Smoot v. Physicians Life Ins. Co.

• Decision Date: 21 November 2003
• Docket Number: No. 22,708.,22,708.
• Parties: Annie SMOOT, for herself and all others similarly situated, Plaintiff-Appellee, v. PHYSICIANS LIFE INSURANCE COMPANY, a Nebraska corporation, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

87 P.3d 545

135 N.M. 265

2004 NMCA 27

Annie SMOOT, for herself and all others similarly situated, Plaintiff-Appellee, v. PHYSICIANS LIFE INSURANCE COMPANY, a Nebraska corporation, Defendant-Appellant.

No. 22,708.

Court of Appeals of New Mexico.

November 21, 2003.

James O. Browning, Robert E. Hanson, Jane B. Wishner, Peifer, Hanson & Mullins, P.A., Dennis M. McCary, Floyd D. Wilson, McCary, Wilson & Pryor, Alan K. Konrad, David A. Freedman, Freedman, Boyd, Daniels, Hollander, Goldberg & Cline, P.A., John M. Eaves, Paul Bardacke, Kerry Kiernan, Eaves, Bardacke, Baugh, Kierst & Kiernan, P.A., Albuquerque, NM, for Appellee.

Terrence D. O'Hare, J. Scott Paul, McGrath, North, Mullin & Kratz, P.C., Omaha, NE, Douglas G. Schneebeck, Timothy C. Holm, Jennifer A. Noya, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, for Appellant.

OPINION

CASTILLO, Judge.

{1} This case is one of a number of class actions filed in New Mexico courts frequently referred to as modal premium cases. In these cases, the named plaintiff alleges that one or more life insurance companies failed to disclose the costs of insurance premiums paid more often than annually. In this particular case, Plaintiff Annie Smoot alleges Defendant Physicians Life Insurance Company failed to disclose fully the additional cost of her paying insurance premiums monthly rather than annually. Defendant appeals the denial of its motion to dismiss Plaintiff's claims. Defendant raises three issues on appeal: (1) Plaintiff's claims are preempted by the federal Truth in Lending Act, 15 U.S.C., §§ 1601-1693 (2002) (TILA); (2) Defendant has no duty to disclose the dollar amount or effective annual percentage interest rate for the different payment options; and (3) Plaintiff failed to state a claim because she failed to allege detrimental reliance. A number of these issues have been addressed in our recent opinion Azar v. Prudential Insurance Co., 2003-NMCA-062, 133 N.M. 669, 68 P.3d 909, another case dealing with allegations of undisclosed costs of insurance premiums paid more often than annually.

{2} For the reasons articulated in Azar, we reject Defendant's arguments that federal law preempts Plaintiff's claims. See id. ¶¶ 35-41. Also based on Azar, we determine that Defendant did not have a fiduciary duty to disclose the information Plaintiff seeks, see id. ¶¶ 54-56, and that the implied covenant of good faith and fair dealing does not apply to Plaintiff's claims in this case. See id. ¶¶ 48-52. We also determine that Defendant has a statutory and common law duty to disclose material facts and that detrimental reliance is not an essential element to the relief provided for violations of the New Mexico Unfair Practices Act, NMSA 1978, §§ 57-12-1 to -22 (1967, as amended through 1999) (UPA), and the New Mexico Unfair Insurance Practices Act, NMSA 1978, §§ 59A-16-1 to -30 (1984, as amended through 2001) (UIPA). Lastly, we hold that reliance is an element of the common law duty to disclose. We therefore affirm in part and reverse in part.

I. BACKGROUND

{3} In her complaint, Plaintiff alleges that Defendant issued her an insurance policy that "failed to disclose the dollar amount of, and effective annual percentage rate of, the additional premium, interest, finance charges or time-price differential charges," also known as modal premium charges. Plaintiff further alleges that when a policyholder elects premium payment modes other than the annual mode (fractional premiums), this information is material and should have been disclosed.

{4} Her complaint contains seven separate counts: (I) breach of contract, for which Plaintiff seeks compensatory and punitive damages; (II) breach of fiduciary duty by failing to disclose material facts, for which she seeks compensatory and punitive damages; (III) breach of implied covenant of good faith and fair dealing, for which she seeks compensatory and punitive damages; (IV) unfair practices claims under both the UPA and the UIPA, for which she seeks treble damages; (V) restitution based on unjust enrichment; (VI) injunctive relief; and (VII) declaratory judgment. While Plaintiff expressly alleges that the undisclosed facts are material, there are no allegations that she relied on the failure to disclose.

{5} Defendant moved to dismiss Plaintiff's complaint under Rule 1-012(B)(6) NMRA 2003, which Plaintiff opposed. After a hearing, the district court denied the motion to dismiss but certified the three issues that are argued on appeal: preemption, duty, and reliance. This Court granted the interlocutory appeal.

II. STANDARD OF REVIEW

{6} Because this case is before us on the denial of Defendant's motion to dismiss under Rule 1-012(B)(6), we accept for purposes of this appeal all well-pled facts and consider only whether Plaintiff might prevail under any state of provable facts. See Cal. First Bank v. State, 111 N.M. 64, 66, 801 P.2d 646, 648 (1990).

III. DISCUSSION

A. Federal Preemption

{7} As noted above, the opinion in Azar disposes of this issue, since this Court determined that TILA does not preempt state law claims that are based on the failure to disclose the additional cost of paying fractional premiums. See Azar, 2003-NMCA-062, ¶¶ 35-41, 133 N.M. 669, 68 P.3d 909. Because Azar is dispositive, we need not repeat our analysis here.

B. Duty to Disclose

{8} Defendant's position is that Plaintiff's complaint must fail because, as a matter of law, there is no duty imposed on Defendant to make price comparisons and perform the math calculations as set forth in Plaintiff's complaint. Plaintiff contends that the duty exists, and she provides a number of theories premised on the allegations in Counts I-V. We discuss the theories in turn.

1. Fiduciary Duty to Disclose

{9} In Azar, this Court concluded that "an insurer assumes a fiduciary obligation toward an insured only in matters pertaining to the performance of obligations in the insurance contract." Id. ¶ 54. Finding no evidence that the insurer breached any fiduciary duty in the performance of its obligations under the insurance policies, this Court determined that the insurer "did not have a fiduciary duty to disclose information relating to modal premium charges before or after the formation of the insurance contracts." Id. ¶ 56. We reach the same conclusion in this case.

2. Duty to Disclose under Implied Covenant of Good Faith and Fair Dealing

{10} In Melnick v. State Farm Mutual Automobile Insurance Co., 106 N.M. 726, 731, 749 P.2d 1105, 1110 (1988), our Supreme Court stated that the implied covenant of good faith and fair dealing cannot be used to override express provisions in a written contract. In Azar, this Court applied the rationale of Melnick to insurance contracts and found no duty to disclose where the policies expressly authorized modal premium charges. Azar, 2003-NMCA-062, ¶ 49, 133 N.M. 669, 68 P.3d 909.

{11} In Azar, the policies expressly stated, "The more often premiums are due, the larger the total amount that will have to be paid for a contract year." Id. ¶ 8. In this case, the policy expressly listed the dollar amounts for premiums paid annually ($177.65), semi-annually ($90.44), quarterly ($46.84), and monthly ($16.15). The policy also provided, "Premiums are payable annually, but you may pay by any payment plan we offer." Although the policy did not explicitly state that the more often premiums are due, the larger the total premium paid would be, the statement that the premiums were payable annually, combined with the exact dollar amounts for each mode of payment, created express provisions for the payment of premiums.

{12} A reasonable person reading Plaintiff's policy would understand that the monthly premium payments were $16.15. See generally Read v. W. Farm Bureau Mut. Ins. Co., 90 N.M. 369, 373, 563 P.2d 1162, 1166 (Ct.App.1977) (observing that the meaning of language in an insurance policy will be what a reasonable person in the position of the insured would understand it to mean). When Plaintiff accepted this policy, she also accepted the fact that if she chose the monthly premium, it would be $16.15, costing her $193.00 per year. While the calculation of an effective annual interest rate may depend on complex formulas not readily accessible to the average policyholder, the simplest multiplication establishes that the more often premiums are paid within the year, the greater the total cost of the premium. Because the policy expressly stated the amount of payment for each fractional premium, the implied covenant of good faith and fair dealing cannot override the written contract to establish a duty to disclose the modal premium charges. Azar, 2003-NMCA-062, ¶ 49, 133 N.M. 669, 68 P.3d 909.

{13} Moreover, the implied covenant of good faith and fair dealing requires only that neither party injure the rights of the other party to receive the benefit of their agreement. Dairyland Ins. Co. v. Herman, 1998-NMSC-005, ¶ 12, 124 N.M. 624, 954 P.2d 56 (stating that "with insurance contracts, as with every contract, there is an implied covenant of good faith and fair dealing that the insurer will not injure its policyholder's right to receive the full benefits of the contract"); Azar, 2003-NMCA-062, ¶ 50, 133 N.M. 669, 68 P.3d 909. The implied covenant "is breached only when a party seeks to prevent the contract's performance or to withhold its benefits from the other party." Id. ¶ 51. As in Azar, in this case, there is no allegation that Defendant refused to pay out a benefit under the policy or unreasonably refused to allow Plaintiff to change her mode or frequency of payment. Id. We conclude, as we did in Azar, that the implied covenant of good faith and fair dealing does not give rise to a duty to disclose in this case. Id. ¶ 53.

{14} We further hold that Plaintiff has failed to state a claim for breach of contract (Count I) upon which relief may be granted, for the same reasons underlying our rejection of Plaintiff's...