Hunton v. Guardian Life Ins. Co. of America
| Decision Date | 16 November 2002 |
| Docket Number | No. CIV.A.H-01-0647.,CIV.A.H-01-0647. |
| Citation | 243 F.Supp.2d 686 |
| Parties | Richard O. HUNTON and Benny Pace, Trustee of the Richard O. Hunton Irrevocable Trust, Plaintiffs, v. GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Kent Melvin Hanszen, Attorney at Law, R Scott Wolfrom, Attorney at Law, Houston, for Richard 0 Hunton, Richard 0 Hunton Irrevocable Trust Agreement, Benny Pace, Trustee of the Richard 0 Hunton Irrevocable Trust, plaintiffs.
Jeffrey A Davis, McGinnis Lochridge & Kilgore, Michael E Warrick, Hudgins Hudgins & Warrick, Houston, for the Guardian Life Insurance Company of America, Stephen L Friedman, defendants.
Pending before the Court is Defendant the Guardian Life Insurance Company of America's Motion to Dismiss Plaintiffs' Second Amended Complaint [Doc. # 14] ("Defendant's Motion"). Plaintiffs responded and Defendant replied.1 Plaintiffs relied in their Response on substantial material outside of the pleadings. Accordingly, the Court exercised its discretion under Rule 12 to convert Defendants' Motion to a Motion for Summary Judgment. Order, signed September 19, 2001 [Doc. # 21]. Thereafter, both parties submitted supplemental materials.2 The Court heard oral argument on Defendant's Motion on October 12, 2001. The Court requested additional supplemental materials during oral argument.3 Also pending is Plaintiffs Motion for Leave of Court to File their Amended Complaint [Doc. #33] ("Plaintiffs' Motion"). Having considered the parties' submissions, the record, and the applicable authorities, the Court concludes that Defendant's Motion should be granted, and Plaintiffs' Motion should be denied.
Plaintiffs Richard 0. Hunton and Benny Pace, as Trustee of the Richard 0. Hunton Irrevocable Trust ("Trust"), bring suit against Defendant Guardian Life Insurance Company of America ("Defendant" or "Guardian"), alleging that Guardian misrepresented the amount of premiums due under a Guardian life insurance policy they had purchased.
In 1992, Plaintiffs entered into negotiations with Stephen Friedman an employee and agent of Guardian, to obtain life insurance coverage on Hunton's life. Hunton specifically sought a policy that would require premium payments for a fixed number of years only. Friedman proposed that Plaintiffs purchase from Guardian a life insurance policy (the "Policy") that had "vanishing premiums."4 Affidavit of Richard 0. Hunton, October 8, 2001, at 2 (Exhibit A to Plaintiffs' Supplement) ("Oct. 8, 2001 Hunton Aff."). The concept was that Plaintiffs would pay premiums for a limited amount of time, after which the Policy would be fully paid ("paid up"), i.e., would require no further out of pocket costs for additional premiums. Id. Friedman presented Plaintiffs with a "premium payment schedule" issued by Guardian as part of his marketing of the Policy. Id. Under the schedule, the owner of the Policy had to pay premiums for seven and a half years with a large up-front initial payment. Id. at 3. Friedman assured Plaintiffs that the premiums would vanish as promised because Guardian enjoyed the benefits of a "dividend stabilization fund," which would compensate for or supplement any potential fluctuations in dividends. Oct. 18, 2001 Hunton Aff., at 2; Deposition of Stephen L. Friedman, at 51 (Exhibit B to Plaintiffs' Supplement) ("Friedman Dep."). The details of that fund were not explained to Hunton. Oct. 18, 2001 Hunton Aff., at 2.
The Policy5 states that premiums will be payable "For Life." Id. at 3. The terms of the Policy also provide that the insured will share in the proceeds of "Guardian's divisible surplus." Policy, at 6. If the sum of the cash value of the dividends and the cash value of the Policy in any year is sufficient, the insured may use this sum to pay the annual premium on the Policy. Id.6 Once the Policy is fully paid-up, the insured does not need to make any additional out of pocket premium payments because the premiums will be paid from accumulated dividends. Id. Guardian does not state explicitly in the Policy that it will make dividend payments. Id. Instead, the Policy's share of dividends, "if any, is determined yearly by Guardian." Id. Guardian bases this determination on its "mortality, expense, and investment experience." Id. The dividend stabilization fund is not mentioned in the Policy.
Incorporated by reference as part of the Policy is the application for life insurance completed and signed by Hunton ("Application").7 In the Application, Hunton checked a box indicating that he wished to pay premiums "Annually." Id. Under "Section E: Dividends (for participating policies only)," Hunton checked a box that indicated that he wanted the dividends to pay for "One year term insurance not to exceed Target Face Amount of $ 905,450." Id. In this section, Hunton did not check the box that indicated Id. The Application also contains the following language: Application, at 3. Nowhere in the Application did Hunton write or otherwise indicate that he agreed to pay premiums for eight years only.
Plaintiffs allege that the Policy contained a two-page "premium schedule"8 that establishes that the final premium payment would be due in the Policy's eighth year, after which the premium payments were, according to Plaintiffs, guaranteed to vanish. Plaintiffs contend that Friedman delivered the Policy to them in a folder that also contained the Illustrations and that Friedman represented that the Illustrations were part of the Policy. Oct. 8, 2001 Hunton Aff, at 2-3. However, this part of the insurance contract and that all premiums would be paid according to the policy. See Plaintiffs' [proposed] Third Amend contention is contradicted, most significantly, by the terms of the Policy itself.9 Neither the Policy's "Alphabetical Index," Policy, at 13 (), nor the "Guide to Policy Provisions," Policy, at 2 (summarizing the Policy's contents), refers to these two pages. Indeed, the document is titled "Guardian/GIAC Lifeplan Illustrations" ("Illustrations"). It states that the schedules contain additional "attached sheets with important footnotes" that have not been included with Plaintiffs' exhibit. Illustrations, at 2 of 6.
Hunton consulted with his financial advisors in connection with acquiring the Policy,10 but he is the person who made the decision to buy it. At Hunton's request, Trustee Pace purchased the Policy with Trust funds and designated the Trust as owner and beneficiary. Guardian issued the Policy on February 4, 1992. On February 13, 1992, Friedman delivered the policy to Hunton in person. Hunton and Friedman reviewed the Policy's provisions together. Hunton questioned Friedman regarding the language in the Policy that indicates that premiums are payable "For Life." Oct. 8, 2001 Hunton Aff., at 2-3. In response, Plaintiffs allege that Friedman explained that the "For Life" provision was an option available for Plaintiffs if they wished to add value to the Policy by making premium payments beyond the "vanish date." Id. However, Friedman also allegedly stated that, in Plaintiffs' case, the premiums payments were governed by the Illustrations and not by the "For Life" provision. Id.
Plaintiffs made all premium payments set forth under the Illustrations. Plaintiffs allege that Guardian continued to request premiums after the Illustrations' premium vanish date. Plaintiffs contend that, after Plaintiffs inquired about the status of the Policy in December 1997, Guardian first informed them that premiums would be required for an additional five years beyond the vanish date. Plaintiffs further allege that in May 1998 Guardian informed them that the investment component of the Policy had not generated the returns that had been originally represented to them and that they would possibly have to pay premiums for the remainder of Hunton's life.
Guardian adds to Plaintiffs' version of the facts. Beginning in 1993, Guardian contends that it sent Annual Benefit Statements ("Statements") to Plaintiff Benny Pace, owner of the Policy, and to Friedman. The Statements provided information regarding the performance of the Policy, the amount of dividend payments made by Guardian, and the Policy's cash value. Defendant has submitted three Statements dated February 14, 1997; February 4, 1996; and February 4, 1993. See Exhibit B to Ciotti Aff. [Doc. #26] ("Statements").11
Plaintiffs filed suit in the 127th Judicial District of Harris County, Texas on March 24, 2000, naming both Guardian and Friedman as Defendants. On November 17, 2000, Guardian removed to federal district court.12 The case was remanded on January 31, 2001. Plaintiffs then voluntarily dismissed Friedman on February 16, 2001. In response, on February 22, 2001, Guardian again removed the case to this Court.
On June 29, 2001, Plaintiffs filed a Second Amended Complaint, alleging five claims: (i) breach of contract, (ii) fraud and fraudulent inducement, (hi) violations of the Texas Deceptive Trade Practices-Consumer Protection Act ("DTPA"), TEX. Bus. & COM. CODE § 17.41 et seq., (iv) violations of the Texas Insurance Code, TEX. INS. CODE art. 21.21 ("Insurance Code"), and (v) negligent misrepresentation.13
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