National Western Life Ins. Co. v. Rowe

• Decision Date: 08 August 2002
• Docket Number: No. 03-01-00396-CV.,03-01-00396-CV.
• Parties: NATIONAL WESTERN LIFE INSURANCE COMPANY, Appellant, v. Ella Mae ROWE, Individually And On Behalf Of All Others Similarly Situated, Appellee.
• Court: Texas Court of Appeals

86 S.W.3d 285

NATIONAL WESTERN LIFE INSURANCE COMPANY, Appellant, v. Ella Mae ROWE, Individually And On Behalf Of All Others Similarly Situated, Appellee.

No. 03-01-00396-CV.

Court of Appeals of Texas, Austin.

August 8, 2002.

Rehearing Overruled September 12, 2002.

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J. Roger Williams, Jr., Catherine L. Robb, Jennifer A. Lloyd, George and Donaldson, L.L.P., Austin, for appellant.

Joe K. Longley, Longley & Maxwell, L.L.P., Wade Caldwell, Jesse R. Castillo, Denise Nixon Bunk, Martin Drought & Torres, Inc., San Antonio, Stephen Woodfin, Law Office of Stephen Woodfin, Kilgore, for appellee.

Before Justices KIDD, YEAKEL and PATTERSON.

MACK KIDD, Justice.

National Western Life Insurance Co. ("National") brings this interlocutory appeal challenging the trial court's order certifying a class action. See TEX. CIV. PRAC. & Rem.Code Ann. § 51.014(a)(3) (Vest Supp.2002). National contends that the trial court abused its discretion in certifying the class because the appellee, Ella Mae Rowe, failed to satisfy certain requirements for class certification under rule 42 of the Texas Rules of Civil Procedure. We will affirm the trial court's order certifying the class.

BACKGROUND

This case concerns child riders to life insurance policies sold by National. National began selling child riders in 1965. Rowe purchased her life insurance policy with a child rider from National in 1977. Since National began selling these riders, the forms of the child riders have been altered.¹ However, all forms of the rider that lie at the center of this controversy contain substantially similar language. Each rider provides for a $1,000 benefit to be paid upon the death of a child prior to termination of coverage for that child at age twenty-five. The rider defines "child" as follows:

"Child" as used in this rider means (1) each of the Insured's children who is named in the application for this rider, who is at least 15 days old, and who at the date of application is not yet 18 years old, and (2) each child born to or legally adopted by the Insured and Insured's spouse after the date of application for this rider, who becomes 15 days old and who at the date of adoption is not yet 18 years old.

National does not maintain records of the insured's children and does not require notice upon the birth or adoption of additional children after the child rider is purchased. National simply promises to provide the $1,000 benefit upon receipt of "due proof of death of a child."

The rider also contains the following language concerning termination of coverage:

Insurance on a Child stops on the rider anniversary when the Child is 25 years old unless it stops earlier in accordance with this section.

Premiums are not due for this rider after it has stopped. If we accept a premium after termination it does not mean that we are liable for benefits under this rider or that we waive the termination. We will refund any premiums so accepted.

National drafted these riders so that coverage terminates once the policyholder's children have reached twenty-five years of age. However, because National recognized that it may continue to receive rider premiums after coverage terminates, the rider disclaims liability for benefits if premiums are received and accepted after coverage terminates. Although the rider promises a refund of premiums so accepted, National has not offered to refund the premiums collected from unnamed class members that were remitted after coverage terminated.² It is National's failure to refund premiums paid after a child turns twenty-five that forms the basis for this class action litigation.

The termination language in the rider lies at the heart of this dispute. Rowe alleges that National has wrongfully continued to collect premiums for riders under which the coverage has terminated. Policyholders do not receive a copy of the rider until after the first premium payment is received by National. Therefore, policyholders have already initiated payment for the rider before having the opportunity to review the contractual language to which they have agreed. Furthermore, Rowe claims that National designed that language to place an affirmative duty on the policyholder to recognize when the rider has expired. Rowe claims that National designed the riders in this manner with an understanding that individuals would not recognize the nuances of this language, and thus, would likely continue to pay premiums for riders that had terminated.

Additionally, Rowe argues that National is in the best position to monitor its policyholders' rider coverage and should assume the obligation of notifying policyholders if they remit premiums that are no longer due. Rowe further contends that National's billing policies confuse policyholders and manipulate them into paying for terminated riders, in that National submits premium invoices to policyholders that fail to segregate the two premiums, one for the underlying policy and one for the rider. National concedes that on policies that are in effect for ten or twenty years, policyholders may forget that their premiums include payments for the rider. Rowe argues that National should notify its policyholders about the status and charges concerning the riders. Therefore, Rowe filed suit in March 2000 asserting claims against National for breach of contract, fraud, negligent misrepresentation, unjust enrichment, and violations of the Deceptive Trade Practices-Consumer Protection Act and article 21.21 of the Texas Insurance Code. See Tex. Bus. & Com.Code Ann. § 17.41 (West 2002); Tex. Ins.Code Ann. art. 21.21 (West Supp.2002).

National responds that it should not be responsible for notifying policyholders when coverage terminates on the rider because National has no way of knowing the ages of children covered by the rider. National does not maintain records of the names and ages of its policyholders' children. Nor does National require notice if additional children come under the rider's umbrella of coverage. Because National does not maintain such records, National claims that it cannot be expected to know the number or ages of covered children. National's second defense to Rowe's allegations is that the riders are designed to provide continuing coverage regardless of whether policyholders have children under twenty-five when premiums are paid. National argues that some policyholders choose to continue paying for the rider to ensure that any after-born or after-adopted children are covered. National asserts, inter alia, that the class certification is improper because the trial court ignored National's argument based on this continuing benefit.

National raises eight issues in its appeal. In its first issue, National attacks the trial plan on grounds that it relies on a flawed claim form procedure and it eliminates or lowers Rowe's burden of proof concerning reliance and National's statute of limitations defense. In its fifth and sixth issues, National also challenges the trial plan as arbitrarily placing Rowe's breach of contract claims ahead of the remaining tort claims and failing to consider a section of the insurance code. See Tex. Ins.Code Ann. § 36.159(c) (West 2002) (governing Texas Department of Insurance subpoena powers and duty to protect confidentiality of privileged records). National's second issue challenges the trial court's finding that the class met the commonality requirement of rule 42(a)(2). Issues three and four challenge the trial court's determination that Texas law governs all the claims of the class. By its seventh issue, National asserts that the trial court abused its discretion in admitting expert testimony in the certification hearing without properly examining it for relevance and reliability. Finally, National's eighth issue challenges the trial court's order requiring National to bear a portion of the discovery costs in this case.

STANDARD OF REVIEW

In a class action, the trial court is charged with the duty of actively policing the proceedings and guarding the class interests. See General Motors Corp. v. Bloyed, 916 S.W.2d 949, 954 (Tex.1996) (discussing extraordinary nature of class action litigation, protections required for absent class members, and trial court's departure from ordinarily detached role assumed in most other proceedings). Therefore, the trial court is afforded broad discretion in defining the class and determining whether to grant or deny a class certification. See Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 406 (Tex.2000). On appeal, our review is strictly limited to determining whether the trial court abused its discretion in ordering class certification. See Tana Oil & Gas Corp. v. Bates, 978 S.W.2d 735, 740 (Tex.App.-Austin 1998, no pet.); Vinson v. Texas Commerce Bank-Houston, N.A., 880 S.W.2d 820, 823 (Tex. App.-Dallas 1994, no writ). An appellate court must not substitute its judgment for that of the trial court. Tana Oil, 978 S.W.2d at 740. Even if a trial court determines an issue differently than would an appellate court, the ruling does not necessarily constitute an abuse of discretion. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex.1985); see also Vinson, 880 S.W.2d at 824. In determining whether a matter should be litigated as a class action, a trial court abuses its discretion if its decision is arbitrary, unreasonable, or without reference to any guiding principles. Tana Oil, 978 S.W.2d at 740. Further, a trial court abuses its discretion if it does not properly apply the law to the undisputed facts, but does not abuse its discretion if it bases its decision on conflicting evidence. Id.; Vinson, 880 S.W.2d at 823.

In making its class certification decision, the trial court can consider the pleadings and other material in the record, along with the evidence presented at the hearing. Employers Cas. Co. v. Texas Ass'n of...