Krukas v. AARP, Inc.

Decision Date17 March 2019
Docket NumberCivil Action No. 18-1124 (BAH)
Parties Helen KRUKAS, Plaintiff, v. AARP, INC., et al., Defendants.
CourtU.S. District Court — District of Columbia

Jason Samuel Rathod, Nicholas A. Migliaccio, Migliaccio & Rathod LLP, Washington, DC, Brett H. Cebulash, Pro Hac Vice, Tess Bonoli, Pro Hac Vice, Kevin S. Landau, Taus, Cebulash & Landau, LLP, New York, NY, David A. Goodwin, Pro Hac Vice, Gustafson Gluek PLLC, Minneapolis, MN, for Plaintiff.

Alec W. Farr, Adam Lee Shaw, Heather Shaw Goldman, Bryan Cave Leighton Paisner, LLP, Washington, DC, Jeffrey S. Russell, Pro Hac Vice, Bryan Cave Leighton Paisner, LLP, St. Louis, MO, for Defendants.


BERYL A. HOWELL, Chief JudgeThe plaintiff, Helen Krukas, individually, and on behalf of all others similarly situated (except for individuals residing in California), as well as the general public, brings this putative class action against the defendants, AARP Inc., ("AARP"), AARP Services Inc. ("ASI"), and AARP Insurance Plan ("AARP Trust") (collectively referred to as "AARP"), alleging a violation of the Washington D.C. Consumer Protection Procedures Act ("CPPA"), D.C. CODE § 28-3901 et seq. , as well as common law violations of conversion, unjust enrichment, and fraudulent concealment, based on her purchase of a Medicare supplemental health insurance policy, also known as a "Medigap" policy, administered by AARP. See Compl. ¶¶ 1, 16, 17, 88, ECF No. 1. These statutory and common law claims are predicated on the plaintiff's allegations that she was "fooled into paying AARP an undisclosed 4.95% commission" when purchasing her Medigap policy and, since "AARP is not licensed as an insurance broker or agent," the defendants "may not legally collect these commissions." Id. ¶ 1. Pending before the Court is the defendants' Motion to Dismiss for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). See Defs.' Mot. to Dismiss & Mem. in Supp. ("Defs.' Mem."), ECF No. 8.1 For the reasons set forth below, the defendants' motion is denied.2


The plaintiff challenges AARP's role in soliciting, marketing, and administering Medigap policies, a state-regulated form of health insurance to supplement Medicare. Since at least 1997, AARP has held, in its name, group Medigap policies underwritten by UnitedHealth Group and UnitedHealthcare Insurance Company (collectively, "UnitedHealth") and offered participation in those group policies to individual AARP members and the general public. See Compl. ¶¶ 22, 37, 51. The plaintiff alleges that AARP's administration and provision of other services in support of these group Medigap policies amounted to acting as an unlicensed insurance agent, that the "royalties" paid to AARP as a percentage of premiums constituted illegal commissions, and that AARP materially misrepresented the nature and source of the "royalties," causing consumers to pay more for AARP Medigap policies than they otherwise would. See Compl. ¶¶ 4–15. The following discussion provides a general overview of Medigap policies and summarizes the plaintiff's allegations, claims against AARP, and desired relief.

A. Medigap Policies Generally

A Medigap policy is insurance offered by a private insurer to help pay for certain "gaps" in Medicare coverage. See United States v. Blue Cross & Blue Shield of Md., Inc. , 989 F.2d 718, 721 (4th Cir. 1993) (citing Pub. L. No. 96-265, § 507, 94 Stat. 441, 476 (codified as amended at 42 U.S.C. § 1395ss ) ). The Centers for Medicare and Medicaid Services has described a Medigap policy as "health insurance [sold by private insurance companies that] can help pay some of the health care costs that Original Medicare doesn't cover, like coinsurance, copayments, or deductibles." CTRS. FOR MEDICARE & MEDICAID SERVS. , CHOOSING A MEDIGAP POLICY: A GUIDE TO HEALTH INSURANCE FOR PEOPLE WITH MEDICARE 5 (2019), [hereinafter "CMS Medigap Guide]; see also Compl. ¶ 29 ("Medigap plans offer extra coverage to Medicare beneficiaries ... such as first-dollar coverage and reduced co-payment and deductibles.").3 "Each standardized Medigap policy must offer the same basic benefits, no matter which insurance company sells it. Cost is usually the only difference between [standardized] Medigap policies ... sold by different insurance companies," CMS Medigap Guide at 9, because "[d]ifferent insurance companies may charge different premiums for the same exact policy," id. at 13. Indeed, "big differences" may occur "in the premiums that different insurance companies charge for exactly the same coverage." Id. at 19. Age, where a person lives, medical underwriting, and discounts may affect an insurance company's choice of what premium to charge. Id. at 17.

B. AARP's Alleged Role in Administering UnitedHealth's Medigap Policies

The plaintiff, currently a resident of Boca Raton, Florida, originally purchased a UnitedHealth Medigap policy from AARP in Louisiana in 2012, and continuously maintained this coverage by paying her monthly premium to AARP until November 2016. See Compl. ¶ 20; Pl.'s Mem. in Opp'n to Mot. to Dismiss ("Pl.'s Opp'n") at 16, ECF No. 13. Her most recent renewal of her AARP Medigap policy coverage occurred when she resided in Florida. See Compl. ¶ 20; Pl.'s Opp'n at 16. She alleges that "[b]ut for Defendants' deceptive and unlawful acts ... [she] would not have agreed to pay an additional 4.95% above the premium for an AARP Medigap policy, and would have sought out other, cheaper and lawful Medigap insurance." Compl. ¶ 20.

Defendant AARP is a non-profit membership organization for seniors aged 50 years or older, with reportedly over 40 million members, about half of whom are over the age of 65. See id. ¶¶ 2, 21, 25. The organization is organized under the laws of the District of Columbia and maintains its national headquarters and primary place of business in Washington, D.C., id. ¶ 21, which is where AARP establishes its "corporate policies and practices, including those for AARP Medigap policies," id. Defendant ASI is a wholly owned subsidiary of AARP, organized under the laws of Delaware, with its primary place of business in Washington, D.C. Id. ¶ 22. As AARP's taxable, "for-profit" division, ASI "negotiates, oversees, and manages lucrative contracts with AARP's insurance business partners." Id. AARP created ASI in 1999 pursuant to a settlement agreement with the U.S. Internal Revenue Service (IRS), following an IRS investigation into the income that AARP earned through endorsement deals. See id. ¶¶ 22, 36. Defendant AARP Trust is a grantor trust organized by AARP under the laws of Washington, D.C., where the Trust maintains its primary place of business. Id. ¶ 22.

AARP is not a licensed insurance broker or agent. Id. ¶ 8. Rather, AARP, through AARP Trust, serves as the group policy holder for Medigap coverage underwritten by UnitedHealth. See id. ¶ 22. In this role, AARP Trust maintains depository accounts to collect insurance premiums from individual purchasers of Medigap policies through AARP's group plan and, as part of that premium, AARP Trust also collects the challenged 4.95% "royalty" charge assessed on every Medigap policy sold or renewed. See id. ¶¶ 22, 52, 54. AARP Trust remits premiums to UnitedHealth, and transfers the money collected as a 4.95% "royalty" to AARP and ASI. Id. ¶¶ 22, 56, 57; see also id. ¶ 52 ("In accordance with the agreement [with UnitedHealth] ... collections [of premiums] are remitted to third-party insurance carriers ..., net of the contractual royalty payments that are due to AARP, Inc. , which are reported as royalties.") (quoting AARP's 2016 Audited Financial Statement) (emphasis added).

A joint venture agreement ("Agreement"), first entered in 1997, governs AARP and UnitedHealth's relationship with respect to Medigap insurance. Id. ¶ 37; see also Defs.' Mem., Ex. 1 (Agreement), ECF No. 8-1.4 The Complaint provides detail on the evolution of the Agreement over time, most notably that AARP was initially entitled to an "allowance," which was renamed a "royalty" after AARP's 1999 settlement with the IRS. Compl. ¶¶ 39, 40. Under the Agreement, AARP agrees to: (1) market, solicit, sell and renew AARP Medigap policies with UnitedHealth; (2) collect and remit premium payments on behalf of UnitedHealth; (3) generally administer the AARP Medigap program; and (4) otherwise act as UnitedHealth's agent. Id. ¶ 38. The Agreement makes clear that AARP owns all solicitation materials related to the Medigap program. Id. ¶ 47 (citing Agreement Subsection 7.2, "Member Communications"). "[I]n exchange for AARP's administering of the insurance program and its marketing, soliciting, and selling or renewing of AARP Medigap policies on behalf of UnitedHealth, as well as its collecting and remitting insurance premiums on behalf of UnitedHealth, AARP earns a 4.95% commission—disguised as a ‘royalty’—on each policy sold or renewed." Id. ¶ 45. In 2016, AARP generated $880 million in revenues from "royalties," of which 68% came from UnitedHealth insurance products, including Medigap Policies and other insurance products. See id. ¶¶ 28, 32, 33, 37. The $880 million in royalty revenue equated to over 54% of AARP's 2016 total operating revenue. Id. ¶ 32.

The nature of the 4.95% charge, and AARP's representations to consumers regarding this charge, are the focus of the plaintiff's claims. While the defendants describe the 4.95% charge as a royalty compensating AARP for UnitedHealth's use of its intellectual property, see id. ¶¶ 40–45, the plaintiff alleges, relying on a Ninth Circuit case for support, that the 4.95% charge is an illegal and not properly disclosed commission compensating AARP for agreeing to act as UnitedHealth's agent in connection with the marketing, solicitation, sale, and administration of Medigap policies. See id. ¶¶ 49, 62–68; see also id. ¶ 6 (citing Friedman v. AARP, Inc. , ...

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