higher rates of claims. Id. It is alleged that Prudential knew that closing the CHIP block would lead to an "anti-selection crisis" where healthy policyholders who could secure coverage elsewhere terminated their CHIP. Id. With CHIP closed to new entrants, and an insufficient percentage of healthy policyholders remaining to subsidize the costs of unhealthy policyholders, Prudential knew that the...
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