McClure v. State Farm Life Ins. Co.
| Decision Date | 23 June 2022 |
| Docket Number | CV-20-01389-PHX-SMB |
| Citation | 608 F.Supp.3d 813 |
| Parties | Earl L. MCCLURE, Plaintiff, v. STATE FARM LIFE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Arizona |
Bradley T. Wilders, Pro Hac Vice, David A. Hickey, Pro Hac Vice, Ethan M. Lange, Pro Hac Vice, Lindsay Todd Perkins, Pro Hac Vice, Norman E. Siegel, Pro Hac Vice, Stueve Siegel Hanson LLP, Kansas City, MO, John J. Schirger, Pro Hac Vice, Joseph M. Feierabend, Pro Hac Vice, Matthew W. Lytle, Pro Hac Vice, Miller Schirger LLC, Kansas City, MO, Heather Lynne Hawthorne Goodwin, Jose de Jesus Rivera, Zubin Mathew Kottoor, Miller Pitt Feldman & McAnally PC, Phoenix, AZ, for Plaintiff.
Daniella P. Main, Pro Hac Vice, Alston & Bird, Dallas, TX, Deborah Lynn Stein, Pro Hac Vice, Gibson Dunn & Crutcher LLP, Los Angeles, CA, Jeremy Alexander Root, Pro Hac Vice, Stinson LLP, Jefferson City, MO, Kristin Linsley, Pro Hac Vice, Gibson Dunn & Crutcher LLP, San Francisco, CA, Sharon Wei Ming Ng, Stinson LLP, Phoenix, AZ, Todd A. Noteboom, Pro Hac Vice, Stinson LLP, Minneapolis, MN, for Defendant.
Pending before the Court is Defendant State Farm Life Insurance Company's ("State Farm's") Motion for Summary Judgment (the "Motion"), (Doc. 74), along with its Statement of Facts in Support of its Motion. (Doc. 75.) Plaintiff Earl McClure filed an opposition to State Farm's Motion, (Doc. 82), and a Response to Defendant's Statement of Facts and Statement of Additional Facts, (Doc. 83). State Farm replied. (Doc. 89.) Both parties requested oral argument, but the Court declined to hold oral argument. (See Doc. 99.) Having reviewed the pleadings, evidence, and relevant law, the Court will now deny State Farm's Motion in part and grant it in part.
Plaintiff filed this lawsuit against State Farm on behalf of himself and a proposed class of policyholders in relation to a $100,000 life insurance policy he bought from State Farm in February 1997. The Court certified Plaintiff's proposed class on April 29, 2022. (Doc. 97.)
State Farm sold its "Universal Life" Policy—Form 94030—between 1994 and 2004 (the "Policy"). (Doc. 75 ¶ 1.) The Policy is a "Universal Life" policy, which is a permanent life insurance product providing "both a death benefit and an investment feature that allows the owner to pay premiums" into a policy account. (Doc. 83 at 6 ¶ 2.) The Policy provides a payment to the beneficiary at the time of the insured's death if the Policy has not been terminated. (Doc. 75 ¶ 3.) The Policy includes an individual account value that accrues interest at a guaranteed rate of no less than four percent. (Id. ¶ 4.) Under the terms of the Policy, 95% of premiums paid are allocated to the account value, and a "premium expense charge of 5% is deducted from each premium paid." (Id. ¶ 6.) Under the terms of the Policy, a "Monthly Deduction" is made consisting of three charges: "(1) the costs of insurance, (2) the monthly charges for any riders, and (3) the monthly expense charge." (Id. ¶ 8.) The Policy states that "[t]he monthly expense charge is $5.00." (Id. ¶ 9.)
The Policy further states:
Monthly Cost of Insurance Rates. These rates for each policy year are based on the Insured's age on the policy anniversary, sex, and applicable rate class. A rate class will be determined for the Initial Basic Amount and for each increase. The rates shown on page 4 are the maximum monthly cost of insurance rates for the Initial Basic Amount. Maximum monthly costs of insurance rates will be provided for each increase in the Basic Amount. We can charge rates lower than those shown. Such rates can be adjusted for projected changes in mortality but cannot exceed the maximum monthly cost of insurance rates. Such adjustments cannot be made more than once a calendar year.
(Id. ¶ 12.) The Policy defines the term "Rate Class" as "the underwriting class of the person insured" and states "[a] rate class will be determined for the Initial Basic Amount and each increase in the Basic Amount." (Id. ¶ 14.) An Insured's "rate class" is "[t]he underwriting class of the person insured," a reference to the underwriting process by which each Insured is evaluated for factors that might affect his or her life expectancy—e.g., "Standard Rate Class—Male Non-Tobacco." (Id. ¶ 32.)
Plaintiff's Complaint contains four claims. Count I is a breach of contract claim for State Farm's alleged overcharging related to the cost of insurance ("COI") charge caused by unauthorized expense loads. (Doc. 1 ¶¶ 58–65.) Count II is a breach of contract claim alleging that State Farm impermissibly deducts expenses from policyholders in amounts in excess of the fixed expense charge authorized by the Policy. (Id. ¶¶ 66–69.) Plaintiff's Complaint also alleges a claim for a conversion (Count III), (Id. ¶¶ 70–78), and declaratory relief (Count IV), (Id. ¶¶ 79–82).
A. Summary Judgment
Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A material fact is any factual issue that might affect the outcome of the case under the governing substantive law.
Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by ... citing to particular parts of materials in the record" or by "showing that materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1)(A), (B). The court need only consider the cited materials, but it may also consider any other materials in the record. Id. 56(c)(3). Summary judgment may also be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Initially, the movant bears the burden of demonstrating to the Court the basis for the motion and "identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323, 106 S.Ct. 2548. If the movant fails to carry its initial burden, the non-movant need not produce anything. Nissan Fire & Marine Ins. Co. v. Fritz Cos. , 210 F.3d 1099, 1102–03 (9th Cir. 2000). If the movant meets its initial responsibility, the burden then shifts to the non-movant to establish the existence of a genuine issue of material fact. Id. at 1103. The non-movant need not establish a material issue of fact conclusively in its favor, but it "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The non-movant's bare assertions, standing alone, are insufficient to create a material issue of fact and defeat a motion for summary judgment. Liberty Lobby , 477 U.S. at 247–48, 106 S.Ct. 2505. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249–50, 106 S.Ct. 2505 (citations omitted). However, in the summary judgment context, the Court believes the non-movant's evidence, id. at 255, 106 S.Ct. 2505, and construes all disputed facts in the light most favorable to the non-moving party, Ellison v. Robertson , 357 F.3d 1072, 1075 (9th Cir. 2004). If "the evidence yields conflicting inferences [regarding material facts], summary judgment is improper, and the action must proceed to trial." O'Connor v. Boeing N. Am., Inc. , 311 F.3d 1139, 1150 (9th Cir. 2002).
State Farm argues that the Court should grant its Motion on all of Plaintiffs’ claims. It argues that Plaintiffs’ theory of liability misreads the Policy language. The Court will take each claim in turn.
State Farm argues that the COI provision in the Policy—stating that an insured's monthly COI rate is "based on the Insured's age on the policy anniversary, sex, and applicable rate class"—tells each policyholder that the assigned monthly COI rate for each year of the Policy is held is "based on" his or her individual characteristics. (Doc. 74 at 20.) State Farm points out that a recent order in an identical lawsuit decided that the Policy language "unambiguously permits State Farm to consider non-mortality factors in calculating the ‘applicable rate class’ that State Farm later uses as one of three factors in determining an individual policyholders’ monthly [COI] rate." (Id. at 20–21 (quoting Bally v. State Farm Life Ins. Co. , 536 F. Supp. 3d 495, 503 (N.D. Cal. 2021) ).) Thus, State Farm argues, the listing of the three factors the COI rate is based upon is not a promise to policyholders about how State Farm will conduct its underlying rate-making process, but only promises policyholders how State Farm will assign them a COI rate. (Id. at 22.) State Farm also contends that Plaintiff's reading of the Policy contravenes legislative goals, public policy, and established actuarial standards. (Id. ) Lastly, State Farm argues that Plaintiff cannot establish breach or damages even under his reading of the Policy. (Id. at 24.)
Plaintiff responds that "the average layman who is untrained in the law or the field of insurance would read the Policy's plain language as prohibiting State Farm from loading its COI Rates with undisclosed profit and expense factors." (Doc. 82 at 11.) Plaintiff points to the orders in Vogt and Jaunich , which denied summary judgment in favor of State Farm on the same claims, as additional support for his argument. (Doc. 82 at 12 (...
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