Steele v. Security Ben. Life Ins. Co., 49976

Decision Date01 December 1979
Docket NumberNo. 49976,49976
PartiesVernon L. STEELE, For Himself and For All Others Similarly Situated, Appellant, v. SECURITY BENEFIT LIFE INSURANCE COMPANY, Appellee.
CourtKansas Supreme Court

Syllabus by the Court

1. Where the sole named plaintiff's claim becomes moot prior to certification of a class the action must be dismissed unless the district court failed to rule on the plaintiff's motion for class certification as soon as practicable after commencement of the class action.

2. In an appeal from the district court's denial of plaintiff's motion for class action certification pursuant to K.S.A. 60-223(B )(2) and dismissal of the action in its entirety, the record is examined and it is Held : Under the circumstances herein, the district court did not err in denying the class action certification or in dismissing the action in its entirety.

Fred W. Phelps, Jr. of Fred W. Phelps, Chartered, Topeka, argued the cause and was on brief, for appellant.

Wesley A. Weathers of Crane, Martin, Claussen, Hamilton & Barry, Topeka, argued the cause, and Randall J. Forbes, Topeka, was with him on brief, for appellee.

McFARLAND, Justice:

Plaintiff-appellant Vernon L. Steele contends the district court erred in denying his motion for class action certification and in dismissing the case in its entirety. We do not agree.

In 1958, Steele purchased a $3,000 endowment insurance policy from defendant Security Benefit Life Insurance Company (hereinafter SBL). A like policy in the amount of $1,000 was purchased by Steele from SBL in 1966.

Each policy provided that upon default the policy owner had 60 days (90 days by company practice) to select one of three nonforfeiture provisions:

(A) Policy could be surrendered for net cash value.

(B) Policy could be continued as nonparticipating, paid-up, reduced ordinary life.

(C) Policy could be continued for a certain length of time as nonparticipating, paid-up term insurance in an amount equal to the face value of the policy.

If the policyholder did not elect one of these options, the automatic option was (C).

Until 1972, premiums on this type of policy were collected by SBL by sales agents visiting the homes of policyholders. The sales agents carried with them loan forms which enabled policyholders to borrow against their policies to pay the premiums. This, for all practical purposes, was a fourth "option" not specified in the policy. If this fourth option were elected, the policy as written remained in full force. Under the three options specified in the policy the insurance was either surrendered or converted to a different type of insurance with concomitant reduction in benefits. In 1972, SBL determined the whole procedure of personal collection of premiums was no longer economically feasible and issued passbooks to holders of such policies.

In 1973, the premium paying procedure was again changed and passbooks were eliminated. Under the procedure from 1973 to date a periodic premium notice is sent and the policyholder then remits payment. Collection of premiums is no longer accomplished by personal contact and the fourth "option," a loan against the policy to pay the premium, is no longer readily available. To compensate for this loss SBL instituted a new procedure whereby, upon a default where a policy holder did not specify one of the three policy options, an automatic premium loan (APL) was made, thereby keeping the policy as written in full force and effect. Upon making an APL the policyholder was sent a notice of the action. It was and is the policy of SBL to reverse the APL process upon request of the affected policyholder and institute whichever one of the three listed options the policyholder designates.

In 1974, Steele defaulted on a premium on each policy, the APL procedure was followed, and Steele was notified of the action. Steele did not express dissatisfaction with the procedure or request a listed policy option. On May 5, 1975, Steele's attorney contacted SBL and asked for information as to how the premium payments had been handled. SBL explained the procedure and, in accordance with its operating procedure SBL offered to reverse the APL process and institute whichever listed policy option Steele desired. Steele's attorney stated he would discuss the matter with his client. Four days later (May 9, 1975) Steele instituted this class action, seeking $2,000,000 actual damages and $10,000,000 punitive damages against SBL on the ground the APL procedure was wrongful.

In August, 1975, and November, 1975, while this action was pending, the premiums on both policies again became due and were not paid. Counsel for SBL sent Steele's counsel a notice of default and a request for instruction. The August 21, 1975, letter is reproduced herein:

"My client's records indicate that the premium due August 1, 1975, on Mr. Steele's policy number 3501107 has not been paid as of August 20 and is, therefore, nearing the end of the thirty-day grace period. Since this is one of the policies in suit and since your client so strongly objects to SBL's past handling of such situations, I have been asked to correspond with you concerning same.

"If your client does not intend to pay the premium, please contact me prior to the end of August to discuss this matter. Should the grace period lapse without our having heard from you, the policy will revert to extended term insurance, subject to Mr. Steele's right to elect some other option within sixty days of the premium due date.

"I assume it goes without saying that any correspondence, oral or written, concerning this policy or any other matter related to the suit will be directed to me as attorney for SBL."

No response was received to the letter and the policies reverted to option (C) of the policies extended term insurance as of August, 1974, the date of the first APL.

In April, 1976, Steele filed a motion for certification of the case as a class action pursuant to K.S.A. 60-223. Apparently, this motion was never heard. Steele's attorney proceeded with discovery. In response to a letter from the court to counsel, inquiring as to the status of the case, Steele's counsel filed an amended motion to certify the action as a K.S.A. 60-223(B )(2) class action, which stated, Inter alia :

"Thus, the defendant corporation, having been caught in violation of its contract, and after the lawsuit for such violation had been filed, clumsily attempts to manipulate its records and its computer so as to avoid the impact of the lawsuit by rectifying its flagrant contract violation. But this is so for the lead plaintiff only, and the class yet waits for such rectification. It is precisely this rectification that a B-2 class action has been designed to effectuate at the hands of Kansas courts by the enactment of K.S.A. 60-223."

Stripping away Steele's diatribe against SBL, we see even plaintiff admitting his alleged individual problem with SBL has been rectified, but the class awaits "rectification."

The district court held:

"On April 23, 1976 plaintiff filed his first motion for the determination and certification of a class action pursuant to K.S.A. 60-223. In this motion no reference is made to injunctive relief but emphasis is placed rather upon the claims for monetary damages. Defendant filed an extensive brief in opposition to the class certification on August 4, 1976 and the Court continued the matter for further discovery prior to ruling on the motion. In its brief in opposition to the original motion for class certification defendant raised a number of pertinent issues, the principal one of which goes to the 'commonality' requirement of the class action statute. In this connection, defendant pointed out to the Court that each debit policy holder upon defaulting in the payment of premiums was furnished with the notice mentioned above. Some elected certain of the contract options and others elected to do nothing. Many policy holders live outside the state of Kansas. Obviously, a number of pertinent legal questions differentiating plaintiff from other members of his putative class appear from even a cursory analysis of the circumstances. First, has plaintiff or other members of his alleged class acquiesced in the suggested modification of the contract between the parties. Second, has plaintiff or other members of his alleged class waived any defenses by their inaction following the receipt of the notice. Third, did members of the alleged class actually receive notice in each case. Fourth, where the value of the policy is shown to be greater under the company's gratuitous action can plaintiff or other members of his alleged class show damage and if so would this question not be different for each policy holder. Fifth, varying terms of applicable statutes of limitation would have to be determined in each separate instance. Sixth, what conflict of laws, rules would differentiate members of the class where the notice was received by out of state policy holders and acted on there. Other questions may also be present, but these occur immediately to the Court. Frankly, the Court is persuaded that this action cannot proceed as a class action because the commonality element is not present. Each policy holder's claim will have to be litigated separately to determine whether the various defenses of the company are applicable, whether the plaintiff in each action has actually suffered damage and the amount of it, and the extent to which the other questions mentioned apply, if at all. Consequently, on this point alone, the Court is fully satisfied that the motion to certify the class should be overruled.

"Subsequent to the original motion to certify the class plaintiff has completed certain discovery and has now filed, on November 18, 1977, a second motion to certify a 'B-2' class. In this motion, plaintiff has apparently abandoned his claim for monetary relief altogether and has now requested only injunctive...

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