Costigan v. John Hancock Ins.

• Decision Date: 26 March 2015
• Docket Number: Case No. 5:14CV1002
• Parties: WILLIAM COSTIGAN, JR., Plaintiff, v. JOHN HANCOCK INSURANCE, Defendant.
• Court: U.S. District Court — Northern District of Ohio

WILLIAM COSTIGAN, JR., Plaintiff, v. JOHN HANCOCK INSURANCE, Defendant.

Case No. 5:14CV1002

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

March 26, 2015

JUDGE GEORGE J. LIMBERT

MEMORANDUM OPINION AND ORDER

This matter is before the Court on the Motion to Dismiss the Second Amended Complaint filed on behalf of Defendant, John Hancock Insurance on September 4, 2014. ECF Dkt. #31. On October 2, 2014, Plaintiff, William Costigan Jr., filed a memorandum in opposition to the motion to dismiss. ECF Dkt. #32. Defendant filed its reply brief on November 3, 2014. ECF Dkt. #34.

I. FACTS

In the Second Amended Complaint, Plaintiff asserts that Defendant, through its agent, formerly known as Manufacturers Life Insurance Company ("Manulife"), fraudulently induced Plaintiff to purchase a life insurance policy¹ on the life of William Costigan Sr. ("the insured"), asa part of his business plan/investment (buy-sell). Second Amended Complaint, ECF Dkt. #26, at ¶ 4. Plaintiff further asserts that Defendant represented that the Universal Life Policy ("Universal Life policy") at issue "would be a better product than the whole life policy previously purchased on the [insured] and would be affordable, i.e. that as the insured aged, the premiums would remain relatively level and affordable." Id.

In addition, Plaintiff contends that Defendant "tailored its written sales solicitations to lead a reasonable policy holder to conclude that the Universal policy, unlike the 20-year level term policy, would remain affordable for life and that any payment after 20 years² would not materially increase beyond the level 'planned premium' of $21,000." Id. at ¶ 5. He further contends that "[a]t various times it provided this information, both directly and through its soliciting agent, [Defendant] knew that the 'current and assumed' returns, part of a superior returns marketing pitch, were materially misleading as were the accompanying affordability representations about the [Universal Life] policy." Id. at ¶ 6. Plaintiff continues, "In spite of this knowledge, [Defendant] and its agents emphasized the so-called current return as proof that [the Universal Life policy] would beaffordable for life - when in fact [Defendant] knew or should have known that this 'current return' would not materialize at the commencement of the policy or at any time in the foreseeable future." Id. at ¶ 7. Plaintiff concludes that "[Defendant] knew that its past historical experience (i.e. - in high interest rate environments) was not a valid predictor of the future likely return on the [Universal Life] policy and yet, upon information and belief, used this historical data to prepare false and misleading likely scenarios about future policy performance." Id. at ¶ 8.

According to the Second Amended Complaint, Plaintiff made an inquiry in 2010 - after purchasing a life insurance policy on his own life and needing to prepare a cash flow analysis - and Defendant first revealed that the annual premium payment on the Universal Life policy would increase substantially in year 21 assuming that the insured lived beyond June 22, 2013. Defendant further informed Plaintiff that he would be required to make the materially increased payments, in spite of his protests, or the policy would be deemed out of force and cancelled. Id. at ¶ 9.

Based upon the foregoing allegations in the Second Amended Complaint, Plaintiff asserts claims for negligent misrepresentation, fraud, and breach of contract/implied duty of good faith and fair dealing. In addition, Plaintiff asserts a breach of contract/express promise claim predicated upon Defendant's failure to provide annual statements regarding the Universal Life policy's performance, even though it had a contractual duty to do so. Plaintiff relies on a provision in the Universal Life policy, captioned "Annual Statement," which reads, in its entirety:

Within 30 days after each Policy Anniversary, we will send you a report showing:

(a) the Death Benefit;

(b) the Policy Value;

(c) any Loan Account balance and loan interest charged since the last report;

(d) the premiums paid and policy transactions for the year;

(e) any further information required by law.

Policy, ECF Dkt. #1-1 at p. 14. As a result, Plaintiff claims he lost the right to cancel the Universal Policy had he known that premiums would increase after policy year 20. Id. at ¶ 13.

II. THE CLASS ACTION SETTLEMENT

In the first part of the motion to dismiss, Defendant contends that all of Plaintiff's claims were released by virtue of a class action settlement that was finalized in the Southern District of California in 1998 in Friedman v. Manufacturers Life, 3:96CV230. Plaintiffs in the class action accused Manulife of misrepresentations and omissions of information made in the course of selling insurance policies that included a "vanishing" point - that is, a time at which future dividends on a policy, paid-up cash values, or other policy assets would collectively suffice to pay future premiums as they came due. The settlement class consisted of all persons who on or before June 19, 1998 had an ownership interest in a Manulife individual participating and/or Universal Life policy issued from January 1, 1982 through December 31, 1993. Plaintiff purchased his Manulife Policy on June 22, 1993, making him a member of the class.

For class members who did not opt out of the settlement, the district court held that "[t]he terms of the Settlement Agreement and of this Final Judgment . . . shall be forever binding on, and shall have res judicata and preclusive effect in all pending and future lawsuits . . .maintained by the plaintiffs and all other Class Members . . . ." Final Judgment, ECF Dkt. #31-4 at 6.

As part of this settlement agreement, the class members released:

any and all past or presently existing Claims, including known, unknown, suspected or unsuspected, that are based upon, related to, or directly connected with, in whole or in part, the allegations and subject matters referred to in the Complaint or the Released Transactions[.]

Id. at 8.

The term "Released Transactions" was defined as:

any and all acts, communications, omissions, or nondisclosures relating to or connected with the marketing, solicitation, application, sale, purchase, operation or retention of the Policies, based upon the following:

(1) Policy illustrations, marketing materials or sales presentations setting forth a single, fixed limited number of out-of-pocket premium payments based on then-current, non-guaranteed assumptions about dividend scales, interest crediting rates, policy credits, administration charges, contract charges and/or cost of insurance to purchase, maintain and keep the Policy in force throughout the insured's life, or for a specified period of time beyond the number of premium payments illustrated, promised or represented, without a reduction in the Policy's death benefits;(2) a concept under which a Policy's required premiums or charges may be paid out of its current and/or accumulated values, as those premiums or administration charges, contract charges or costs of insurance became due;

(3) the ability of Plaintiffs and the Class Members to keep the Policies in force based on a fixed number and/or amount of out-of-pocket premium payments;

(4) the dollar or monetary amount that would be accumulated or paid under a Policy based on a fixed number and/or amount of out-of-pocket premium payments;

(5) Defendants' policies and practices with respect to dividends, account values, policy loans, credited interest rates, cost of insurance, administrative charges, contract charges and/or other Policy or premium charges, account value calculations, lapse supported pricing or death benefit;

(6) the cost of term-rider coverage on the Policy relative to Policy coverage, the affect of term rider coverage on the cost of the Policy and the ability of Policies with term rider premiums to offset or vanish in future years;

(7) the Deferred Acquisition Cost statutory accounting charge;

(8) the use of direct recognition of Policy loans in the calculation of Policy benefits, dividends, interest crediting rates and/or costs;

(9) the manner in which Defendants trained and supervised any of the Releasees, including, but not limited to, Defendants' general agents, agents, branch managers, Producers, brokers, or any of them, relating to the allegations set forth in the Complaint, or the Released Transactions set forth in items (1) through (8) above.

d. Released Transactions does not include claims for replacement, sale of life insurance as retirement, savings, pension or other investment plans, servicing, administration, forgery or theft.

Id. at 7-8.

The release further provides that class members will:

release and discharge the Releasees from any and all past or presently existing Claims, including known, unknown, suspected or unsuspected, that are based upon, related to, or directly connected with, in whole or in part, the allegations and subject matters referred to in the Complaint or the Released Transactions, or in connection with or related to in any manner to, the settlement of the Action . . . .

Id. at 8. Class members were also expressly barred from commencing, maintaining, or asserting "any Claims that are based upon, related to, or directly connected with, in whole or in part, the allegations and subject matters referred to in the Complaint or the Released Transactions." Id. at 8. As a result, class members who did not opt out of the class were permanently enjoined from bringing any lawsuit in any jurisdiction. Id. at 9. Plaintiff did not opt out of the class and is bound by the terms of the class action settlement.

III. PROCEDURAL HISTORY

In April of 2014, Plaintiff filed suit against Defendant in the Court of Common Pleas, Summit County, Ohio. Defendant timely removed the action. Plaintiff's initial Complaint included claims for fraud, negligent misrepresentation, negligence, breach of contract, and...