Mutuelle Generale Francaise Vie v. Life Assur. Co.

• Decision Date: 14 June 1988
• Docket Number: No. 87 C 10014.,87 C 10014.
• Citation: 688 F. Supp. 386
• Parties: MUTUELLE GENERALE FRANCAISE VIE, Plaintiff, v. LIFE ASSURANCE COMPANY OF PENNSYLVANIA, Defendant.
• Court: U.S. District Court — Northern District of Illinois

688 F. Supp. 386

MUTUELLE GENERALE FRANCAISE VIE, Plaintiff, v. LIFE ASSURANCE COMPANY OF PENNSYLVANIA, Defendant.

No. 87 C 10014.

United States District Court, N.D. Illinois, E.D.

June 14, 1988.

Bruce M. Friedman, Alan J. Brill, Charmaine Marlowe, Kroll & Tract, New York City, Mark Wohlberg, Garbutt & Jacobson Assoc., Chicago, Ill., for plaintiff.

Stephen Novack, Mitchell Marinello, Karen Drizin, Novack & Macey, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Mutuelle Generale Francaise Vie ("MGF") has filed a seven-count Amended Complaint (the "Complaint") against Life Assurance Company of Pennsylvania ("LACOP").¹ All of MGF's asserted causes of action, including claims of fraud and breach of contract, arise from a reinsurance contract or "treaty" between the parties.

LACOP has moved to dismiss the Complaint under:

1. Fed.R.Civ.P. ("Rule") 12(b)(6), for failure to state a claim on which relief may be granted;

2. Rules 8(a) and 8(e)(1), for violation of their requirements of "a short and plain statement of the claim" and of a pleading that is "simple, concise, and direct"; and

3. Rule 9(b), for failure to plead fraud with particularity.

For the reasons stated in this memorandum opinion and order, LACOP's motion is granted (even though not all the existing counts are substantively defective).

Facts²

MGF is a French insurance company (¶ 1), while LACOP is a Pennsylvania insurance company with its principal place of business in Chicago (¶ 2). MGF's claims in this diversity action relate to a risk-sharing contractual relationship between the parties, known in industry parlance as a reinsurance treaty. Under such arrangements the reinsured company — here LACOP — transfers or "cedes" to the reinsurer — here MGF — policies that the reinsured has written or assumed from other underwriters. In consideration of receiving the premiums paid by the policyholders to the reinsured, the reinsurer becomes responsible for claims made on the policies.

LACOP and MGF executed a Reinsurance Agreement (Ex. A, the "Treaty"³) requiring LACOP to cede and MGF to accept a certain class of policies written at least during the period between August 1, 1982 and December 31, 1984 (Ex. A Amdt. 1 Art. XIX). More precisely, the Treaty was of unlimited duration but could be terminated by three months' written notice from either party effective not earlier than the December 31, 1984 date (id.). LACOP was required to cede and MGF to accept (¶ 6(1)):

"credit life and credit disability business written in the United States under the General Agency Agreement with Frank B. Fuhrer and Associates `Fuhrer'," as specified in an Amendment # 1 executed contemporaneously with the pertinent main agreement.⁴

MGF was to reinsure that business automatically, but the Treaty required LACOP to forward regular monthly account statements giving "all pertinent information" on the ceded business (¶ 6(2)). Beyond the reporting requirements, the Treaty also set out the rates that would be used to calculate the premiums (¶ 6(3)) and required that any addenda be in writing (¶ 6(5)). Additionally, as part of an arbitration provision the parties agreed that "the customs and usages of the business of reinsurance" would be used to interpret the Treaty and that the parties were to "act in all things with the highest faith" (Ex. A Art. XVI).

As n. 1 reflects, the parties utilized another insurance company, CICA, as a technical intermediary for some (though, as will be seen, not quite all) of the cessions (¶ 8). To implement that arrangement CICA and the parties executed complementary reinsurance agreements (Exs. B and C), which were not intended to alter the Treaty substantively (¶¶ 9-11).

MGF also identifies two other parties involved in the transactions. Suburban Management and Consulting Ltd. ("Suburban") acted as MGF's exclusive marketing representative (¶ 6(5); Ex. A Art. XV). All communications between LACOP and MGF were to be transmitted through Suburban (id.), and Suburban was to receive 10% of the premiums from MGF (¶ 12). Finally, E.T. Bailey Co. was to receive 2% of the premiums as the broker for the transaction (¶ 13).

In September 1984 MGF exercised its right to terminate the Treaty as of December 31, 1984. LACOP and MGF memorialized the termination by Treaty Amendment No. 2 (¶ 6(6); Ex. A Amdt. 2).

Because the Complaint is so long (205 paragraphs occupying 51 typewritten pages), the details of MGF's allegations are best set out as needed in this opinion's substantive discussion of the various aspects of the current motion. At this juncture it is useful to set out only the essence of the charges:

1. LACOP and Suburban conspired to cede business to MGF beyond the scope of the Treaty and to conceal that practice (¶¶ 17, 29, 37).

2. As part of that scheme, LACOP had Suburban authorize modifications to the Treaty even though LACOP knew marketing representatives such as Suburban were not authorized to do so (¶¶ 31-36).

3. In addition to ceding unauthorized business (and in one instance failing to cede certain business it was required to cede) to MGF, LACOP also violated many of its contractual obligations (see generally ¶ 159), including:

(a) failing to provide the required account statements in a timely manner;

(b) providing inaccurate and incomplete information; and

(c) improperly administering the receipt and transfer of premiums and the payment of claims.

4. LACOP violated its fiduciary duty under the Treaty — a duty derived from (a) the customs and practices of reinsurance, (b) the contract provision that LACOP was to act "with the highest faith" and (c) the relationship between the parties in which LACOP was acting as MGF's agent (¶¶ 169-75).

Procedural History

In November 1987 MGF filed its original complaint, asserting eight claims for relief (including both contract and tort claims). When LACOP filed a motion for dismissal on grounds very close to those in the current motion, this Court did not set a briefing schedule. Instead it identified the obvious defects in the initial complaint in a January 14, 1988 oral ruling.

Though it is really not critical for current purposes (after all, the January 14 ruling was not a final order in any event), the parties hotly dispute the thrust of this Court's remarks. LACOP insists this Court dismissed the original complaint as fatally defective (L. Mem. 1⁵). MGF takes a more roseate view (M. Mem. 3):

Be that as it may, the Court indicated its belief that there may be merit to certain of LACOP's arguments addressed to the legal sufficiency of the Complaint, and the Court having expressed its views on the issues, MGF determined to file an Amended Complaint to avoid engaging in motion practice....

But the January 14 transcript reveals the rulings were not so tentatively expressed as MGF would like to believe. This Court stated flatly that the complaint as framed did not stand up and detailed the defects in each count. It is of course immaterial that no formal dismissal of the complaint took place (this Court would certainly have done so had MGF pressed the point by refusing to amend). What is relevant are the problems this Court initially identified that remain applicable to MGF's second attempt to state its claim.⁶

In any event, MGF did amend. Though it has excised a single count, the pleading has swollen from 17 pages and 69 paragraphs to (as already stated) 51 pages and 205 paragraphs — not counting some 65 pages of Complaint Exhibits. MGF now attempts to state these claims:

Count 1 charging common law fraud;

Count 2 charging constructive fraud;

Count 3 charging negligent misrepresentation;

Count 4 charging substantial breach of contract;

Count 5 charging breach of contract;

Count 6 charging breach of fiduciary duty; and

Count 7 seeking an accounting.

It seeks equitable relief in the form of rescission of the Treaty, as well as actual and punitive damages.

LACOP's Contentions

LACOP urges the Complaint suffers from some if not all of the same defects as its predecessor. It raises a host of challenges:

1. Considered as a whole, the Complaint violates Rule 8.

2. Count 1 fails (a) to allege fraud with the requisite particularity and (b) to state a claim for fraud.

3. Count 2 fails (a) to allege constructive fraud with sufficient particularity and (b) to state a claim, the latter because MGF cannot establish a fiduciary duty on LACOP's part.

4. Count 3 fails to state a claim for negligent misrepresentation because LACOP is not in the business of advising others in their business transactions with third parties.

5. Count 4 fails to state a claim for substantial breach of contract giving rise to rescission of the entire Treaty, as MGF alleges no facts to support that request.

6. Count 5 fails to state a claim for breach of contract, because MGF has not adequately alleged it performed all its required contract obligations (an attack also applicable to Count 4).

7. Count 6 fails to state a claim for breach of fiduciary duty for the reasons stated as to Count 2.

8. Count 7 fails to state a claim for an accounting, because MGF has not established any of the prerequisites for such relief.

Those arguments and MGF's responses will be addressed basically in the sequence in which LACOP has presented them. One preliminary comment is in order. Neither party has seen fit to address the choice of law issue (and this Court's review of the underlying contracts reveals no designation of the applicable law). Because both sides (however unthinkingly⁷) treat Illinois law as controlling, this Court is free to (and does) treat that as a stipulation for the application of that law (National Association of Sporting Goods Wholesalers, Inc. v. F.T.L. Marketing Corp., 779 F.2d 1281, 1284-85 (7th Cir.1985)).

Rule 8

LACOP attacks the Complaint under Rule 8, not simply on the basis of its length⁸ but also because it is unclear and difficult to follow, includes extraneous material unrelated...