Vos v. Farm Bureau Life Ins. Co.

• Decision Date: 16 July 2003
• Docket Number: No. 01-1025.,01-1025.
• Citation: 667 N.W.2d 36
• Parties: Cherri Lea VOS, Rita C. Anderson and Quentin V. Anderson, on Behalf of Themselves and All Others Similarly Situated, Appellants, v. FARM BUREAU LIFE INSURANCE COMPANY and FBL Financial Group, Inc., Appellees.
• Court: Iowa Supreme Court

667 N.W.2d 36

Cherri Lea VOS, Rita C. Anderson and Quentin V. Anderson, on Behalf of Themselves and All Others Similarly Situated, Appellants, v. FARM BUREAU LIFE INSURANCE COMPANY and FBL Financial Group, Inc., Appellees.

No. 01-1025.

Supreme Court of Iowa.

July 16, 2003.

Marc A. Humphrey of Humphrey Law Firm, P.C., Des Moines, Angela M. Trombly of Law Offices of Angela M. Trombly, East Longmeadow, Mass., Richard A. Lockridge and Katheryn A. Andresen of Lockridge, Grindal, Nauen, P.L.L.P., Minneapolis, Minn., William R. Weinstein, Richard Bemporad, and Vincent Briganti of Lowey, Dannenberg, Bemporad & Selinger, P.C., White Plains, N.Y., and Julian K. Melmed of Law Offices of Julian K. Melmed, Stamford, Conn., for appellants.

CeCelia Ibson Wagner and Janean A. Schaefer Denhart of Smith, Schneider, Stiles & Serangeli, P.C., Des Moines, for appellees.

LAVORATO, Chief Justice.

The plaintiffs, Cherri Lea Vos, Rita C. Anderson, and Quentin V. Anderson, appeal a district court ruling decertifying their class action against Farm Bureau Life Insurance Company and FBL Financial Group, Inc. (collectively "Farm Bureau"). Because we find no abuse of discretion in the court's ruling, we affirm.

I. Background.

A. The allegations. On February 1, 1999, Vos and her parents, the Andersons, filed a class action against Farm Bureau. The plaintiffs alleged that from January 1, 1982 through at least December 31, 1996, Farm Bureau engaged in a pattern of deceptive practices in connection with the sale of whole life and universal life polices. The deceptive conduct as alleged in the petition involved:

(a) Selling whole and universal life insurance policies under the pretense of "vanishing premiums" and/or "fully paid up" policies. Farm Bureau promised its existing policyowners and new customers that, on a given policy, they would not have to make additional premium payments after a specified number or amount of payments or years ("vanishing premiums"); and

(b) Strongly urging policyowners to surrender, borrow, or withdraw cash values from their existing policies to fund an additional policy, or an entirely new Farm Bureau policy which replaced the existing policy, usually with the added incentive that premiums on the second "fully paid up" policy would be paid substantially or entirely from the value of the first policy and at no additional cost to the policyowner ("replacement of policies with vanishing premiums").

The petition further alleged the following additional facts. On May 17, 1988, Farm Bureau agent Merrill Perry met with plaintiffs at their home to "induce them into purchasing an additional `fully paid up' life insurance policy" for Cherri Vos. Perry used policy illustrations and calculations provided by Farm Bureau to represent to the plaintiffs this "great deal" would allow them to obtain a fully paid up $50,000 special whole life policy on Cherri without making further premium payments on the policy. Perry convinced Rita to cash in a $2,000 paid up life insurance policy she owned through another insurance company and apply the proceeds to the policy for Cherri. In addition, Perry persuaded Quentin to write a check in payment of the additional amount necessary to make the new policy "fully paid up." In December 1998, Farm Bureau offered to recognize Cherri's policy as "fully paid up," provided she agree to accept a reduced paid up policy in the amount of $20,710.50.

The petition alleged the following common questions of law and fact predominated over individual questions:

(1) Whether Farm Bureau, through its national general agency system and sales force of agents, engaged in deceptive acts and practices in connection with the sale of whole life and/or universal life insurance policies; and

(2) Whether Farm Bureau, through its national general agency system and sales force of agents, breached its contracts with plaintiffs and the members of the class during the class period by requiring additional out-of-pocket payments on whole and/or universal life insurance policies purchased by plaintiffs and members of the class beyond the amounts or dates represented.

The petition asserted five separate claims against the defendants: breach of contract, negligent misrepresentation, common law fraud, fraudulent inducement, and breach of fiduciary duty. The defendants answered and asserted several affirmative defenses. One of those affirmative defenses is relevant to this appeal: There are no common questions of law or fact which predominate over any questions affecting only individual members.

B. Proceedings related to class action certification. On July 15, 1999, the plaintiffs filed a motion for class certification and a memorandum of law in support of that motion, which Farm Bureau resisted. In its memorandum of law the plaintiffs asserted that the defendants engaged in a uniform and common course of unfair and deceptive conduct that was substantially similar with respect to each member of the proposed class. According to the plaintiffs,

[T]he deceptive acts and practices challenged by plaintiffs are based on uniform sales practices whereby Farm Bureau failed to inform existing policyowners and new customers of the substantial risks associated with these insurance policies, i.e., that the only way in which premiums would "vanish," or would not have to be paid on the additional or new policies, was if interest rates and/or dividend scales remained relatively constant. Defendants also failed to inform their policyowners and new customers, inter alia, that if the interest rates and/or dividend scales declined, by even a fraction of a percent from that used as the basis for the agents' representations and inducements, then the specified number or amount of payments and/or the dividends and/or interest on the policies would be wholly insufficient to pay for the additional premiums and/or "fully pay up" the policies, and policyowners would have to pay the difference out-of-pocket.

Following a hearing in which the district court heard arguments on the motion, the court granted the plaintiffs' motion for class certification on February 14, 2000. In ruling on the motion, the court considered the petition and some thirty exhibits attached to the plaintiffs' memorandum. In its ruling, the court noted that "the class certification order is always subject to modification should later developments during the course of the trial so require." The district court defined the class as follows:

All persons who have or had an ownership interest in one or more whole life and/or universal life policies issued during the period of January 1, 1982 through December 31, 1996 (the "class period") that was sold by Farm Bureau through its exclusive agency force, and to whom it was represented that premiums would "vanish" and/or that a policy would be "fully paid up" and/or that no additional costs would be incurred in excess of the specified number or amount of payments or years. Excluded from the class are defendants, any parent, subsidiary or affiliate of defendants, any entity in which defendants have a controlling interest, and the officers, directors, agents, employees, legal representatives, heirs, predecessors, successors, and assigns of such excluded person or entity.

C. Discovery. Discovery commenced in June 1999 and continued for nearly two years during which Farm Bureau produced over 60,000 pages of documents and the plaintiffs produced over 100 documents. The plaintiffs as well as several of Farm Bureau's present and former employees and senior management officials were deposed. The documentation Farm Bureau produced included sample life insurance contracts, sample illustrations used by Farm Bureau agents, minutes of board of directors' meetings concerning interest rates and dividend declarations, brochures and promotional materials, training manuals, rate manuals, complaint files, Farm Bureau's SEC Prospectus regarding its public offering, actuarial material regarding the policies in question, organizational charts, and affidavits. The documentation the plaintiffs produced included the plaintiffs' life insurance policies and attendant documents, copies of checks regarding premium payments, and documents regarding the plaintiffs' consumer complaint.

The discovery reveals the following information about the type of policy at issue and the marketing scheme Farm Bureau used to sell it.

1. The policies. The plaintiffs purchased identical policies from Farm Bureau: "Special Whole Life Participating." Quentin and Rita Anderson purchased their policies in 1985. The allegations of the petition are limited to the facts surrounding the purchase of Cherri's policy, which was purchased in 1988. Therefore the facts surrounding the purchase of Rita's and Quentin's policy are relevant only to the extent they are included as class members.

The front page of the policy contained the following:

SPECIAL WHOLE LIFE POLICY PARTICIPATING

Payable at Death.

Level Premiums Payable for Life.

Annual Dividends.

....

RIGHT TO CANCEL

The owner may cancel this policy by... returning the policy or contract before midnight of the twentieth day after the date you receive the policy.... Farm Bureau Life will refund any premium paid for this policy within ten days after it receives notice of cancellation and the returned policy.

(Emphasis added.)

The top of the table-of-contents page informed the policyholder, "This policy is a legal contract between the policy owner and the Farm Bureau Life Insurance Company. READ YOUR POLICY CAREFULLY."

The "Policy Data Sheet" is found at page three of the policy. It lists the "annual premium" and states that the "period payable" is "lifetime." The policy data sheet also lists the guaranteed cash value and paid-up insurance the policy will generate or carry at any given point in time.

The policy contained the following provisions related to premiums and dividends, and the following general provisions:

PREMIUM

...