Johnson v. Prudential Ins. Co. of Am., Inc.
| Decision Date | 29 March 2013 |
| Docket Number | No. 3:11–0866.,3:11–0866. |
| Citation | 939 F.Supp.2d 845 |
| Parties | Richard A. JOHNSON and C. Dale Allen, in their official capacity as Trustees, Plaintiffs, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, INC., Defendant. |
| Court | U.S. District Court — Middle District of Tennessee |
OPINION TEXT STARTS HERE
Winston S. Evans, Evans, Jones & Reynolds, Nashville, TN, for Plaintiffs.
James Auman Haltom, Thomas K. Potter, III, Burr & Forman, LLP, Nashville, TN, for Defendant.
This civil action is before the undersigned for all further district court proceedings, pursuant to the consent of all parties. (Docket Entry No. 54)
Plaintiffs, Richard A. Johnson and C. Dale Allen, Tennessee citizens and co-Trustees under an irrevocable trust agreement dated October 17, 1996 for the Gary D. Sasser Irrevocable Trust,1 originally filed this breach of contract action for the benefit of the Trust in Davidson County, Tennessee Chancery Court against Defendant, The Prudential Insurance Company of America (“Prudential”),2 a New Jersey corporation with its principal place of business in New Jersey. Prudential removed the action to this Court under 28 U.S.C. § 1332, the federal diversity statute, without objection. Plaintiffs thereafter twice amended their complaint. Their Second Amended Complaint was filed on June 15, 2012. (Docket Entry No. 45)
Before the Court is Prudential's motion to dismiss plaintiffs' Second Amended Complaint (Docket Entry No. 49), filed on July 13, 2012. Plaintiffs have filed their response (Docket Entry No. 56), to which Prudential replied with leave of Court (Docket Entry No. 60). On September 26, 2012, the Court heard oral argument on Prudential's motion, pursuant to plaintiffs' request for same. For the reasons stated in this Memorandum, and by Order entered contemporaneously herewith, Prudential's motion will be GRANTED and plaintiffs' case DISMISSED.
On September 14, 2000, Prudential issued an insurance policy on the life of Mr. Gary D. Sasser, in the amount of thirty million dollars. The term of this policy was twenty years. Plaintiff Johnson, as Trustee of the Gary D. Sasser Irrevocable Trust, was the owner and beneficiary of the policy. This policy was purchased after plaintiff Johnson, in 1999, had instructed Mr. Steve Jackson of American Brokerage to search for a policy of insurance on Mr. Sasser's life which had the best possible underwriting classification without being “rated.” Mr. Jackson, as agent for the Trustees, was informed by Prudential that Mr. Sasser qualified for “preferred” rates, and that Prudential would issue a policy on Mr. Sasser's life which was not rated and which had a “preferred” underwriting classification. In reliance upon these representations, plaintiff Trustees purchased the policy from Prudential. (Docket Entry No. 45 at ¶¶ 9–21)
The policy issued on September 14, 2000, was marked as being in the “Preferred” rating class, consistent with the representations made by Prudential to the Trustees through Mr. Jackson. Id. at ¶ 23 and Exh. 1, p. 3. However, unbeknownst to the plaintiff Trustees, there was no rating class known simply as “Preferred”; rather, the rating classes were denominated “Select Preferred,” “Non–Select Preferred,” and “Standard.” Id. at ¶ 24. In fact, the policy issued to plaintiff Johnson was in the “Non–Select Preferred” rating class. Id. at ¶ 25. The Trustees did not discover this discrepancy until reviewing emails produced by Prudential in this lawsuit. Id. at ¶ 27.
The policy contains a provision for conversion to another plan of insurance, and Plaintiffs had contemplated their eventual conversion of the policy at the time they purchased the policy. Id. at ¶¶ 32–33.
The conversion clause of the policy provides, in pertinent part, the following:
Right to Convert You may convert this contract to a new contract of life insurance on the Insured's life. You will not have to prove that the Insured is insurable.
Conditions You must ask for the conversion in a form that meets our needs, while this contract is in force, and on or before the fifth contract anniversary. We may require you to send us the contract.
* * *
Contract Specifications The new contract will be in the same rating class as this contract. We will set the issue age and the premiums for the new contract in accordance with our regular rules in use on its contract date.
Except as we state in the state in the next sentence, the new contract may be on any life or endowment plan we regularly issue on its contract date for the same rating class, amount, issue age, and sex ...
Plaintiffs allege that Defendant “was obligated, upon request from [Plaintiffs] to convert the Policy to a policy in the same rating class.” (Docket Entry No. 45 at ¶ 31) (emphasis in original). On November 17, 2005, Defendant agreed by letter to extend the conversion period through December 2, 2005. Id. at ¶ 34. An illustration for a converted policy was prepared by Defendant and received by Plaintiff Johnson, with the insured's underwriting classification noted as “Non–Smoker.” Id. at ¶¶ 35, 37. Plaintiff Johnson then requested that Defendant supply an illustration for a converted policy with a “Preferred” rating. Id. at ¶ 41. Defendant responded by supplying an illustration of a converted policy with a “Preferred Non–Smoker” rating, the premiums for which were substantially lower than those associated with the “Non–Smoker” rating. Id. at ¶¶ 42, 43.
On November 22, 2005, Defendant sent a letter to Plaintiff Johnson, stating in pertinent part, the following:
The purpose of this note is to summarize the process Prudential uses to determine the rating class when a term policy is converted to a new contract under the conversion privilege in the term contract. The rating classification of the new plan will be the same rating classification as the term coverage being converted if the same rating classification is available. If the new policy requested does not offer the same rating classification, the new policy will be in the rating class that is equivalent to that of the existing term policy.
In 2000, when [the original policy] was issued, the rating classifications available were Select Preferred, Preferred and Standard, where Select Preferred was the best available classification offered. In the case of Mr. Sasser's policy, he received our Preferred Classification, which was our rating classification for nonsmokers who did not qualify for the Select Preferred Classification. For contractual conversions from a Term Plus contract, the rating classifications today which are equivalent to Select Preferred, Preferred and Standard are Preferred Nonsmoker, Nonsmoker and Smoker, respectively. Our current rating classification for nonsmokers who did not qualify for a Select Preferred rating is Nonsmoker. To be considered for the better rating classification than Nonsmoker (which is the contractually guaranteed rating classification), Mr. Sasser would need to go through appropriate underwriting....
On November 29, 2005, Plaintiffs sent a letter to Defendant demanding Defendant convert the original policy to a new policy with a “Preferred Non–Smoker” rating, and stating the following in pertinent part:
... I hereby elect to convert this policy to a PruLife UL Protector Life Insurance Policy, insured Gary Sasser, insurance amount $30,000,000, Type A (Fixed) Death Benefit. Pursuant to the terms of the Term Policy Prudential Financial is required to convert this policy to a new contract “in the same rating class” as the Term Policy. The Term Policy's rating class is “Preferred.” Accordingly, we demand a conversion to the current underwriting classification of “Preferred Non–Smoker.” By the express terms of the Term Policy, this is the “same rating class.” The Term Policy does not authorize conversion to “an equivalent rating class” as permitted by some of your company's contractual policy language contained in later issued policies.
(Docket Entry No. 45 at 147). Plaintiff tendered $385,282.00 for the first annual premium on the new policy. Id. at 148.
On December 6, 2005,3 Defendant sent a letter to Plaintiffs refusing to convert the policy under a “Preferred Non–Smoker” rating and returning their initial premium payment. Id. at ¶ 49.
In response, on February 16, 2006, Plaintiff sent a letter to Defendant stating the following, in pertinent part:
In accordance with your letter dated November 6, 2005, and our letter dated December 19, 2005, the Trust elects to convert the Term Policy and we are enclosing the Application for Life Insurance or Policy Change to convert the Term Policy. By converting this policy under the terms of your letter dated November 6, 2005, and received by us in early December 2005, we, as Trustees of the Gary D. Sasser Irrevocable Trust, expressly reserve all legal rights available to it as set forth in our letter dated November 29, 2005.
Id. at ¶ 50. Thus, Plaintiffs allege that they converted the policy under the rating classification of Nonsmoker in accordance with Defendant's requirements, but under the express reservation of “the right to have the [p]olicy converted to a [new policy] with the same rating class as the [original] [p]olicy.” Id. at ¶ 51. The converted policy was thereafter issued by Defendant.
According to Plaintiffs, Defendant failed and refused to honor its contractual obligation to convert the policy to a new policy of the same rating class. Id. at ¶ 53. Plaintiffs conclude that, given the ambiguity resulting from the original policy's issuance on the “Preferred” class of risk when the risk class at the time were denominated “Select Preferred,” “Non–Select Preferred,” and “Standard,” the conversion option in the policy must be construed against Defendant, as requiring conversion to a new “Select Preferred” policy. Id. at ¶¶ 54–55. Plaintiffs...
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