Rose v. United Equitable Ins. Co.

• Decision Date: 29 August 2001
• Docket Number: No. 20000333.,20000333.
• Parties: Frank ROSE, individually and on behalf of all others similarly situated, Plaintiff and Appellant, v. UNITED EQUITABLE INSURANCE COMPANY, Standard Life and Accident Insurance Company, Defendants and Appellees, and United Equitable Life Insurance Company, Defendant.
• Court: North Dakota Supreme Court

632 N.W.2d 429

2001 ND 154

Frank ROSE, individually and on behalf of all others similarly situated, Plaintiff and Appellant, v. UNITED EQUITABLE INSURANCE COMPANY, Standard Life and Accident Insurance Company, Defendants and Appellees, and United Equitable Life Insurance Company, Defendant.

No. 20000333.

Supreme Court of North Dakota.

August 29, 2001.

Monte L. Rogneby (argued), H. Patrick Weir, Vogel Law Firm, Timothy Q. Purdon (appeared) and Thomas A. Dickson, Dickson & Purdon, Bismarck, ND, for plaintiff and appellant.

Lawrence A. Dopson (argued), Zuger Kirmis & Smith, Bismarck, ND, Michael F. Braun, Schuyler Roche & Zwirner, Chicago, IL, for defendant and appellee United Equitable Insurance Company.

Stephen W. Plambeck (argued) and Daniel J. Crothers (appeared), Nilles, Hansen & Davies, Ltd., Fargo, ND, Scott D. Daniel (appeared), Greer, Herz & Adams, Galveston, TX, for defendant and appellee Standard Life and Accident Insurance Company.

VANDE WALLE, Chief Justice.

[¶ 1] Frank Rose appealed from a judgment¹ dismissing his action against Standard Life and Accident Insurance Company ("Standard"), United Equitable Insurance Company ("United"), and United Equitable Life Insurance Company.² We conclude the district court, relying on the statute of limitations, erred in dismissing Rose's action on the pleadings, and we reverse and remand for further proceedings.

[¶ 2] Rose, who was born in 1906, bought a long term care insurance policy from United in 1982. United later assigned all its North Dakota long term care policies to Standard. Since 1982, United and Standard have renewed Rose's insurance on a yearly basis.

[¶ 3] In 2000, Rose, individually and on behalf of all others similarly situated, sued for damages for constructive fraud, actual fraud, consumer fraud, false advertising, and negligent misrepresentation. In his complaint, Rose generally alleged, among other things: (1) the insurers represented the policies were guaranteed to be renewable; (2) the policies "were, in fact, defective from the outset, as they were improperly underwritten and underpriced, conditions which defendants knew from the start would necessitate dramatic premium increases ... to remain in force;" (3) the insurers did not "disclose the known risk of premium increases, the plan to increase premiums, and the resulting attendant unaffordability of the LTC policies to plaintiff and the Class;" (4) the insurers represented "that the contracted-for annual premium rate was the `Total Premium' that policyholders would have to pay in order to maintain their LTC policies;" and (5) the premium was $418 when Rose bought the policy and later rose to $1,909.36. Rose also generally alleged:

(8) Not only did defendants fail to disclose the anticipated premium increases, but in 1986 defendants ceased selling the LTC policies, an act known as "closing the block" of business in the insurance industry. This fact was never disclosed to the policyholders. By "closing the block," defendants capped its pool of insureds under these policies and barred new insureds from purchasing LTC policies. This led to a "death spiral" that guaranteed that plaintiff's and the Class' LTC premium rates would increase at an even greater rate. Closing the block is particularly significant in LTC insurance situations, where the pool is largely comprised of senior citizens. This is due to the fact that policyholders in the closed block, including plaintiff and the Class, are forced to pay the higher premiums that arise from such block closings or risk losing their LTC coverage altogether should they cease paying the increased premiums. This is because their age and/or medical history prevents them from obtaining alternative LTC policies elsewhere.

....

(45) In instituting their LTC premium increases, defendants sent form letters to plaintiff and the Class which misrepresented the reasons for the increase, stating that the increase was due to "increased utilization of benefits." This letter also fraudulently stated that the insured's "nursing home policy provides valuable protection." At no time did defendants advise plaintiff and the Class of the inherent defects in these LTC policies, that those defects were the direct cause of the premium increases, and that more increases were planned.

[¶ 4] In his claims for constructive fraud and actual fraud, Rose alleged the defendants failed to inform him of or suppressed the following:

(a) the LTC policies had been initially underpriced;

(b) the actuarial assumptions underlying the pricing of the LTC policies were based on limited or incomplete data;

(c) the LTC policies were poorly underwritten;

(d) given these problems, premium rate increases were inescapable;

(e) defendants planned on seeking a series of premium increases for the LTC policies;

(f) defendants would cease selling these LTC policies, "closing the block" of their LTC business and/or the ramifications of such an action;

(g) the closed LTC block was experiencing or would experience a "selection spiral" or "death spiral;"

(h) defendants were intentionally raising their premiums to exorbitant rates in order to obtain windfall profits by forcing the insureds to drop their policies and thereby avoid future claims; and/or

(i) defendants intended to pass any risk of loss due to their own fraud or neglect on to the consumer in the form of higher premiums.

[¶ 5] Rose also pleaded claims for consumer fraud under N.D.C.C. ch. 51-15, false advertising under N.D.C.C. ch. 51-12, and negligent misrepresentation, in that the policy was sold as "guaranteed renewable," the premium quoted at the time of application was represented to be the "Total Premium," the insurers misrepresented the reasons for premium increases, the insurers fraudulently stated the policies provided "valuable protection," and the insurers "knew or should have known that these statements were untrue, false, and misleading." [¶ 6] Accepting the parties' stipulation, the court entered a scheduling order delaying consideration of Rose's September 22, 2000, motion for class certification until after consideration of the insurers' motions for judgment of dismissal on the pleadings on the ground Rose's complaint was barred by the statute of limitations. On November 16, 2000, the district court issued an order granting the insurers' N.D.R.Civ.P. 12(b)(v) motions to dismiss Rose's complaint for failure to state a claim upon which relief could be granted. The court explained:

A reasonable person under the circumstances alleged in the Complaint either would have known or should have known and discovered before August 2, 1994, that a cause of action might exist against Defendants Standard Life and Accident Insurance Company and United Equitable Insurance Company.

The Court further concludes from the circumstances alleged in the Complaint that Plaintiff was apprised of sufficient facts before August 2, 1994, to put a reasonable person on notice to inquire into possible claims against Defendants Standard Life and Accident Insurance Company and United Equitable Insurance Company, and that the statute of limitations applicable to the claims alleged in the Complaint, therefore, began to run before August 2, 1994, and expired before August 2, 2000, because Plaintiff, based upon the information available to him, failed in his obligation to find out what legal rights would arise from the facts known to him. Accordingly, Plaintiff's Complaint is barred by the six year statute of limitations and must be dismissed as a matter of law.

A judgment of dismissal was entered on November 20, 2000.

[¶ 7] On appeal Rose contends (1) notice of a rate increase is not notice of fraud in the sale and renewal of defective and worthless insurance; (2) United's statute of limitations defense must fail because its fraud is ongoing; (3) United committed fraud after August 2, 1994, which is within the limitations period; and (4) United's responsibility to Rose did not end in 1986, when it entered into an assumption reinsurance agreement with Standard.

[¶ 8] Standard contends Rose's...