Rakes v. Life Investors Ins. Co. of America
| Decision Date | 20 June 2008 |
| Docket Number | No. 06-CV-99-LRR.,06-CV-99-LRR. |
| Parties | Robert RAKES and Robert Hollander, individually and on behalf of all others similarly situated, Plaintiffs, v. LIFE INVESTORS INSURANCE COMPANY OF AMERICA, Defendant. |
| Court | U.S. District Court — Northern District of Iowa |
Allan Kanner, Aylin R. Acikalin Maklansky, Conlee S. Whiteley, Kanner & Whiteley, LLC, New Orleans, LA, Brad J. Brady, Matthew L. Preston, Robert J. O'Shea, Brady & O'Shea PC, Cedar Rapids, IA, Monte L. Rogneby, Timothy Q. Purdon, Vogel Law Firm, Bismarck, ND, Perry
Pearce Benton, Orange Beach, AL, for Plaintiffs.
David Baum, Deborah Hilarie Renner, Jeffrey M. Movit, Joshua S. Akbar, Reid L. Ashinoff, Sonnenschein, Nath & Rosenthal, LLP, New York, NY, Gregory M. Lederer, J. Michael Weston, James P. Craig, Lederer Weston Craig PLC, Cedar Rapids, IA, for Defendant.
I. INTRODUCTION .............................................................757
II. RELEVANT PROCEDURAL BACKGROUND............................................757
III. LEGAL STANDARD FOR SUMMARY JUDGMENT.......................................758
IV. RELEVANT FACTUAL BACKGROUND...............................................759
A. The Players............................................................759
B. LTC Policies...........................................................759
C. Hollander..............................................................759
D. Rakes..................................................................760
E. Rate Increases.........................................................761
V. SUMMARY OF THE ISSUES.....................................................762
VI. RULE 56(f) MOTION.........................................................763
A. Law....................................................................763
B. Planned Discovery......................................................763
C. Necessity and Materiality of Plaintiffs' Proposed Merits Discovery.....764
1. Defense of disclosure of right to increase premiums.................764
2. Tort of bad faith...................................................765
D. Disposition............................................................766
VII. MOTION FOR SUMMARY JUDGMENT...............................................766
A. Disclosure of Possibility of Rate Increases............................766
1. Actual fraud........................................................766
2. Constructive fraud..................................................769
B. Tort of Bad Faith......................................................770
C. Disposition............................................................771
VIII. CONCLUSION...............................................................771
There are two matters before the court: (1) Defendant Life Investors Insurance Company of America's Motion for Summary Judgment ("Summary Judgment Motion") (docket no. 145); and (2) the Motion for Continuance Pursuant to Rule 56(f) ("Rule 56(f) Motion") (docket no. 169), filed by Plaintiffs Robert Rakes and Robert Hollander.
On July 17, 2006, Plaintiffs filed a Complaint (docket no. 3) alleging Defendant fraudulently induced them and all others similarly situated to them to buy certain defective, underpriced long-term care insurance ("LTC") policies with the intent to raise their premiums at a later date. The Complaint sets forth the following three claims: (1) actual fraud; (2) constructive fraud; and (3) "tortious breach of implied covenant of good faith and fair dealing (bad faith)."1 Complaint at 33.
On September 20, 2006, Defendant filed a Motion to Dismiss (docket no. 38). One of the issues in the Motion to Dismiss was whether Iowa law should apply to Plaintiffs' claims. Defendant contended the court should apply Virginia law to Rakes's claims and Missouri law to Hollander's claims. In the Order on Motion to Dismiss, the court chose to apply Iowa law to Plaintiffs' claims. The court qualified this decision by noting "discovery may convince the court that another state's laws should apply." Order on Motion to Dismiss at 21, n. 7.
On August 16, 2007, the court approved the parties' Amended Rule 16(b) and 26(f) Scheduling Order and Discovery Plan ("Scheduling Order") (docket no. 75). The Scheduling Order bifurcated the discovery process. The first phase of discovery, which ended on December 20, 2007, encompassed "class certification issues and fact discovery as to the Named Plaintiffs." Scheduling Order at 2. The second phase of discovery, which encompasses discovery into the merits of Plaintiffs' claims, "will follow a decision on Class Certification[.]" Id. The hearing on class certification is currently scheduled to begin on July 29, 2008. Dispositive motions are due 120 days before the Trial Ready Date, which is "six months after the Court rules on any motion for Class Certification." Id. at 3. The Scheduling Order notes "[t]o the extent the discovery sought pertains to both class certification and the merits, such discovery shall not be precluded for that reason alone in the first phase of discovery." Id. at 2.
On April 4, 2008, Defendant filed the Summary Judgment Motion and requested oral argument. On May 1, 2008, Plaintiffs filed the Rule 56(f) Motion. On May 12, 2008, Plaintiffs filed their Resistance to the Summary Judgment Motion ("Summary Judgment Resistance") (docket no. 173). On May 14, 2008, Defendant filed a Resistance to the Rule 56(f) Motion ("Rule 56(f) Resistance") (docket no. 176). On May 23, 2008, Defendant filed a Reply (docket no. 188) in support of the Summary Judgment Motion. On May 27, 2008, Plaintiffs filed a Reply (docket no. 192) in support of the Rule 56(f) Motion.
Pursuant to Local Rule 7.c, the court finds the Summary Judgment Motion does not necessitate oral argument at this time and, accordingly, denies Defendant's request for the same. The court finds the Summary Judgment Motion and the Rule 56(f) Motion fully submitted and ready for decision.
Summary judgment is appropriate if the record shows "there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "An issue of fact is genuine when `a reasonable jury could return a verdict for the nonmoving party' on the question." Woods v. DaimlerChrysler Corp., 409 F.3d 984, 990 (8th Cir.2005) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A fact is material when it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. "[T]o establish the existence of a genuine issue of material fact, `a plaintiff may not merely point to unsupported self-serving allegations.'" Anda v. Wickes Furniture Co., Inc., 517 F.3d 526, 531 (8th Cir.2008) (quoting Bass v. SBC Commc'ns, Inc., 418 F.3d 870, 872 (8th Cir.2005)). Rather, the nonmoving party "`must substantiate [its] allegations with sufficient probative evidence that would permit a finding in [its] favor.'" Anda, 517 F.3d at 531 (quoting Bass, 418 F.3d at 873). The court must view the record in the light most favorable to the nonmoving party and afford it all reasonable inferences. Baer Gallery, Inc. v. Citizen's Scholarship Found. of Am., 450 F.3d 816, 820 (8th Cir.2006) (citing Drake ex rel. Cotton v. Koss, 445 F.3d 1038, 1042 (8th Cir.2006)).
Viewing the facts in the light most favorable to Plaintiffs, the relevant facts are:
A. The Players
Plaintiff Robert Hollander is a resident of Missouri. Plaintiff Robert Rakes is a resident of Virginia. Defendant is an Iowa corporation with its headquarters in Cedar Rapids, Iowa. Defendant is a wholly-owned subsidiary of AEGON USA, Inc.
B. LTC Policies
At all times relevant to the instant action, Defendant sold LTC policies. LTC policies are intended to help an insured avoid the financial risk of the need for nursing home care or home health care in the latter part of an insured's life. In determining the appropriate premium rate for a LTC policy, an "insurer needs to know who is going to keep the policy ("persist") and who is not ("lapse") to predict the amount of claims it will have." Summary Judgment Resistance Brief (docket no. 173-1), at 3.
Plaintiffs contend Defendant "low-balled" its pricing by predicting an unrealistically high lapse rate which permitted Defendant to set the LTC premium rates "unrealistically low" to generate sales and gain a market share in the LTC business. Id. at 3. Plaintiffs contend Defendant intended to close enrollment on its LTC policies knowing it could raise premiums later. Plaintiffs contend Defendants fraudulently induced Plaintiffs to purchase defective, underpriced LTC policies. Plaintiffs contend Defendants sold them these LTC policies with the intent to later raise the premiums. Plaintiffs allege they suffered damages because they had to "pay premium increases in order to keep their LTC policies in force or give up their LTC coverage altogether." Complaint at ¶ 16.
C. Hollander
On or about June 15, 2001, Hollander purchased a LTC policy underwritten by Defendant which was "GUARANTEED RENEWABLE FOR LIFE." Defendant's Appendix ("Def. App'x"), at 82 (emphasis in original). Hollander purchased his LTC policy through the National Education Association ("NEA"), a labor organization of which he was and remains a member. Lionel William Miller was the third-party agent who sold the LTC policy to Hollander. Mr. Miller met with Hollander and Hollander's wife at the Hollanders' home in Missouri.
Before he purchased his LTC policy, Hollander received a "Personal Worksheet." The Personal Worksheet asks: "Have you considered whether you could afford to keep...
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