Couch v. Wilco Life Ins. Co.

Decision Date18 January 2019
Docket NumberNo. 1:18-cv-01774-JMS-DLP,1:18-cv-01774-JMS-DLP
Citation363 F.Supp.3d 886
Parties Melvin COUCH, on behalf of himself and all others similarly situated, Plaintiff, v. WILCO LIFE INSURANCE CO., f/k/a Conseco Life Insurance Company, Defendant.
CourtU.S. District Court — Southern District of Indiana

Kathleen A. Musgrave Farinas, Todd Christopher Barnes, George & Farinas, LLP, Indianapolis, IN, Paul V. Sweeny, Pro Hac Vice, Stephen J. Fearon, Jr., Pro Hac Vice, Squitieri & Fearon LLP, New York, NY, for Plaintiff.

Carl C. Scherz, Jason R. Marlin, Taylor F. Brinkman, Locke Lord LLP, Dallas, TX, for Defendant.

ORDER

Hon. Jane Magnus-Stinson, Chief Judge

In 1987, Plaintiff Melvin Couch purchased a universal life insurance policy from Lamar Life Insurance Company which was ultimately transferred to Defendant Wilco Life Insurance Company ("Wilco"). Over time, the amount Mr. Couch was required to pay to keep the universal life insurance policy in effect increased, which Mr. Couch contends was contrary to the policy's terms. The policy ultimately lapsed, and Mr. Couch initiated this litigation in June 2018. He asserts claims against Wilco for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgment. Mr. Couch brings his claims on behalf of himself and a class of individuals who he claims have also been subjected to Wilco's impermissible practices. Wilco has filed a Motion to Dismiss all of Mr. Couch's claims, [Filing No. 20 ], and that motion is now ripe for the Court's review.

I. STANDARD OF REVIEW

Under Rule 12(b)(6), a party may move to dismiss a claim that does not state a right to relief. The Federal Rules of Civil Procedure require that a complaint provide the defendant with "fair notice of what the ... claim is and the grounds upon which it rests." Erickson v. Pardus , 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (quoting Bell Atlantic v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). In reviewing the sufficiency of a complaint, the Court must accept all well-pled facts as true and draw all permissible inferences in favor of the plaintiff. See Active Disposal Inc. v. City of Darien , 635 F.3d 883, 886 (7th Cir. 2011). A Rule 12(b)(6) motion to dismiss asks whether the complaint "contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). The Court will not accept legal conclusions or conclusory allegations as sufficient to state a claim for relief. See McCauley v. City of Chicago , 671 F.3d 611, 617 (7th Cir. 2011). Factual allegations must plausibly state an entitlement to relief "to a degree that rises above the speculative level." Munson v. Gaetz , 673 F.3d 630, 633 (7th Cir. 2012). This plausibility determination is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.

II. BACKGROUND

The following are the factual allegations in the Amended Complaint, which the Court must accept as true at this time:

On July 24, 1987, Mr. Couch purchased a universal life insurance policy, Policy No. 000511319 (the "Policy"), from Lamar Life Insurance Company ("Lamar"). [Filing No. 13 at 3-4.] Lamar subsequently sold the Policy to Wilco, or Lamar merged into or was acquired by Wilco or one of Wilco's predecessors. [Filing No. 13 at 4.] As a result, Wilco assumed all liability for the Policy as if it had originally been issued by Wilco. [Filing No. 13 at 4.]

Generally, universal life insurance policies:

provide[ ] more flexibility than whole or term life insurance. Premium payments, which are variable, are deposited in an accumulation account from which monthly cost of insurance and expense charges are deducted. The accumulation account is credited with monthly interest at a nonguaranteed declared rate, but not less than the guaranteed interest rate specified in the policy. Universal life insurance policies generally allow policyholders to change the amount and frequency of premium payments as long as they make their planned periodic premium and their policy contains sufficient cash value to cover monthly deductions.

[Filing No. 13 at 6-7.]

The Policy, which is attached as an exhibit to the Amended Complaint, includes numerous provisions which are relevant to this litigation, and are reproduced below:

[Filing No. 13-1 at 4-21.]

Mr. Couch's Planned Premium when he purchased the Policy in 1987 was $ 81.00 per month, which was to be automatically deducted from his checking account. [Filing No. 13 at 14.] Wilco's agents assured Mr. Couch that his premium would never increase and that the Policy would offer a death benefit and provide investment income in the form of guaranteed monthly interest. [Filing No. 13 at 14-15.] Instead, Wilco consistently raised Mr. Couch's premium and cost of insurance ("COI") rates far above the initial agreed-upon Planned Premium and to an amount Mr. Couch could no longer afford. [Filing No. 13 at 15.] By July 2018, Mr. Couch's premium had grown to $ 274.00. [Filing No. 13 at 15.] Instead of timely disclosing the premium increases, Wilco would take the increased costs from policyholders' cash value in their policies ("Accumulated Value"), deplete the Accumulated Value, and then send a letter informing policyholders that their two-month grace period had started and demanding payment to keep the policy in force. [Filing No. 13 at 15.] Mr. Couch's Policy ultimately lapsed and terminated without cash value, despite the fact that Mr. Couch dutifully paid premiums for several decades. [Filing No. 13 at 15-16.]

Mr. Couch alleges that Wilco raised its COI rates not because of material adverse changes in Wilco's relative risk of insurance, but for a number of other reasons including: (1) that Wilco suffered massive losses due to the self-dealing of its corporate parent, CNO Financial Group, Inc., and other affiliates; (2) litigation involving Wilco's insurance policies which have caused significant losses; (3) to offset the contractual interest payments it owes to policyholders and to recoup losses; and (4) to inflict massive shock lapses through the monthly COI rates and premium increases. [Filing No. 13 at 16-28.]

Mr. Couch filed his initial Complaint on June 11, 2018, and filed the operative Amended Complaint on June 21, 2018. [Filing No. 1; Filing No. 13.] He alleges claims for: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) declaratory relief. [Filing No. 13 at 34-37.] Mr. Couch asserts his claims on behalf of a class of:

All persons who have been subjected to Wilco's recent impermissible cost of insurance increases and/or its depletion of the policies' cash value to cover the cost of insurance increases and/or premium increases, excluding policyholders covered by the settlements in [certain other insurance-related litigation].

[Filing No. 13 at 31.] Wilco has moved to dismiss all of Mr. Couch's claims. [Filing No. 20.]

III. DISCUSSION

Wilco sets forth three main arguments in support of its Motion to Dismiss: (1) that Mr. Couch's allegations that Wilco breached the Policy by increasing the Planned Premium or Month's Deduction and by setting the COI rates using impermissible factors fail to state a cognizable claim; (2) that Mr. Couch's allegations of bad faith do not state an actionable claim; and (3) that Mr. Couch's request for declaratory relief is duplicative of his breach of contract claim. [Filing No. 21.] The Court will address Wilco's arguments in turn.

At the outset, however, the Court addresses which state's substantive law applies to this matter. A federal court sitting in diversity, as this Court does, must apply the choice of law provisions of the forum state. Storie v. Randy's Auto Sales, LLC , 589 F.3d 873, 879 (7th Cir. 2009) ("Because the district court's subject matter jurisdiction was based on diversity, the forum state's choice-of-law rules determine the applicable substantive law"). The parties agree that Alabama law applies to Mr. Couch's claims. [See Filing No. 21 at 19 (Wilco arguing that, under Indiana's choice-of-law rules, Alabama has the most intimate contacts with the dispute at issue in this case); Filing No. 25 at 17 n.2 (Mr. Couch stating that he "analyzes his claims under Alabama law for purposes of Wilco's motion to dismiss").] Absent a disagreement, the Court will apply Alabama law. Mass. Bay Ins. Co. v. Vic Koenig Leasing , 136 F.3d 1116, 1120 (7th Cir. 1998) ; Wood v. Mid-Valley, Inc. , 942 F.2d 425, 426-27 (7th Cir. 1991) ("The operative rule is that when neither party raises a conflict of law issue in a diversity case, the federal court simply applies the law of the state in which the federal court sits.... Courts do not worry about conflict of laws unless the parties disagree on which state's law applies. We are busy enough without creating issues that are unlikely to affect the outcome of the case (if they were likely to affect the outcome the parties would be likely to contest them)").

A. Breach of Contract

Mr. Couch sets forth two theories within his breach of contract claim, which the Court will treat separately: (1) breach of contract for increasing the Planned Premium or Month's Deduction to a level above the agreed-upon Planned Premium; and (2) breach of contract for setting the COI rate using impermissible factors. The Court sets forth the applicable law regarding contract interpretation, before turning to Mr. Couch's specific claims.

Under Alabama law, "[e]very insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended or modified by any rider, endorsement or application which is a part of the policy." Al. Code § 27-14-17(a). Like other contracts, insurance contracts "are construed so as to give effect to the...

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