VC Mgmt., LLC v. Reliastar Life Ins. Co.

• Citation: 195 F.Supp.3d 974
• Decision Date: 18 July 2016
• Docket Number: No. 14 C 1385,14 C 1385
• Parties: VC MANAGEMENT, LLC, a Delaware Limited Liability Company, Plaintiff, v. RELIASTAR LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Illinois

195 F.Supp.3d 974

VC MANAGEMENT, LLC, a Delaware Limited Liability Company, Plaintiff,

v.RELIASTAR LIFE INSURANCE COMPANY, Defendant.

No. 14 C 1385

United States District Court, N.D. Illinois, Eastern Division.

Signed July 18, 2016

Bruce Michael Friedman, Jonathan Edward Strouse, Harrison & Held, LLP, Chicago, IL, for Plaintiff.

Elizabeth Gwynn Doolin, William A. Chittenden, III, Vittorio Fiore Terrizzi, Chittenden, Murday & Novotny, LLC, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, United States District Judge

Vestor Capital Partners, LLC ("Vestor") had insured the life of its president, Brian Baker, for $5 million. But in October 2012, Vestor submitted paperwork to reduce the amount of the policy to $2 million. Just after Vestor submitted the necessary forms—but before the insurer, Defendant ReliaStar Life Insurance Company ("ReliaStar") had signed them—Baker died unexpectedly. ReliaStar has tendered $2 million in life insurance proceeds to Plaintiff Vestor Capital Management, LLC ("VCM"), Vestor's successor. VCM contends in this lawsuit that Baker died before ReliaStar approved the policy reduction, and that ReliaStar is on the hook for the full $5 million. Both sides have moved for summary judgment, and the facts are largely undisputed. Although both parties make compelling arguments, the court is persuaded that Vestor made an offer by submitting the relevant policy-change form and ReliaStar failed to accept that offer before Baker's death. VCM's motion is granted, ReliaStar's motion is denied, and ReliaStar's motion to strike the declarations of two VCM witnesses is denied, as well.

BACKGROUND

On or about October 13, 2010, Plaintiff's predecessor, Vestor, applied for a life insurance policy with ReliaStar to insure the life of its president and majority shareholder, Brian Baker, in the amount of $5 million for a term of 39 years. (Joint Stip. [92] ¶ 7; Policy, Joint Stip. Ex. A at 3.) The purpose of the policy was to ensure that, in the event of Baker's premature death, there would be money available to satisfy any obligations that Vestor had to Baker's estate. (Def. LR 56.1 Stmt. [98], Ex. 2 John Baker Dep. at 46.) Vestor was both the owner and the intended beneficiary of the policy. (Joint Stip. ¶ 7.)

After determining that Baker was eligible for coverage, on December 17, 2010, ReliaStar issued the life insurance policy (#AD20348111) (the "Policy") with a policy date of December 15, 2010. (Id. ¶ 10.) Under the Policy, Vestor was required to pay ReliaStar an annual premium of $16,098, a figure calculated based on the Policy's face amount ($5 million) and term (39 years). (Policy at 3.) "Death Proceeds" under the Policy are defined as the amount payable to the beneficiary upon the death of the insured, and are equal to the face amount of the Policy, adjusted for any excess or unpaid premium. (Joint Stip. ¶ 13 (quoting Policy at 6).) The Policy contains no provision relating specifically to decreases in the face amount of the Policy, but it contains the following general provision relating to Policy changes:

Both our President or another officer, and our Secretary or Assistant Secretary, must sign all changes to your policy. No other person can change any of your policy's terms and conditions.

(Id. ¶¶ 17-18 (quoting Policy at 7).)

In October 2012, Vestor sold substantially all of its assets to Vestor Capital, LLC ("Vestor Capital"). (Id. ¶ 5; Def. LR 56.1 Stmt. ¶ 5.) Following the sale, Baker remained the president of Vestor, but the company ceased to operate as a going concern, and Vestor determined that it no longer had a business need for $5 million in insurance coverage on Baker's life. (Joint Stip. ¶ 15; Def. LR 56.1 Stmt. ¶ 5, 14-15.) As a result, Vestor began to consider reducing the amount of the Policy. (Id. ) Vestor also began to consider changing the beneficiary and owner of the Policy to VCM—a company formed by Vestor's members in 2012 to replace Vestor following the company's asset sale. (Id. )

On October 16, 2012, Vestor's insurance agent, John Baker ("John"),¹ called ReliaStar's customer service center to inquire about possible changes to the Policy, including a decrease in the Policy's face amount. (Joint Stip. ¶ 19.) John spoke with a ReliaStar customer service representative, Arianna Heitman, who assured him that ReliaStar "certainly" could do a "one-time" face decrease, and explained that, in order to make this change, the Policy "just needs to meet the minimum requirements." (Joint Stip., Ex. B. at 5.) She noted just one restriction: that ReliaStar would not permit a face decrease that would reduce a policy to below $100,000. (Id. at 6.) John asked how Vestor's premiums would be determined if Vestor were to reduce the face amount of the Policy to $2.5 million or $1 million. (Id. at 8.) Heitman responded that she would do the calculations and provide, by e-mail, quotes for policies with these face amounts, along with a "Request for Policy Service Form," a form used for making changes to a ReliaStar policy. (Id. at 8-9; Pl. LR 56.1 Stmt. [93] ¶ 3.) On October 23, 2012, Heather Phelps ("Phelps"), an employee of Cognizant Technology Solutions U.S. Corporation ("Cognizant") working on behalf of ReliaStar,² sent an e-mail to John containing premium quotes for policies with face amounts of $2.5 million and $1 million, along with a blank Policy Service Request Form. (Joint Stip. ¶ 22, Ex. D.) In her e-mail, Phelps stated, "[i]f you wish to decrease the face amount of the Policy, the attached Policy Service Request Form can be completed and either mailed to: ING Service Center, PO Box 5011, Minot, ND 58702-5011, or faxed to the ING Service Center at 877-373-2090." (Id. ¶ 23, Ex. D.)

On or about November 20, 2012, Brian Baker informed John Baker that Vestor wished to decrease the face amount of the Policy from $5 million to $2 million and to change the owner and beneficiary of the Policy from Vestor to VCM. (Pl. LR 56.1 Stmt. ¶ 21, Baker Decl. ¶ 13.) That same day, John placed a telephone call to ReliaStar's customer service center to obtain additional information about these changes and spoke with Alisha Evans ("Evans"), a ReliaStar customer service representative. (Pl. LR 56.1 Stmt. ¶ 25.) When John told Evans about Vestor's plans to reduce the Policy from $5 million to $2 million, Evans responded, "that will be perfectly fine." (Joint Stip., Ex. E at 4-5.) John then inquired about the timing of the changes, noting the Policy's December 15, 2012 renewal date. (Id. ) Evans told John that it would take ReliaStar approximately 20 business days to process the face decrease, but that in order to avoid delay, she could place a "rush request" on the face decrease to ensure that the change went into effect by December 15, 2012. (Id. at 7.) Later that day, John placed a second call to ReliaStar and spoke with ReliaStar customer service representative Amanda Smith ("Smith"); during this second phone call, Smith told John that ReliaStar could not process the face decrease during the Policy's 31-day "grace period" commencing on December 16, 2012, which would mean that the face decrease for the Policy would need to go into effect before that date.³ (Joint Stip. ¶ 27, Ex. F.)

On November 27, 2012, Vestor faxed a completed Policy Service Request Form to ReliaStar. (Joint Stip. ¶ 31.) Under Section G of the form, "Change Existing Coverage," Vestor checked the box for "Decrease Face Amount To" and wrote "$2,000,000." (Joint Stip., Ex. G at 4.) Brian Baker had signed the form on November 21, 2012. (Id. ) Above the signature line and Baker's signature, the form states as follows:

All who sign agree that no change will be made unless the policy is eligible for the change requested according to its terms or under our rules and until we are satisfied that, as of the date of this request, all insureds and proposed insureds are eligible for the requested coverage.

(Id. at 2.) In a box labelled "ING Customer Service Center Use Only," the form contains a place for signature by ReliaStar. (Id. ) There is no place on the form for a policyholder to designate the effective date for the requested change, and the completed form in this case did not refer to a date on which the face decrease would become effective.

At the time Vestor submitted the Policy Service Request Form, ReliaStar had various internal policies and procedures concerning ReliaStar term life products, including the Policy.⁴ (Joint Stip. ¶ 34.) One internal document, entitled "Term Life Product Matrix," states that face decreases to term life insurance policies are a permitted "Post-Issue change" and provides that "[r]equested face amount decreases ... will be allowed by company practice (not contractually guaranteed)." (Id. ¶ 36, Ex. H at 11.) ReliaStar also had an internal policy that a Policy Service Request Form must be signed by an officer of ReliaStar or ReliaStar's parent company, ING. (Id. ¶ 39.) The process for obtaining required officer signatures is described in a ReliaStar document entitled "Routing Process for ING Forms that need officer signature." (Id. ¶ 41.) It is undisputed that one reason that ReliaStar's internal policy requires an officer signature on a Policy Service Request Form is that the endorsed form is a contractual document that will be attached to, and become part of, the insurance policy. (Def. Resp. to Pl. LR 56.1 Stmt. [104] ¶ 10.) ReliaStar also requires an officer signature on the form so that both the policyholder and ReliaStar have a record of the form being processed. (Def. Add. LR 56.1 Stmt. [104] ¶ 6.)

On December 3, 2012, Heather Phelps began processing Vestor's Policy Service Request Form in accordance with ReliaStar's internal procedures. (Joint Stip. ¶ 46.) First, Phelps conducted an "in good order review" to confirm that the completed Policy Service Request Form met ReliaStar's guidelines for face amount reductions, which permit a face decrease so long as the policy: (a) has not been issued within...