Cooper v. Berkshire Life Ins. Co., 0154

• Decision Date: 14 November 2002
• Docket Number: No. 0154,0154
• Citation: 148 Md. App. 41,810 A.2d 1045
• Parties: Joseph COOPER, et al. v. BERKSHIRE LIFE INSURANCE COMPANY, et al.
• Court: Court of Special Appeals of Maryland

810 A.2d 1045

148 Md. App. 41

Joseph COOPER, et al. v. BERKSHIRE LIFE INSURANCE COMPANY, et al.

No. 0154, September Term, 2001.

Court of Special Appeals of Maryland.

November 14, 2002.

Martin H. Schreiber, II (Daniel F. Goldstein and Brown, Goldstein & Levy, LLP, on the brief), Baltimore, for appellants.

David W. Erb (Barrett W. Freedlander, Saul, Ewing, Weinberg & Green, Baltimore, and Gina Cinelli Birchall, Pittsfield, MA, on the brief), for Berkshire Life Ins. Co.

(Mary M. Dimaio and Maher & Associates, Towson, on the brief), for Bernard Fish.

James R. Schraf and Lipshultz and Hone, Silver Spring, on the brief, for Thomas Steinhardt.

Argued before ADKINS, GREENE and JOHN J. BISHOP, JR., (Retired, specially assigned) JJ.

ON MOTION FOR RECONSIDERATION

ADKINS, Judge.

In 1990, Joseph Cooper ("Cooper"), one of the plaintiffs and appellant here, purchased from Berkshire Life Insurance Company ("Berkshire"), one of the appellees, two "vanishing premium" life insurance polices insuring the lives of himself and his wife Annette Cooper. He did so, he asserts, on the basis of misrepresentations by two insurance agents, Thomas Steinhardt and Bernard Fish, also appellees, that he only would have to pay premiums for ten years. Cooper donated one of the policies to the Associated Jewish Charities of Baltimore ("Associated"), and the other to The Joseph & Annette Cooper 1990 Insurance Trust (the "Trust").

After later finding out that the policies required premium payments for at least seventeen years, Cooper, joined by his wife, Associated, and the Trust (collectively, the "Coopers"), filed a complaint against Berkshire, Steinhardt, and Fish. As amended, the complaint alleges fraud (Count One), fraudulent concealment (Count Two), negligent misrepresentation (Count Three), breach of contract (Count Four), imposition of constructive trust (Count Five), Declaratory and Injunctive Relief (Count Six), reformation (Count Seven), and violation of the Massachusetts Consumer Protection Statute (Count Eight). After discovery, the defendants filed motions for summary judgment, which ultimately were granted by the trial court.

In their timely appeal, the Coopers raise the following questions, which we have rephrased and re-ordered:

I. Is there a question of fact whether Berkshire's policies—with "disappearing premium illustrations" attached inside— were so clear that Cooper could not reasonably have relied on the premium illustrations in making his decision to purchase?

II. Does the economic loss doctrine bar the Coopers' tort claims?

III. Is there a question of fact whether Berkshire's policies—with "disappearing premium illustrations" attached inside— were so clear that the Coopers should have known of their claims when they received the policies?

As to issues I and III, we conclude that there are disputed issues of fact material to some of the Coopers' theories of recovery. As to Issue II, we conclude that the economic loss doctrine does not bar the Coopers' claims. Accordingly, we reverse the judgment of the trial court.

FACTS AND LEGAL PROCEEDINGS

Because this case was decided on a motion for summary judgment, we derive the facts from the complaint, the affidavits, and the deposition transcripts that were part of the summary judgment record, drawing all factual inferences in favor of the Coopers, as the losing parties below.

The Policies

Cooper, on the advice of his estate planning attorney, decided to purchase a $1 million second-to-die life insurance policy for himself and his wife, which he planned to donate to a trust that would pay estate taxes for his heirs. A second-to-die policy is one that does not pay the death benefit until both insureds have died.

Cooper informed Steinhardt and Fish (sometimes referred to as the "insurance agents"), whom he had known for many years, and considered to be trustworthy friends, about his interest in purchasing life insurance. The insurance agents told Cooper that they were "highly skilled insurance experts" who understood complex insurance projects, and encouraged him "to rely on their expertise and prior relationship of trust in choosing a policy." Steinhardt and Fish recommended a $1 million Berkshire "disappearing premium" policy, and told Cooper he would have to pay the annual $9,000 premium for nine years. "Neither Steinhardt nor Fish showed [Cooper] a `Supplemental Footnote Page' or anything else that indicated the disappear-year was not guaranteed." To the contrary, they specifically told him that he would "not have to pay any premiums beyond the illustrated disappear-year." The Coopers were unsophisticated regarding life insurance, and unfamiliar with the technical language of the policies.

Fish and Steinhardt also showed Cooper the first page of a computer-generated "disappearing premium" sales illustration, ("Illustration I"), which demonstrated that a $1 million policy would cost only $9,000 a year for nine years. It displayed columns showing the "Scheduled Annual Outlay" for each year, as well as the "Dividend End of Prior Yr." The "Scheduled Annual Outlay" column showed $9,000 for each of the first nine years, and "0" for years ten through thirty.

On this illustration, at the bottom of the page, appeared the words: "This illustration is not complete without the accompanying Supplemental Footnote Page." At the top of the page, the illustration said: "Dividends applied to purchase paid up additions."

Cooper found the Berkshire "disappearing policy" satisfactory. Indeed, he acknowledged that he thought it was "too good to be true," and decided to buy two policies, one for the Trust, with a $1.5 million death benefit, and a second, with a $1 million death benefit for the Associated to endow a charitable fund. After Cooper told Steinhardt and Fish of his decision, he was informed that, in the interim, the premiums had increased. The $1 million policy would cost $10,700 a year for ten years, and the $1.5 million would cost $16,000 a year for ten years. Because he was still satisfied with the revised prices, he advised the insurance agents to have the policies issued. Although not the owners of the policies, the Coopers still planned to pay all premiums through contributions to the Trust and to Associated.

In August 1990, the $1.5 million policy was delivered to Cooper. A policy summary on the cover page stated that "Premiums Payable as Specified or Until Death of Survivor." The cover page also notified the policyholder of his right to cancel the policy within a ten-day "free-look" period. On the same page, the policyholder is advised: "READ THIS POLICY CAREFULLY." On the next page of the policy, the "Policy Specifications" page, under the heading "YEARS PAYABLE," appears the word "LIFE."

Attached inside the back cover of the policy was a disappearing premium illustration, consisting of eight pages, showing that the "Out of Pocket Outlay" would be $16,000 a year for ten years ("Illustration II"). On the first page, appearing next to the "Out of Pocket Outlay" column, Illustration II featured columns titled "Dividend End of Previous Year," "Paid-Up Additions Outlay," "Cost Term Rider," and "Total Plan Premium." These numbers differ for each year of the policy. Illustration II also cautioned at the bottom of each page showing premium projections: "This illustration is not complete without the accompanying Supplemental Footnote Page," and at the top, on the right side: "Dividends applied to purchase paid up additions." Unlike Illustration I, however, this Illustration included the full eight pages.

The fifth page provided important disclosures:

This illustration is not a contract. It is a projection of values based on a combination of guaranteed values and contingent values such as dividends. Dividends and dividend purchases are neither estimated or guaranteed but are based on current company experience.... The current dividend scale is interest-sensitive which means significant changes in interest rates may affect future dividends.

When asked at his deposition whether he "ma[de] any effort to locate the Supplemental Footnote Page," Cooper responded, "I probably did, but I don't remember it." Cooper asserts that, without altering these papers in any way, he stored them in his office safe until the litigation began.

The $1 million policy was delivered directly to Associated without ever being shown to Cooper, and he did not see it until the litigation began. Stapled to the back cover of the $1 million policy was a two-page illustration, dated June 29, 1990.

The Coopers assert that the assumptions underlying Berkshire's illustrations of the premiums that the Coopers would have to pay were inconsistent with Berkshire's own internal forecasts and estimates, and were based on abnormally high dividends that, to the defendants' knowledge, Berkshire could not sustain. If the illustration had been based on Berkshire's real investment earnings rate, the Coopers claim, it would have shown the "disappear year" to be later than the ten years represented to Cooper.

In 1996, the Coopers learned for the first time that they would have to pay premiums for many years longer than the insurance agents originally represented. Fish disclosed this to Cooper during presentation of a "Life Insurance Policy Reprojection" as part of a meeting that he scheduled to sell them additional financial products.

Trial Court's Ruling

The trial court granted summary judgment on all counts of the amended complaint, stating that [i]n addition to the briefs of all parties, this Court has read and considered the opinion of the Honorable Deborah K. Chasanow of the United States District Court for the District of Maryland in Thelen v. Massachusetts Mutual Life Insurance Company, [111 F.Supp.2d 688 (D.Md.2000) ][and two nisi prius opinions].

This [c]ourt agrees with both the federal and Maryland State nisi prius opinions stated above and the reasoning thrice articulated therein.

Although ...