Gunn v. Cont'l Cas. Co.

• Decision Date: 05 August 2020
• Docket Number: No. 19-2898,19-2898
• Parties: Carlton GUNN, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

968 F.3d 802

Carlton GUNN, Plaintiff-Appellant,

v.CONTINENTAL CASUALTY COMPANY, Defendant-Appellee.

No. 19-2898

United States Court of Appeals, Seventh Circuit.

Argued April 15, 2020

Decided August 5, 2020

Steve W. Berman, Attorney, Hagens Berman Sobol Shapiro LLC, Seattle, WA, John DeStefano, III, Attorney, Hagens Berman Sobol Shapiro, Phoenix, AZ, for Plaintiff-Appellant.

Brent Robert Austin, Caroline P. Malone, Michael L. McCluggage, I, Attorneys, Eimer Stahl LLP, Chicago, IL, for Defendant-Appellee.

Before Manion, Hamilton, and Barrett, Circuit Judges.

Hamilton, Circuit Judge.

Most appellate opinions try to answer questions of law. This opinion is an exception. We ask many more questions than we can answer here. They concern choice-of-law principles as applied to the unique challenges of interstate regulation of insurance in the United States, and more specifically as applied to a group insurance policy issued in one jurisdiction to an employer with employees in every state. We realize we are leaving a good deal of work for the capable district judge on remand. We hope he will receive help on choice-of-law issues from counsel for the parties and interested amici curiae.

Plaintiff Carlton Gunn brought this case as a putative class action against defendant Continental Casualty Company, which issued a group long-term care insurance policy to Gunn's employer, the federal judiciary, in Washington D.C. Gunn alleged that Continental breached its contract, committed torts, and violated consumer protection laws by raising his premiums dramatically. Continental persuaded the district court to dismiss the case on the pleadings based on its assertion of a filed-rate defense, relying on the Washington state Insurance Commissioner's approval of the new, higher premiums for individual insureds in Washington. The parties’ briefs in the district court and on appeal raised the issue of choice of law but offered little help in resolving it.

The appellate briefs and arguments make clear that choice of law is critical in this case, but they leave too many unanswered questions. Which state's or states’ law creates Gunn's causes of action? Does that jurisdiction recognize an applicable filed-rate defense, and if so, what are its contours? Which state or states have authority to approve premium rates under the group policy? If one state otherwise offers Gunn a remedy but another state with authority has approved Continental's rates, which state's authority controls and which must yield, and why? We raised these and other questions in oral argument, but without satisfactory answers. Given their importance to the larger framework of multistate insurance regulation, we conclude that the best resolution of this appeal is to let the adversary process take its course, with some general direction from us to ensure that the adversaries focus on the critical issues. We therefore reverse and remand for further proceedings.

I. Plaintiff's Claims and Procedural Background

Contracts for group insurance are in essence three-party contracts. Steven Plitt et al., 1A Couch on Insurance 3d § 7:1 (1995 & supp. 2019). "A group insurance policy is the contract between the insurer and an employer, ... or some other central entity, for the benefit of a group of people that have some relationship to the central entity, such as employees." Id. The central entity, not the individual insured, holds the master policy and has "the chief contractual relationship with the insurer." Id. The individual insureds are considered third-party beneficiaries of the master policy and "typically receive certificates proving that they are insured and listing what coverage is provided." Id. For this reason, "the addition of new individual members to a master group policy does not create a new contract of insurance." Id. § 8:1. At the same time, individual insureds are usually not automatically covered by the central entity's master policy. They must individually elect coverage and pay their own premiums. Id. § 8:2.

For purposes of defendant's motion to dismiss, we assume the truth of the following factual allegations. In 1999, defendant Continental Casualty Company delivered a group long-term care insurance policy to the federal judiciary—specifically, to the Federal Judiciary Group Long Term Care Insurance Trust in Washington D.C. Long-term care insurance is intended to provide long-term financial security by covering a variety of services, not generally covered by Medicare or ordinary health insurance, for those unable to care for themselves due to age or disability. As with life insurance, the cost of long-term care insurance increases with age. As Continental advertised for this policy, "the younger you are when your coverage begins, the lower your premiums will be for the duration of your participation in the plan."

In 2000, plaintiff Carlton Gunn was an assistant federal defender in the State of Washington eligible for coverage under the judiciary's policy. He purchased coverage under the policy, relying in part on Continental's representation in its marketing materials that it would raise premiums, if at all, only "for everyone in your age category who has the kind of coverage plan that you do." The master policy and Gunn's individual coverage certificate similarly promised that Continental would raise premiums "only if we change the premiums for all insureds in the same premium class." The master policy provided specifically that "Premium is computed as stated in the Master Application," which contained tables of premium rates according to payment schedule, age on effective date of coverage, and amount of daily benefit. No mention was made of rates varying based on the individual insured's state of residence.

To protect against the long-term effects of inflation on the policy's costs and benefits, Gunn also purchased what Continental called a "Lifetime Compound Automatic Benefit Increase benefit." That feature would "automatically increase the daily benefit for nursing home care that you select now by 5% annually on a compounded basis." "This means," Continental explained, "you will not need to worry about increasing your premium in the future." Purchasing the automatic benefit increase feature more than doubled Gunn's baseline premium.

Seventeen years later, Gunn received a letter from Continental informing him that his premium rates would rise by 25 percent each year for the next three years, adding up to a near doubling of the premium, from about $700 to about $1,400 annually. The letter also said that the effective dates of the increases would depend ultimately on the approval of "certain states," which might or might not be forthcoming at the same time, or at all. Gunn believes this geographic disparity breaches Continental's promise to raise rates only uniformly within a "premium class." He also contends he should be protected from the dramatic premium increases precisely because he had already paid to protect himself against inflation by buying the automatic benefit increase.

Gunn's complaint asserted claims for breach of contract, breach of implied covenant, unfair and deceptive practices under the District of Columbia's consumer protection statute, fraud, and fraudulent concealment. On behalf of himself and a putative class of insureds under the judiciary's group policy, Gunn sought rescission (whether of the master policy or his individual certificate, he did not say) and an injunction against further rate increases, or alternatively compensatory, statutory, and punitive damages.¹

Continental moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing among other grounds that the complaint was barred by "the filed-rate doctrine." The federal version of that doctrine in general "forbids a regulated entity to charge rates for its services other than those properly filed with the appropriate federal regulatory authority." Arkansas Louisiana Gas Co. v. Hall , 453 U.S. 571, 577, 101 S.Ct. 2925, 69 L.Ed.2d 856 (1981). One way to put it is that the "reasonableness" of a rate is an administrative standard, not a justiciable legal right. Montana-Dakota Utils. Co. v. Northwestern Pub. Serv. Co. , 341 U.S. 246, 251, 71 S.Ct. 692, 95 L.Ed. 912 (1951). Another is that a buyer's consent to pay the filed rate is not necessary to create an obligation to pay the filed rate. Lowden v. Simonds-Shields-Lonsdale Grain Co. , 306 U.S. 516, 520–21, 59 S.Ct. 612, 83 L.Ed. 953 (1939). Arkansas Louisiana Gas itself held that a state-law action for breach of contract could not survive preemption based on a state court's "speculation" that the responsible federal regulator would have approved the higher rate for which the parties contracted instead of the lower rate it had actually approved. 453 U.S. at 573, 578–79, 101 S.Ct. 2925.

States have adopted versions of this doctrine of varying breadth and force, some in statutes and some through case law. And even where different states’ doctrines differ only in nuance, we have said that "nuance can be important." In re Rhone-Poulenc Rorer, Inc. , 51 F.3d 1293, 1300 (7th Cir. 1995) (reversing certification of nationwide class whose claims were governed by many different states’ laws).

Citing Arkansas Louisiana Gas and other cases, Continental argued that Gunn's individual certificate had been issued to him in the State of Washington; that the Washington insurance commissioner had authority to approve the rates Gunn was charged; and that Continental had sought and obtained the Washington commissioner's approval for the challenged rate increases. Gunn's suit, went the argument, amounted to a collateral attack on rates duly approved by the commissioner, so that the filed-rate doctrine prohibited courts from entertaining Gunn's claims. We confess that we were mystified when we realized that Continental's motion did not explain whether the filed-rate doctrine it invoked stems from federal or state law, let alone from which state's law.

In...