Frith v. Guardian Life Ins. Co. of America

• Decision Date: 31 March 1998
• Docket Number: No. Civ.A. H-96-4323.,Civ.A. H-96-4323.
• Citation: 9 F.Supp.2d 734
• Parties: Larry P. FRITH and Tena Frith, Plaintiffs, v. The GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Southern District of Texas

9 F.Supp.2d 734

Larry P. FRITH and Tena Frith, Plaintiffs, v. The GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Defendant.

No. Civ.A. H-96-4323.

United States District Court, S.D. Texas, Houston Division.

March 31, 1998.

Robert Bruce Langston, Houston, TX, Harry Lee Godfrey, Susman Godfrey, Houston, TX, for Plaintiffs.

Jeffrey A. Davis, Thomas J. Forestier, Donald D. Jackson, L.L.P., McGinnis, Lochridge & Kilgore, Houston, TX, for Defendants.

ORDER

GILMORE, District Judge.

Pending before the Court is Defendant Guardian Life Insurance Company of America's ("Guardian's") Motion to Dismiss. (Instrument No. 31). Based on the parties' submissions and the applicable law, the Court finds that Guardian's motion should be GRANTED in part and DENIED in part.

I.

Plaintiffs Larry P. Frith and Tena Frith bring this action, individually and on behalf of others similarly situated, against Defendant The Guardian Life Insurance Company of America ("Guardian"),¹ asserting claims for breach of contract and breach of an implied duty of good faith and fair dealing and alleging violations of the Texas Insurance Code and the Deceptive Trade Practices Act. Plaintiffs also contend that Guardian is liable for fraud, fraudulent inducement, fraudulent concealment and negligent misrepresentation.

According to Plaintiffs, an agent of Guardian provided them with a "Guardian Lifeplan Illustration" for a $500,000 policy on the life of Plaintiff Larry Frith. Plaintiffs argue that the illustration showed that their "annual outlays" of $7,573 would "vanish" after eight years. The illustration also projected policy dividends over a period of 36 years. However, the illustration contained the following disclaimer:

Figures depending on dividends are neither estimated nor guaranteed, but are based on the 1988 dividend scale. The 1988 dividend scale reflects current company claims, expense, and investment experience (applicable to all policies) and taxes under current laws. Actual future dividends may be higher or lower than those illustrated depending on the Company's actual future experience.

(Class Action Complaint, Instrument No. 27, at ¶ 7).

On August 25, 1988, Plaintiffs purchased a "Whole Life" insurance policy in the amount of $100,000, Policy No. 3137502, on the life of their daughter, Jessica Frith. Plaintiffs assert that the "policy was accompanied by a policy summary that showed dividends at the end of policy years 1 through 5, 10 and 20 and at ages 65 and 70." (Class Action Complaint, Instrument No. 27, at ¶ 10). The policy summary stated the following:

Figures depending on Dividends are neither estimated nor guaranteed, but are based on the 1987 dividend scale, which reflects current company claims, expense, and investment experience (applicable to all policies) and taxes under current laws. Actual future dividends may be higher or lower than those illustrated depending on the Company's actual future experience.

(Id.). The policy also provided that "if it was returned to ... [Guardian Life] or its agent within ten (10) days, all premiums would be refunded and the policy would be `void from the beginning.'" (Id.). Plaintiffs maintain that they relied on the illustration and the policy summary which indicated that dividends would be paid through the term of the policy.²

On November 3, 1998, Plaintiffs purchased two policies on the life of Larry Frith — Policy No. 3149968 in the amount of $272,188 owned by Larry Frith and Policy No. 3148518 in the amount of $238,726 owned by the Devlin, Frith & Phillips Profit Sharing Plan.³ Later, Policy No. 3148518 was divided into two separate policies — Policy No. 3148518 in the amount of $117,302 owned by the Devlin, Frith & Phillips Profit Sharing Plan and Policy No. 3222648 owned by Larry Frith.⁴ Again, Plaintiffs contend that they agreed to purchase these insurance policies because the illustration and the policy summary showed that dividends would be paid throughout the term of the policies.

Then, on November 20, 1991, Plaintiffs purchased a "Whole Life" insurance policy in the amount of $100,000, Policy No. 3359890, on the life of their second daughter, Samantha K. Frith. Guardian's agent provided Plaintiffs with an illustration for a $100,000 "Whole Life" insurance policy "showing annual outlays of $1,866 for seven years, with dividends and other policy values continuing to increase every year up to age 64." (Class Action Complaint, Instrument No. 27, at ¶ 13). However, the illustration also stated that:

Figures depending on dividends are neither estimated nor guaranteed, but are based on the 1991 dividend scale. The 1991 dividend scale reflects current company claims, expense, and investment experience (applicable to all policies) and taxes under current laws. Actual future dividends may be higher or lower than those illustrated depending on the Company's actual future experience.

(Id.). "The policy was accompanied by a policy summary and was subject to the same 10-day "free look" provision described above." (Id.). As with the other policies, Plaintiffs maintain that they relied on the policy summary and the illustration in deciding to purchase the insurance policy on the life of Samantha K. Frith.

According to Plaintiffs, they "have continued to pay the scheduled premiums on the foregoing policies and, as a result have paid over $75,000 on such policies." (Id. at ¶ 14). In July of 1995, Plaintiffs made the eighth payment on Policy No. 3222648 and Policy No. 3149968, both policies are owned by and are on the life of Larry Frith. In August of 1995, Plaintiffs made the eighth payment on Policy No. 3137502, the policy on the life of Jessica Frith. Plaintiffs assumed that these eighth payments would be their final payments on these policies. However, in June of 1996, Plaintiffs received notices from Guardian that the premium were due on all of the policies. "Plaintiffs paid these premiums by drawing on the automatic premium loan provisions of the respective policies." (Id.).

On August 29, 1996, Plaintiffs filed a cause of action in state court against Defendants Guardian Life and Hodges, Ocker & Company, alleging a claim for fraud and violations of the Texas Insurance Code and the Deceptive Trade Practices — Consumer Protection Act. (Instrument No. 1). The action was removed to this Court on December 16, 1996. Plaintiffs then filed their First Amended Complaint on January 5, 1997. (Instrument No. 7).

On April 4, 1997, Plaintiffs filed their Second Amended Class Action Complaint against Guardian Life asserting several claims including breach of contract, breach of an implied duty of good faith and fair dealing and alleging violations of the Texas Insurance Code and the Deceptive Trade Practices Act. Plaintiffs also contend that Guardian is liable for fraud, fraudulent inducement, fraudulent concealment and negligent misrepresentation. (Instrument No. 27).

Then, on June 10, 1997, Guardian filed a motion to dismiss Plaintiffs' complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim for which relief can be granted and Rule 9(b) for failure to plead fraud with particularity. (Instrument No. 31). In response, Plaintiffs maintain that Guardian's motion should be denied because they have adequately pled their causes of action. (Plaintiffs' Response, Instrument No. 33, at ¶ 42). With respect to their claims for fraud, Plaintiffs argue that they have "plead the `who, what, when and where' with [sufficient] detail and clarity." (Id. at ¶ 33).

II.

Rule 12(b)(6) allows for dismissal if a plaintiff fails "to state a claim upon which relief may be granted." Such dismissals, however, are rare, Clark v. Amoco Production Co., 794 F.2d 967, 970 (5th Cir.1986), and only granted where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-6, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Dismissal can be based either on a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990); Vines v. City of Dallas, Texas, 851 F.Supp. 254, 259 (N.D.Tex.1994), aff'd, 52 F.3d 1067 (5th Cir.1995).

In determining whether a dismissal is warranted pursuant to Rule 12(b)(6), the Court accepts as true all allegations contained in the plaintiff's complaint. Gargiul v. Tompkins, 704 F.2d 661, 663 (2d Cir.1983), vacated on other grounds, 465 U.S. 1016, 104 S.Ct. 1263, 79 L.Ed.2d 670 (1984); Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir.1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 729, 74 L.Ed.2d 953 (1983). In addition, all reasonable inferences are to be drawn in favor of the plaintiff's claims. Id. "To qualify for dismissal under Rule 12(b)(6), a complaint must on its face show a bar to relief." Clark, 794 F.2d at 970.

III.

First, the Court will address Guardian's arguments regarding the life insurance policy for Samantha K. Frith. Guardian contends that Plaintiffs claims regarding the life insurance policy for their daughter, Samantha Frith, Policy No. 3359890, are not ripe for adjudication because such claims would be speculative and contingent. Guardian also contends that Plaintiffs do not have standing to bring such claims.

The general rule for determining ripeness was articulated in Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 464, 81 L.Ed. 617 (1937). In Aetna, the Court stated that:

[t]he controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests.... It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.

57 S.Ct. at 464. "An important factor in considering...