West v. Wilco Life Ins. Co.
| Decision Date | 08 December 2021 |
| Docket Number | 1:20-cv-2961 RLM-DLP |
| Parties | SHERI WEST, on behalf of herself and all others similarly situated, Plaintiff v. WILCO LIFE INSURANCE COMPANY, Defendant |
| Court | U.S. District Court — Southern District of Indiana |
Sheri West filed a putative class action against Wilco Life Insurance Company alleging breach of contract and seeking declaratory relief. Wilco Life Insurance Company moves to dismiss under Fed.R.Civ.P. 12(b)(6). For the reasons set forth below, the court denies Wilco Life Insurance Company's motion to dismiss.
A court considering a Rule 12(b)(6) motion to dismiss construes the complaint in the light most favorable to the nonmoving party accepts all well-pleaded facts as true, and draws all inferences in the nonmoving party's favor. Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010). But Fed.R.Civ.P. 8(a)(2) “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id. at 678 (quoting Bell Atlantic v. Twombly, 550 U.S. at 570). A claim is plausible if “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Bell Atlantic v. Twombly, 550 U.S. at 556). Twombly and Iqbal “require the plaintiff to ‘provid[e] some specific facts' to support the legal claims asserted in the complaint.” McCauley v. City of Chi., 671 F.3d 611, 616 (7th Cir. 2011) (quoting Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009)). The plaintiff “must give enough details about the subject-matter of the case to present a story that holds together.” Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010).
Sheri West purchased a universal life insurance policy from American Life and Casualty Insurance Company on April 1, 1994. On August 1, 2001, Ms. West exchanged her policy for a policy with Conseco Life Insurance Company. Wilton Re acquired Conseco Life Insurance Company in 2014 and changed Conseco Life Insurance Company's name to Wilco Life Insurance Company.
A universal life insurance plan allows a policyholder to accumulate savings while alive by paying flexible premiums. When a policyholder pays a premium, that premium is added to the policyholder's accumulation value. Each month, the accumulation value accrues interest and each month the insurance company deducts costs from the accumulation value. As long as the accumulation value is greater than the next month's costs, the policy remains in force. If the accumulation value is depleted by monthly costs, the policy lapses and the policyholder loses coverage. If the policy is still in force upon the policyholder's death, the policyholder's beneficiaries receive a death benefit. If the insurance company increases the monthly cost of insurance rates, either the accumulation value depletes at an earlier date or the policyholder must pay higher premiums to maintain the accumulation value.
Ms. West's monthly deductions are governed by a few provisions in the Conseco Life Insurance Company CIUL2 Flexible Premium Adjustable Life Insurance Policy. First, the Policy Data Page shows a table of guaranteed, maximum monthly rates. Beneath the table, the policy says
The policy also has a “Cost of Insurance” provision. That provision has an equation used to determine the “monthly cost of insurance.” One of the factors included in the equation is the “Monthly cost of insurance rate as described in the Cost of Insurance Rates section.” The Cost of Insurance Rates section says:
The guaranteed monthly cost of insurance rates for the policy are based on the insured's sex, attained age, and premium cost on the date of issue. . . . These rates are shown on a Policy Date Page. Current monthly cost of insurance rates will be determined by the Company. The current monthly cost of insurance rates will not be greater than the guaranteed monthly cost of insurance rates which are listed on the Policy Date Page.
Ms. West paid a premium of $27.79 when she exchanged policies in 2001. Her premiums remained mostly the same through 2011 when she paid a monthly premium of $27.62. Then in July 2011, Wilco sent a letter to Ms. West informing her that they were increasing the cost of insurance rates for her policy because they had “incurred greater costs on these policies than we anticipated.” Ms. West's cost of insurance rate increased from $27.62 per month to $40.29 per month in 2012. When the monthly rate was $27.62 per month, Ms. West's policy was projected to remain in force until 2026-2028. Once the cost of insurance rate increased to $40.29 per month, the policy was projected to terminate by May 2018, about a decade sooner than expected. By May 2018, Ms. West's cost of insurance rate exceeded $50 per month and her policy lapsed. She received no benefits from the policy.
Ms. West alleges the following as an explanation for Wilco's behavior. When Wilco was still called Conseco Life Insurance Company, it was administered by CNO Financial Group. For several years, CNO Financial Group essentially drained Conseco Life Insurance of its assets for the benefit of CNO Financial Group and its subsidiaries. CNO Financial Group forced Conseco Life Insurance to pay large dividends and fees to CNO Financial Group and its subsidiaries to boost those companies' bottom lines while depleting Conseco Life Insurance of its assets. Between 1999 and 2012, Conseco Life Insurance paid fees and dividends to these other companies double or triple the industry average of “intra-family” company payments. This left Wilco in a poor financial state.
Around that same time, Conseco Life Insurance raised its cost of insurance rates on a different set of insurance policies, resulting in litigation. Conseco Life Insurance also used what's known as a “shock lapse strategy” to improve its bottom line. The purpose of the shock lapse strategy is to dramatically raise premiums so that policyholders are forced to surrender their policies or let them lapse, which allows the insurance company to save lots of money in death benefits that it might otherwise have to pay. CNO Financial Group estimated it could save $33 million to $50 million by using a shock lapse strategy with certain policies and in 2008, Conseco Life engaged in the strategy, resulting in 4, 000 policyholders surrendering coverage or allowing coverage to lapse. This shock lapse strategy also resulted in litigation. All told, Conseco Life Insurance/Wilco paid tens of millions of dollars to settle litigation and regulatory actions.
To make matters worse for Wilco, interest rates fell to historic lows and remained low in the wake of the 2008 Great Recession. This made universal life insurance policies much less profitable for insurance companies.
In the wake of CNO Financial Group's decisions to squeeze Conseco Life Insurance of its assets, Conseco Life Insurance/Wilco's huge settlement costs, and the low interest rates between 2008 and 2011, Wilco decided to raise cost of insurance rates to make up for lost revenue and increase profitability. Ms. West alleges that this was part of a shock lapse strategy, by which Wilco intended to cause its policyholders to lose coverage contrary to its assurances that policyholders would be entitled to benefits so long as they paid reasonable, risk-based rates. Ms. West brought this action on behalf of herself and those similarly situated for breach of contract, including breach of the implied duty of good faith and fair dealing. Wilco moved to dismiss.
The life insurance policy in question doesn't include a choice of law provision, though the parties seem to agree that the laws of Florida should apply to this dispute. A court sitting in diversity ordinarily applies the choice of law rules of the forum state. NewSpin Sports, LLC v. Arrow Elecs., Inc., 910 F.3d 293, 300 (7th Cir. 2018). In cases such as this, where a party has successfully moved to transfer the case from a judicial district in one state to a judicial district in another state, the court applies the choice of law rules of the forum state of the transferor court. Ferens v. John Deere Co., 494 U.S. 516 (1990); Van Dusen v. Barrack, 376 U.S. 612 (1964).
This case was transferred pursuant to 28 U.S.C. § 1404 from the Middle District of Tennessee, [Doc. No. 42], so the choice of law rules of Tennessee must determine which state's laws govern the dispute. For contracts claims, Tennessee applies the law of the jurisdiction where the contract was made, absent contrary intent. Williams v. Smith, 465 S.W.3d 150, 153 (Tenn. Ct. App. 2014). An insurance contract is made wherever the policy is “delivered” to the insured. Goss v. Green, 664 Fed.Appx. 560, 561 (6th Cir. 2016) (citing Ohio Cas. Ins. Co. v. Travelers Indem. Co., 493 S.W.2d 465, 467 (Tenn. 1973)). The parties agree that Ms. West was domiciled in Florida when she applied for the life insurance policy, so Florida law applies to this dispute.
Florida's statute of limitations for breach of contract is five years. Fla. Stat. § 95.11(2)(b) (2021). A cause of action for breach of contract accrues at the time of the breach,...
To continue reading
Request your trial