Jackson v. Minn. Life Ins. Co.

• Decision Date: 08 March 2017
• Docket Number: No. 5:16–CV–111–D,5:16–CV–111–D
• Citation: 275 F.Supp.3d 712
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Dr. James H. JACKSON and James H. Jackson Irrevocable Trust, Plaintiffs, v. MINNESOTA LIFE INSURANCE COMPANY; First Insurance Funding Corporation; and Barrington Bank & Trust Company, N.A., Defendants.

275 F.Supp.3d 712

Dr. James H. JACKSON and James H. Jackson Irrevocable Trust, Plaintiffs,

v.MINNESOTA LIFE INSURANCE COMPANY; First Insurance Funding Corporation; and Barrington Bank & Trust Company, N.A., Defendants.

No. 5:16–CV–111–D

United States District Court, E.D. North Carolina, Western Division.

Signed March 8, 2017

A. Charles Ellis, Ward & Smith, P.A., Greenville, NC, Michael J. Parrish, Ward and Smith, P.A., New Bern, NC, for Plaintiffs.

Lisa Kaminski Shortt, Kip Nelson, Manning A. Connors, III, Smith Moore Leatherwood, LLP, Greensboro, NC, Donald H. Tucker, Jr., Tobias R. Coleman, Smith Anderson Blount Dorsett Mitchell & Jernigan, LLP, Raleigh, NC, for Defendants.

ORDER

JAMES C. DEVER III, Chief United States District Judge

On February 8, 2016, Dr. James H. Jackson ("Dr. Jackson") and the James H. Jackson Irrevocable Trust ("the Trust") (collectively, "plaintiffs") sued Minnesota Life Insurance Company ("Minnesota Life"), First Insurance Funding Corporation ("First Insurance Funding"), and Barrington Bank & Trust Company, N.A. ("Barrington") (collectively, "defendants") in Wake County Superior Court [D.E. 1–1]. Plaintiffs assert six claims for relief arising under North Carolina law: fraud in the inducement, negligent misrepresentation, breach of good faith and fair dealing, unfair and deceptive trade practices, and two claims for breach of contract. On March 14, 2016, Minnesota Life timely removed the action to this court [D.E. 1]. On April 20, 2016, Minnesota Life answered [D.E. 17], moved for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure [D.E. 20], and filed a supporting memorandum [D.E. 21]. Also on April 20, 2016, First Insurance Funding and Barrington answered [D.E. 18]. On May 10, 2016, First Insurance Funding and Barrington moved for judgment on the pleadings under Rule 12(c) [D.E. 25] and filed a supporting memorandum [D.E. 26]. On May 11, 2016, plaintiffs responded in opposition to Minnesota Life's motion for judgment on the pleadings [D.E. 27]. On May 20, 2016, plaintiffs responded in opposition to First Insurance Funding and Barrington's motion for judgment on the pleadings [D.E. 29]. On May 25, 2016, Minnesota Life replied to plaintiffs' response in opposition [D.E. 30]. On June 3, 2016, First Insurance Funding and Barrington replied to plaintiffs' response in opposition [D.E. 31]. As explained below, the court grants defendants' motions for judgment on the pleadings.

I.

In or around 2009, Dr. Jackson—then 68 years old—received marketing materials from Minnesota Life regarding one of its products called the Eclipse Indexed Life Policy ("the Policy"). See Compl. [D.E. 1–1] ¶¶ 15–17. Plaintiffs' complaint does not state whether Dr. Jackson solicited the materials. Under the Policy, the insured's annual premiums were invested in specified market funds and accumulated value based on the investments' performance. Id. ¶ 18. The marketing materials also listed lenders who offered a service known as "premium financing," including First Insurance Funding. Id. ¶¶ 19–20. Premium financing lenders advance the annual premiums due under a life-insurance policy. Id. ¶ 21. The insured or beneficiary pays the interest on those advances until the policy's investment returns can sustain the interest payments. id. The policy's cash, or surrender, value serves as collateral for the loan's repayment. Id. Upon the insured's death, the policy's proceeds repay the loan's principal, and the beneficiary receives any surplus. Id.

In August 2009, First Insurance Funding and Minnesota Life provided Dr. Jackson with a "Plan Overview." Id. ¶ 22. The Plan Overview included illustrations (the "August 2009 Illustration") depicting the Policy's performance assuming $5,000,000.00 in coverage for Dr. Jackson, beginning at age 69, and $513,261.00 in annual premiums. Id.; Compl. Ex. A. First Insurance Funding or its agent provided illustrations for the premium-financing loan based on $513,261.00 in annual premiums and a 5.5% interest rate. Compl. ¶ 22; Compl. Ex. A. The August 2009 Illustration projected the Policy's accumulated value and interest due under the premium-financing loan through the Policy's fourth year. Compl. ¶¶ 24–26.

The August 2009 Illustration also depicted index credits, which are how the Policy accumulates value. See Id. ¶ 27. When a policyholder make a premium payment, the insurer allocates it to an "index segment." See [D.E. 21] 3–4. Each index segment tracks an investment-related market index and has a one-year life span. Id. At the end of that year, the insurer calculates an index credit based on the segment's value multiplied by both the participation rate and the segment's growth rate. Id. The product of that calculation—the index credit—is then credited back to the Policy's total accumulated value. Id.

In February 2010, Dr. Jackson and the Trust applied for the Policy and sought $5,000,000.00 in coverage for Dr. Jackson based on an age of 69 with the Trust as the beneficiary. Id. ¶ 130. At the same time, Dr. Jackson applied for a premium-financing loan with First Insurance Funding to finance the Policy's premiums. Id. ¶ 31. Based on the Plan Overview that Minnesota Life and First Insurance Funding provided, Dr. Jackson asked Minnesota Life to add a Surrender Value Enhancement Agreement ("SVEA") to the Policy. Id. ¶ 132. The SVEA provided that the Policy's surrender value would not fall below the total amount in premiums paid on the Policy in the first three years. Id. ¶ 33.

In March 2010, Minnesota Life approved Dr. Jackson's application and offered to issue him $5,000,000.00 in coverage with annual premiums of $513,260.54. Id. ¶ 35. Minnesota Life also confirmed that it would issue the Policy with an effective date of February, 9, 2010, so that Dr. Jackson's age under the Policy would be 69. Id. On March 23, 2010—before the Policy was issued—Minnesota Life provided Dr. Jackson and the Trust with a document titled "Life Insurance Policy Illustration" (the "Minnesota Life March 2010 Illustration"), which contained numerous illustrations. Id. ¶ 38; Compl. Ex. B. Each illustration in the Minnesota Life March 2010 Illustration showed that an index credit had been applied to the Policy's accumulated value in the Policy's first year. Compl. ¶ 43. The Minnesota Life March 2010 Illustration also projected the Policy's accumulated cash value under various scenarios, ranging from "worst case scenario" to a modest rate of return. Id. ¶¶ 44–47.

On March 24, 2010, Dr. Jackson and the Trust signed the Minnesota Life March 2010 Illustration and returned it to Minnesota Life. See Id. ¶ 48; Compl. Ex. B. After receiving the signed Illustration, Minnesota Life issued the Policy for $5,000,000 in coverage for Dr. Jackson effective February 9, 2010, at age 69. Compl. ¶ 49. The Policy included the SVEA. Id.

Also in March 2010, First Insurance Funding or its agent provided Dr. Jackson with a separate set of illustrations (the "First Insurance Funding March 2010 Illustration"). Id. ¶ 50; Compl. Ex. C.¹ The First Insurance Funding March 2010 Illustration indicated that, based on a 5.6% interest rate on the premium-financing loan and a 9.26% rate of return on the Policy, Dr. Jackson or the Trust would need to post an additional $100,159 in collateral in the Policy's fourth year. Compl. Ex. C. Based on the listed assumptions, the maximum amount of additional collateral required in any one year would be $ 165,673. Id. The First Insurance Funding March 2010 Illustration also showed that an index credit had been applied to the Policy's accumulated value in its first year. Id. ¶ 51.

On or about March 19, 2010, the Trust executed a promissory note (the "Loan" or "Note"), Dr. Jackson executed a personal guaranty, and the Trust executed a document assigning the Policy to First Insurance Funding as collateral to secure the Loan. Id. ¶ 53. The Loan listed defendant Barrington as the "Lender." Id. ¶ 54. First Insurance Funding took all actions as Barrington's agent. Id. ¶ 55.

Dr. Jackson and the Trust believed the August 2009 Illustration, the Minnesota Life March 2010 Illustration, and the First Insurance Funding March 2010 Illustration accurately and completely reflected the contract terms and anticipated performance for the Policy and Loan. Id. ¶ 58. Over the Policy's first three years, its underlying investments performed significantly better than the illustrations projected. Id. ¶¶ 73, 75–87. Nonetheless, the Policy's actual accumulated value was significantly less than projected because the illustrations' projections were based on an index credit being applied in the first year, when in reality no index credit was applied in the first year. Id. ¶¶ 73, 78. Thus, even though the index segment created during the first year earned a return of 8.48%—outperforming the assumed returns in the Minnesota Life March 2010 Illustrations—because an index credit based upon that segment was not applied in year one, the Policy's actual accumulated value fell significantly below that shown in the Minnesota Life March 2009 Illustrations, where an index credit had been applied. Id. ¶¶ 77–78. Because the index segment performed so well, the underlying index segment's performance did not cause the deviation between the Policy's actual accumulated value after the first year and the accumulated value shown in the illustrations. Id. ¶ 80. Rather, the deviation resulted from the allegedly false and misleading nature of the illustrations: specifically, the fact that an index credit had not been applied during the Policy's first year. Id. Because the Policy's actual accumulated value during the first year fell below the value shown in the some of the illustrations, the actual accumulated value during the second and third years also fell below the value shown in the illustrations due to the compounding nature of the index credits. See id. ¶¶ 73–87. The Annual Policy Reviews that Minnesota Life issued at the end of each policy...