Weiss v. La Suisse, 97 CIV. 1352 (CM)(MDF).

Citation161 F.Supp.2d 305
Decision Date14 September 2001
Docket NumberNo. 97 CIV. 1352 (CM)(MDF).,97 CIV. 1352 (CM)(MDF).
PartiesKalman WEISS, as Assignee, et al., Plaintiffs, v. LA SUISSE, Societe D'Assurances Sur La Vie, Defendant.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT OF DEFENDANT'S COUNTERCLAIM, DENYING PLAINTIFFS' MOTION FOR CLASS CERTIFICATION AND LEAVE TO FILE A SECOND AMENDED CLASS ACTION COMPLAINT, AND OVERRULING DEFENDANT'S OBJECTIONS TO MAGISTRATE JUDGE FOX'S DISCOVERY RULING

McMAHON, District Judge.

As explained in detail in my earlier decisions in this case, Weiss v. La Suisse, 69 F.Supp.2d 449 (S.D.N.Y.1999) and Weiss v. La Suisse, 131 F.Supp.2d 446 (S.D.N.Y. 2001), plaintiffs are members of the Orthodox and/or Chassidic Jewish communities residing in Rockland County and New York City. In 1989 and 1990, plaintiffs purchased a unique type of insurance from defendant La Suisse Life Insurance Company ("La Suisse"). The policies, which designate plaintiffs' children as the insured and the parents as beneficiaries, consist of a term life insurance policy with a "marriage rider." The face amounts of the policies were payable to the beneficiaries in the event that the insured either died or married prior to the end of the contract term, which lasted approximately 15 or 16 years after the purchase date of the policy.1

Most insureds were nine or ten years old when these "marriage rider" policies were purchased. La Suisse originally calculated the premiums based on marriage statistics in Switzerland (where as much as 40% of the population never marries and those who marry do so in their mid-twenties) and Israel (where marriage rates and ages are, in general, similar to those in Europe). By contrast, marriage at an early age, 18 or 19, and sometimes younger, is common, in fact almost universal, in certain Orthodox Jewish communities, such as the Chassidim.

Plaintiffs anticipated using the policies as an investment to help pay for wedding expenses. When plaintiffs began to assert claims upon the marriages of their children, La Suisse allegedly stalled, refused to accept proof of marriage from plaintiffs, and avoided payment on the claims. Plaintiffs' amended complaint alleges breach of contract, and discrimination under 42 U.S.C. § 1981.

Defendant counterclaims for fraud, alleging that (1) fraud may be imputed to the plaintiffs through their brokers, who allegedly misled La Suisse officials with respect to the risk and profitability of the policies, and (2) plaintiffs themselves knew that La Suisse was unaware of the policy-holders' marriage practices. Plaintiffs move to dismiss the counterclaim (1) as precluded by certain prior Swiss court decisions, and (2) on the grounds that fraud by the brokers cannot be imputed to plaintiffs. In their reply papers, plaintiffs also argue that the counterclaim is time-barred, and move for summary judgment on the substance of defendant's counterclaim. I provided defendant an opportunity to respond to the statute of limitations argument, and defendant did so in a letter brief submitted to the Court on September 7, 2001.

FACTUAL BACKGROUND
The Alleged Broker Fraud

Defendant contends that, in 1989, Elias Horowitz, president and sole shareholder of Bituswiss S.A., and Dr. Berysz Rosenberg, Bituswiss' representative in Switzerland, asked a former La Suisse agent to approach La Suisse about marketing life insurance policies with marriage riders. La Suisse agreed, and combined its "Global E" mixed endowment policy with an existing marriage rider product, the "256," to create the "Global E + 256" product. Under the terms of the life-insurance portion of the policy, payment of benefits occurs either upon expiration of the contract term or, before that date, upon the death of the insured. The marriage rider provides for payment of the benefits if the insured marries before the end of the contract term.

Bituswiss began selling the "Global E + 256" policies in July 1989. It sold the policies exclusively to members of the Orthodox Chassidic communities in New York. In the first three months, Bituswiss obtained more than 700 applications for the Global E + 256. (Muller Decl. at Ex. B.)

Before approaching La Suisse, Horowitz (using the alias Sam Mendelsohn) sold between 400 and 500 similar policies issued by Winterthur, another Swiss insurance company, to members of the Orthodox Chassidic community. (Horowitz Dep. at 52-53, Muller Decl. at Ex. F.) According to defendant, Winterthur calculated its premiums for these policies based on the average marriage age of Swiss persons (26 years for men and 24 years for women) and the percentage of the Swiss population that marries. In March 1989, Winterthur changed the terms and conditions of the policies, setting a minimum age of 20 for the payment of benefits and reducing the face amount of the policies. (Horowitz Dep. at 256, Olson Decl. at Ex. G.) Officials at Winterthur told Horowitz that the company was making the changes because the portfolio was not profitable. (Horowitz Dep. at 248, Olson Decl. at Ex. I.) It was after this change was made that Horowitz approached La Suisse.

La Suisse initially priced its policies using marriage statistics for Switzerland and Israel (Muller Decl. at Ex. G.). Almost immediately, however, La Suisse told Horowitz that it wanted to refine the terms of the policies and adopt a minimum age of 20 on which to pay benefits (similar to the change Winterthur had made in its policies). (Muller Decl. at Ex. I.) Horowitz advised La Suisse that Bituswiss would not market the policies with these changes. (Muller Decl. at Ex. B at 6.; Id. at Ex. J at 55; Id. at Ex. K at 161-63.) La Suisse contends that Horowitz and Rosenberg argued against the policy changes, despite their knowledge of the "catastrophic" unprofitability of Winterthur's portfolio prior to making such changes. (Rosenberg Dep. at 169-70, Olson Decl. at Ex. O.) Apparently, La Suisse was unaware of the Winterthur situation.

To avoid losing the business, La Suisse did not adopt the minimum age. On August 17, 1989, it offered a compromise solution (proposed by Horowitz): beginning October 1, 1989, La Suisse would deduct from benefits paid to persons who marry before age 20 all unpaid premiums otherwise due until age 20. (Muller Decl. at Ex. L.) But Bituswiss lobbied against any changes to the policy as originally written. To this end, the Bituswiss brokers allegedly provided reassurances to La Suisse that the policies were accurately priced. In a meeting between Rosenberg and La Suisse officials on March 28, 1990, Rosenberg claimed (according to company notes) that "the marrying age fluctuated over observation periods of 8-10 years."2 (Muller Decl. at Ex. C.)

In addition, defendant claims that Bituswiss hid the fact that it was marketing the policies only to a small subset of the general Jewish population (Chassidim) whose marriage profile differed significantly from that of the Jewish population at large. Rather, Bituswiss allegedly made statements that caused defendant to believe that the policies were being marketed more widely.3 Thus, in a letter brief from Rosenberg to La Suisse outlining Bituswiss' grievances with the company, Rosenberg wrote:

It mustn't be forgotten that more than 3,000,000 Jewish people live in the state of New York; more than in the entire state of Israel. Consequently the potential is huge....Bituswiss S.A. began to expand to other regions in the world in which high concentrations of Jewish people can be found (Great Britain, Canada, other states). But with the introduction of the new conditions on October 1, 1989 (or more correctly, with its announcement), this was cut off.

(Muller Decl. at Ex. B at 8.) (emphasis added)

La Suisse alleges that, in reliance on Rosenberg's representations, it withdrew the new terms on March 28, 1990. Instead, defendant adopted an additional premium (referred to by La Suisse officials as a "surprime") for all policyholders living abroad. The surprime was to be refunded if the policyholder did not marry before the age of 20. Under La Suisse's agreement with Bituswiss, the company had to give the brokers three months notice of any policy changes. Thus, the surprime was not to take effect until July 1, 1990. (Muller Decl. at Ex. N.)

Bituswiss sold a large number of policies between March 28, 1990 and the July 1 deadline, after which date sales stopped. (Rosenberg Dep. at 167, Muller Decl. at Ex. Q.) During this time, La Suisse claims that Bituswiss lobbied against the surprime, and to this end, brokers made further misrepresentations about the average marriage ages and rates of those purchasing the policies. The Chairman of the Board of Directors of La Suisse, George Muller, states in his declaration:

At various meetings, brokers informed La Suisse that the new terms were not justified because they would lead to huge administrative burdens, and the surprime made the premiums so expensive the sales would stop. Finally, the brokers repeatedly assured La Suisse that there was absolutely no risk of endemic early marriages.

(Muller Decl. at ¶ 21.) (emphasis in the original)

Muller does not state whether he was at any of the above described meetings, or who at La Suisse heard these statements. Defendant fails to provide affidavits or testimony from anyone to whom any such statements may have been made. The only direct evidence of any representation is a November 8, 1990 memo from Gerhard Mayer, a then-employee of La Suisse, in which Mayer writes that a broker named Moses Aschkenazi informed him that "the average marriage age is 23." (Muller Decl. at Ex. R.) There is no evidence in the record that Aschkenazi is in any way connected to either Bituswiss or the plaintiffs.

No policies were sold between July 1 and the end of 1990. In December 1990, La Suisse (always eager to retain business) rescinded the July 1990 surprime, and introduced a third change in the...

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