Parkhill v. Minnesota Mutual Life Ins. Co.

• Decision Date: 02 March 1998
• Docket Number: No. Civ. 97-515 (DSD/JMM).,Civ. 97-515 (DSD/JMM).
• Citation: 995 F.Supp. 983
• Parties: James W. PARKHILL, an individual, on behalf of himself and all others similarly situated, Plaintiff, v. MINNESOTA MUTUAL LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Minnesota

995 F.Supp. 983

James W. PARKHILL, an individual, on behalf of himself and all others similarly situated, Plaintiff, v. MINNESOTA MUTUAL LIFE INSURANCE COMPANY, Defendant.

No. Civ. 97-515 (DSD/JMM).

United States District Court, D. Minnesota.

March 2, 1998.

COPYRIGHT MATERIAL OMITTED

Jack L. Chestnut, Karl L. Cambronne, Jeffrey D. Bores, Becky L. Erickson, Chestnut & Brooks, Minneapolis, MN, Barry A. Weprin, Melvyn I. Weiss, Brad N. Friedman, Milberg Weiss Bershad Hynes & Lerach, New York City, San Diego, CA, Andrew S. Friedman, Bonnett, Fairbourn, Friedman & Balint, Phoenis, AZ, Stephen L. Hubbard, Robert W. Biederman, Cantilo, Maisel & Hubbard, Dallas, TX, Ronald R. Parry, Arnzen, Parry & Wentz, Covington, KY, for Plaintiff Parkhill.

Charles H. Johnson, Garrett D. Blanchfield, Jr., Heidi M. Drewes, Johnson & Associates., St Paul, MN, for Plaintiff Semanko.

Mark Reinhardt, Gavin S. Wilkinson, Jonathan S. Drage, Reinhardt & Anderson, St. Paul, MN, for Plaintiff Zeleny.

Wayne S. Moskowitz, Gary J. Haugen, Maslon Edelman Borman & Brand, Minneapolis, MN, Garold M. Felland, The Minnesota Mutual Life Insurance Co., St. Paul, MN, James F. Jorden, Waldemar J. Pflepsen, Jr., Jorden Burt Berenson & Johnson, Washington, DC, for defendant.

ORDER

DOTY, District Judge.

This matter is before the court on the motion of defendant Minnesota Mutual Life Insurance Company to dismiss, or in the alternative, for summary judgment. Based on a review of the file, record, and proceedings herein, the court grants in part and denies in part defendant's motion.

BACKGROUND

Plaintiff James W. Parkhill is a citizen and resident of the State of Florida.¹ Defendant Minnesota Mutual is a Minnesota corporation with its principal place of business in Minnesota. Defendant sells many types of whole or other permanent life insurance policies to individuals, groups, and businesses. Affidavit of Richard Lee (Docket No. 35) at ¶ 3. Plaintiff in this action seeks compensatory and equitable relief for defendant's alleged fraudulent conduct and deceptive sales scheme in the marketing and sale of "vanishing premium" policies.² Complaint ¶ 2. In essence, plaintiff alleges that defendant "used standardized sales presentations and `vanishing premium' policy illustrations through which consumers were persuaded that in a given number of years their need to make out-of-pocket premium payments would cease." Pl.'s Mem. of Law in Opp'n to Def.'s Mot. to Dismiss or, in the Alternative, for Summ. J. (Docket No. 30) at 1 (hereafter "Plaintiff's Memorandum"). Plaintiff alleges that defendant knew its representations were not true and that premium obligations would not "vanish" when promised. Id. at 1-2.

This is one of many actions brought nationwide against major insurance companies to recover damages allegedly sustained when the companies' promises of "vanishing" premiums failed to materialize. Unlike some other cases, plaintiff here does not allege that the illustrations shown and representations made to him indicated that payments will "vanish" after a certain number of payments. Instead, plaintiff claims that defendant represented that after an initial out-of-pocket payment no future payments would have to be made out-of-pocket. In essence, plaintiff charges that defendant promised out-of-pocket payments would "vanish."

Plaintiff first purchased insurance from defendant in 1949, buying a whole life policy with a face value of $2,500. Affidavit of James W. Parkhill (Docket No. 31) at ¶ 4. Plaintiff purchased a second whole life policy with a face value of $5,008 in 1970. Id. at ¶ 5. Plaintiff alleges that in 1986 Terry Russo, a Minnesota Mutual agent, told him that he could purchase a $30,000 Minnesota Mutual policy by using the values in his existing policies. Russo allegedly told plaintiff that he would have to make one out-of-pocket premium payment of $645.50, and thereafter all future premiums would be paid from the dividends and built-up values of his two preexisting Minnesota Mutual policies and dividends accumulating in the new $30,000 policy. Id. at ¶ 7-8. Plaintiff signed an application for the policy on January 24, 1986. See Application for Insurance, Exhibit 3 to Parkhill Affidavit. Plaintiff gave Russo a check for $645.50. See Id. at Exhibit 4. Plaintiff thereafter received Policy No. 1-673-0610,³ a five-year term "Adjustable Life" policy, which, according to defendant, is designed to allow a policyholder to request changes in premium and face amount as appropriate to the policyholder's circumstances and objectives. Lee Affidavit at ¶ 5.

Plaintiff alleges that in September 1986, he received a premium notice from defendant for $646.54. When plaintiff and his wife spoke to Russo, he allegedly told them to make a notation on the notice that defendant would pay the premium by surrendering $646.50 on the Policy. Russo allegedly told plaintiff to ignore the notice. Parkhill Affidavit at ¶ 13.

In 1988, allegedly based on Russo's representations, plaintiff upgraded his coverage to a $40,000 whole-life plan by surrendering two life insurance policies plaintiff held with another life insurance company.⁴ Plaintiff alleges that Russo again told him that he would never have to make any out-of-pocket premium payments. Id. at ¶ 16-17. Plaintiff asserts that he would not have purchased the $30,000 policy nor increased his coverage to $40,000 if Russo had not represented that there would be no additional out-of-pocket expenses after the initial premium payment. Id. ¶ 20.

Plaintiff made no out-of-pocket premium payments from 1988 through 1994, based on the alleged representation of a Minnesota Mutual agent⁵ to ignore all premium notices. On July 19, 1994, plaintiff changed the ownership of Policy No. 1-673-0610 from his wife to the James P. Parkhill and Mary Frances Parkhill Trust. Although plaintiff himself has never been the owner of the policy, he was at all times the individual responsible for making premium payments.

In February 1994, plaintiff alleges that he was informed for the first time that unless he started making out-of-pocket premium payments his Minnesota Mutual policy would lapse. He contends that he began making annual out-of-pocket payments of $1,200 to keep his policy in effect. Id. at ¶ 25. Defendant complained to the Florida Department of Insurance. In June 1995, however, plaintiff wrote to a Mr. Cummings of the Department of Insurance and thanked him for his efforts. The letter indicates that "I believe my insurance [situation] is solved. The lack of information was the main thing. Now I understand how the policy works." See Exhibit 13 to Parkhill Affidavit. According to plaintiff, "[i]n this letter I was only expressing that I now understood what had happened to me. The letter was not written to mean that I was satisfied with my situation." Parkhill Affidavit at ¶ 24.

Plaintiff filed this action in Hennepin County District Court on February 4, 1997, alleging, in general, that defendant's uniform sales presentations promised policies that could be purchased with a single, lump-sum payment or with a stated number of out-of-pocket annual premium payments, after which no additional out-of-pocket payments would be required. Plaintiff asserts that due to defendant's misrepresentations, he and other class members were fraudulently induced to submit applications for insurance and tender premium payments to defendant. Complaint ¶ 13-14. Plaintiff pleads thirteen causes of action: (1) fraud; (2) fraudulent inducement; (3) breach of contract; (4) breach of fiduciary duty/constructive fraud; (5) tortious breach of duty to deal with insured in good faith; (6) negligence; (7) negligent misrepresentation; (8) unjust enrichment and imposition of a constructive trust; (9) deceptive trade practices in violation of Minn.Stat. § 325D.43-325D.48; (10) false advertising in violation of Minn.Stat. § 325F.67; (11) consumer fraud in violation of Minn.Stat. § 325F.68-325F.70; (12) declaratory relief; and (13) reformation. Defendant removed this case to federal court on March 6, 1997, and now brings this motion to dismiss, or in the alternative, for summary judgment.

DISCUSSION⁶

Defendant entitles its motion as a "Motion to Dismiss, or in the Alternative, Motion for Summary Judgment." Fed.R.Civ.P. 12(b) indicates that

If, on a motion asserting the defense numbered [12(b)(6)] to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56.

Defendant has submitted the affidavits of Waldemar J. Pflepsen, Jr., and Richard Lee and attached documentation in support of its motion. In response, plaintiff has submitted his own affidavit, "in the event the Court deems Minnesota Mutual's motion to be a motion for summary judgment." Plaintiff's Memorandum at 2. In its memorandum, recognizing the possibility that the court would construe defendant's motion as one for summary judgment, plaintiff provides the standards to be utilized by the court in deciding both a motion to dismiss under Fed. R.Civ.P. 12(b)(6) and a motion for summary judgment under Fed.R.Civ.P. 56. Because the court has considered the factual material contained in the affidavits of both parties, and because plaintiff has had the opportunity to respond to the affidavits submitted by defendant, the court will treat defendant's motion as one for summary judgment under Fed.R.Civ.P. 56. See George v. City of St. Louis, 26 F.3d 55, 57 (8th Cir.1994) (court properly treated defendant's motion to dismiss as one for summary judgment where defendant's motion was worded in the alternative and plaintiffs themselves submitted to the court matters outside the pleadings).

a. Standard for Summary Judgment

The court should grant summary judgment "if the pleadings, depositions, answers to interrogatories, and...