Olpin v. Ideal National Insurance Company, 143-69.

• Decision Date: 17 December 1969
• Docket Number: No. 143-69.,143-69.
• Citation: 419 F.2d 1250
• Parties: Joyce Cordner OLPIN and LeRoy M. Richman, for themselves, and for and on behalf of all other persons similarly situated, Plaintiffs-Appellants, v. IDEAL NATIONAL INSURANCE COMPANY, a Utah corporation, W. W. Clyde, William I. Spere, James D. Moyle, Jack Maurer, Alan B. Blood, Charles T. S. Parsons and John S. Boyden, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

419 F.2d 1250 (1969)

Joyce Cordner OLPIN and LeRoy M. Richman, for themselves, and for and on behalf of all other persons similarly situated, Plaintiffs-Appellants, v. IDEAL NATIONAL INSURANCE COMPANY, a Utah corporation, W. W. Clyde, William I. Spere, James D. Moyle, Jack Maurer, Alan B. Blood, Charles T. S. Parsons and John S. Boyden, Defendants-Appellees.

No. 143-69.

United States Court of Appeals Tenth Circuit.

December 17, 1969.

Parker M. Nielson, Salt Lake City, Utah (Adam M. Duncan and Joel M. Allred, Salt Lake City, Utah, on the briefs), for appellants.

David K. Watkiss, Salt Lake City, Utah (Wallace R. Bennett, Salt Lake City, Utah, on the brief), for appellees.

Before PHILLIPS, BREITENSTEIN and HICKEY, Circuit Judges.

PHILLIPS, Circuit Judge.

This is a class action, brought by Olpin and Richman on behalf of themselves and all other persons similarly situated against Ideal National Insurance Company¹ and Clyde, Spere, Moyle, Maurer, Blood, Parsons and Boyden. The individual defendants are the officers and directors of Ideal.

Prior to the mergers referred to, infra, Mutual Life of America and Great Mutual Life Insurance Company were insurance companies licensed to do business in Utah under the applicable insurance laws of that state. While so licensed and before such mergers, they attached to certain policies of life insurance issued by them an Endorsement entitled "Expansion and Bonus Fund Endorsement." A copy of one of such Endorsements, with which the others are identical, except as to the date of issue, is marked "ATTACHMENT I" and attached to the complaint and made a part thereof. It reads as follows:

"MUTUAL LIFE OF AMERICA EXPANSION AND BONUS FUND ENDORSEMENT

"This endorsement and the benefits provided for herein are limited to 2500 units of insurance under policies bearing this endorsement.

"The Company agrees to annually set aside in a special fund on December 31, of each year, until the calendar year 1967, not less than $1.00 and not more than $2.00 per thousand as the Board of Directors may annually elect, for each thousand dollars of life insurance issued on a paid-for basis and remaining in full force between May 1, 1948 and the end of the calendar year 1967, except insurance of the class to which this Endorsement is attached and any Group Life insurance which may be issued by the Company. Such special bonus fund shall be accumulated at 2½% annual compound interest.

"Within ninety days (90) following January 1, 1968, such accumulated bonus fund deposit, together with interest accretions, will be distributed by the Company to all surviving policyholders whose policies bear this endorsement and are in full force and on a premium paying basis. The share to be paid to each qualifying policyholder will be the proportion which the number of units in this policy bears to the total number of units of similarly qualifying policies.

"No deduction whatsoever will be made from the Bonus Fund, prior to the date of distribution above provided, except in case of the death of the insured prior to the 1968 distribution date, in which event the designated beneficiary of the insured shall be paid in addition to the face amount of this policy, the full proportionate share of this policy in the bonus fund accumulation calculated as of the end of the calendar year prior to the date of death.

"April 22, 1948 /s/ J. A. Keller Date Endorsement"

After the policies bearing such Endorsement were issued, Mutual Life and Great Mutual Life were merged into Pacific Western Insurance Company, and after that merger, Pacific Western was merged into Ideal. Ideal is liable for all the obligations created by such Endorsement to the owners of policies to which it was attached, who were surviving on January 1, 1968, and whose policies were then in full force and effect on a premium paying basis.

Mutual Life and Great Mutual Life sold in excess of 600 policies to which such Endorsement was attached. Substantially all of them were sold in the State of Utah and a majority of the members of the class are inhabitants of Utah.

The premiums charged for the policies bearing such Endorsement were higher than the amount that would have been charged for such policies, had they not carried such Endorsement, but the policies bearing such Endorsement provided for one single amount of premium and did not provide a separate amount charged for or because of such Endorsement.

The class includes two groups. The first group is composed of policyholders whose policies bore such Endorsement and were in full force on a premium paying basis on January 1, 1968, and who survived that date and still retained the Endorsement.

The second group is identical with the first group, except that in response to a letter from Ideal, dated August 22, 1968, and more particularly referred to, infra, they had elected to surrender their Expansion and Bonus Fund Endorsements to Ideal under one of four options set out in the letter.

In the complaint, the foregoing facts and others hereinafter set out were alleged.

The complaint contained three causes of action. The first two sought specific performance of such Endorsement, or in the alternative, damages. The third cause of action incorporated in it the allegations in the first two causes of action by reference, and prayed that defendants be required to specifically perform the covenants and obligations of Ideal under such Endorsement, and to pay to Olpin and Richman and all other members of the class "in accordance with the terms of" such Endorsement "a pro-rata share of the fund as contemplated by the Endorsement and applicable law."

The letter of August 22, 1968, which was sent to each holder of a policy bearing such Endorsement and in force on January 1, 1968, stated that the policies bearing such Endorsement were not written or sold by Ideal, but were "acquired" by Ideal through its merger with Pacific Western; that after it acquired such policies as the insurer, it followed the previously approved practices employed by Pacific Western in computing and administering the funds intended to be paid out upon the maturity of such Endorsement; that in the fall of 1967 Ideal underwent its regular examination by the Utah State Insurance Department, and that during the course of such examination a question was raised concerning the method employed to calculate the reserves necessary to provide funds for distribution according to the terms of such Endorsement, and that the Insurance Department sought the opinion of the Attorney General of the State of Utah with respect thereto; that the Attorney General gave the Insurance Department an opinion in which he stated that such Endorsement was illegal and void under the statutes of Utah, but that the basic policy to which the Endorsement was attached was valid. The Attorney General recommended that Ideal be required to refund to the appropriate policyholders that portion of the total premium they paid which could be allocated to such Endorsement, less a small administrative fee.

The letter further stated that in view of the opinion of the Attorney General, the Board of Directors of Ideal had reviewed the matter thoroughly and found that "on one side that the merger has vested in us a Bonus Fund Endorsement that is illegal and void," and that "on the other side, policyholders have been investing in the endorsement in good faith for a number of years with the expectation of a handsome return on their investment," and that Ideal wished to do as much as it legally could for holders of policies bearing such Endorsement; that in an effort to find a solution which would be legally acceptable and fair to the policyholders and stockholders, Ideal had the Commissioner of Insurance of the State of Utah review plans of settlement consisting of four options, and that the Commissioner's office had approved Options A and B and stated that it had no objection to Options C and D. The options were set forth in the letter.

Option A stated that Ideal would refund to the holder of a Bonus Fund Endorsement that amount computed to be the amount of total premium paid by such policyholder for such Endorsement.

Option B provided that Ideal would furnish paid-up life insurance to the holder of a Bonus Fund Endorsement in an amount which the payment described in Option A would purchase at the age of such holder on the maturity date of the Bonus Fund Endorsement.

Option C provided that if the holder of a Bonus Fund Endorsement would execute a release of any and all claims such holder might have acquired against Ideal, that Ideal would pay to the holder the amount shown in a table submitted to the Commissioner.

Option D provided that Ideal would furnish paid-up life insurance to the holder of a policy bearing the Bonus Fund Endorsement in an amount which the payment described in Option C would purchase for such holder at his age on the maturity date of his Bonus Fund Endorsement. It also required the execution of a release, as provided in Option C.²

The amount to be paid under Options A and C and the amount of paid-up insurance under Options B and D, applicable to the addressee of the letter, were shown on a sheet enclosed therewith.

The letter further stated that regardless of what option the policyholder selected, the insurance would be continued at a reduced premium, and that he would receive a billing showing the amount of the new premium in a few days after the date of the letter.

The letter was signed by Spere, as Executive Vice President and General Manager of Ideal.

A holder of a policy bearing such Endorsement, when he received his policy, also received a letter from the insurer, which congratulated him for having made a "wise and sound Investment"; which characterized as "guaranteed savings * * * the amount shown on the policy" and which stated he made a wise and sound decision when he "made application for this protection."

In the complaint, it was alleged that...