Su Zhou v. Sec. Life of Denver Ins. Co., Civil Action No 19-cv-02781-RBJ

• Citation: 506 F.Supp.3d 1119
• Decision Date: 14 December 2020
• Docket Number: Civil Action No 19-cv-02781-RBJ
• Parties: Su ZHOU, BY AND THROUGH her POWER OF ATTORNEY, individually and on behalf of herself and all similarly situated persons, Plaintiff, v. SECURITY LIFE OF DENVER INSURANCE COMPANY, a Colorado corporation, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

506 F.Supp.3d 1119

Su ZHOU, BY AND THROUGH her POWER OF ATTORNEY, individually and on behalf of herself and all similarly situated persons, Plaintiff,

v.SECURITY LIFE OF DENVER INSURANCE COMPANY, a Colorado corporation, Defendant.

Civil Action No 19-cv-02781-RBJ

United States District Court, D. Colorado.

Signed December 14, 2020

Andrew S. Friedman, Francis J. Balint, Jr., Bonnett Fairbourn Friedman & Balint P.C., Phoenix, AZ, Brian Paul Brosnahan, Cornerstone Legal Group, LLC, Daniel Jack Veroff, Merlin Law Group, Ingrid Maria Evans, Evans Law Firm, Inc., San Francisco, CA, Jonathan Edward Bukowski, Larry E. Bache, Jr., Timothy Graham Burchard, II, Merlin Law Group, Denver, CO, for Plaintiff.

Kendall J. Burr, David T. McDowell, McDowell Hetherington LLP, Houston, TX, for Defendant.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

R. Brooke Jackson, United States District Judge

This matter is before the Court on plaintiff's motion for partial summary judgment and defendant's motion for summary judgment. ECF Nos. 38, 40. For the reasons discussed below, plaintiff's motion is GRANTED, and defendant's motion is DENIED.

I. FACTUAL BACKGROUND

The parties do not dispute the following facts. On August 27, 2015 Su Zhou ("plaintiff") applied for Security Life of Denver Insurance Company's ("defendant") universal life insurance policy. ECF No. 39 at 1. Plaintiff included a check in the amount of $6,000.00 with her application. ECF No. 39 at 1; ECF No. 39-2 at 2. This check cleared plaintiff's checking account on September 11, 2015. ECF No. 39-2 at 2. Upon receiving this check, defendant placed the funds in a suspense account on or about the same day. ECF No 40-2 at 14.

In addition to the application for the life insurance policy, plaintiff also submitted a Temporary Insurance Receipt ("TIR") to defendant. See ECF No. 40-3. The TIR listed the premium receipt as $6,000.00. ECF No. 40-3 at 2. The TIR provided life insurance coverage to plaintiff for ninety days or until the policy was in force, whichever came sooner. Id. Plaintiff also signed an "Acknowledgement in Lieu of Illustration Submission" and submitted the document with her initial application. ECF No. 40-4. These types of acknowledgements are "used during solicitation, when a policy applied for is different than as shown in the illustration used during solicitation." ECF No. 40-4 at 2. Under the acknowledgement, the premium amount was listed as "payable annually" for six years. Id.

On October 8, 2015 defendant conditionally approved the policy. ECF No. 40-5 at 1. The conditional approval was contingent on the following three events: "(1) payment of $20,860; (2) a signed policy delivery receipt; and (3) a signed illustration correctly representing the applicant's purported planned funding strategy." ECF No 40-2 at 14. On October 23, 2015 plaintiff submitted another check in the amount of $22,000.00 to defendant, which was deducted from her checking account on November 3, 2015. ECF No. 39 at 2; ECF No. 39-4 at 2. These funds were also placed in defendant's suspense account. ECF No. 40-2 at 14. On November 9, 2015 plaintiff submitted a revised illustration, which defendant accepted as being in "good order." Id. Defendant accepted the application and placed the policy in force on November 12, 2015. Id. The policy contained a merger clause stating that the application was part of the policy. The application contained a governing law provision that stated, "[t]he Policy shall be governed in all respects, including validity, interpretation, and effect, without regard to principles of conflicts of law, by the laws of the state in which it is delivered, which shall be deemed to be the state in which this Application is executed as shown below." ECF No. 40-1 at 9. The application was executed in San Antonio, Texas. Id.

Although defendant did not receive and accept the required materials until November 12, 2015, the parties agreed to make the policy date October 8, 2015. ECF No. 1-1 at 3; ECF No. 40 at 13. Additionally, the policy defines "policy date" as "the date from which we measure policy years, policy months and policy anniversaries, and it determines the Monthly Processing Date." Id. at 24. The date the parties agree for the policy date—in this case, October 8, 2015—will also determine the policy's monthly processing dates.

Policyowners were given various strategy options, some of which permitted the policyowners to collect interest. Plaintiff's policy fell under the fixed strategy option, which permitted the policyowner "to have all or part of [their] Account Value earn interest at a rate declared by [defendant] subject to the guaranteed minimum interest rate." Id. at 23. The guaranteed minimum interest rate was two percent per year. Id. at 13. From October 8, 2015 through October 7, 2016 defendant's declared interest rate was 4.25 percent. ECF No. 1-2 at 3.

The policy provides a formula for how the fixed strategy amount will be calculated. Additionally, it lists how interest is to be credited on both the policy date and each subsequent monthly processing date. I refer to this part of the contract as the "interest-crediting provision." This portion of the contract reads,

On the policy date, the value of the Fixed Strategy is the Net Premium paid on that date, minus the Monthly Deduction for the first policy month. On any Monthly Processing Date other than the Policy Date, the value of the Fixed Strategy equals:

a. The value of the fixed strategy on the first day of the previous policy month; plus

b. One month's interest on the value of the Fixed Strategy as of the first day of the previous policy month

c. Any Net Premium received since the most recent Monthly Processing Date with interest from the date of receipt to the date of calculation; plus

d. Any amounts added to the Fixed Strategy since the most recent Monthly Processing Date with interest from the effective date of the transaction to the date of calculation; minus

e. Any amounts added to the Indexed Strategy or Policy Loan Account, if applicable, since the most recent Monthly Processing Date with interest from the effective date of the transaction to the date of calculation; minus

f. The Monthly Deduction subtracted from the Fixed Strategy for the current month; minus

g. The amount of any partial withdrawal subtracted from the Fixed Strategy on the current Monthly Processing Date and the service fee for such partial withdrawal; minus

h. Any policy or rider transaction charges subtracted from the Fixed Strategy since the most recent Monthly Processing Date with interest from the effective date of the transaction to the date of calculation; minus

i. Any surrender charges subtracted from the Fixed Strategy since the most recent Monthly Processing Date with interest the effective date of the transaction to the date of calculation.

ECF No. 1-1 at 33.

As mentioned above, plaintiff made her first premium payment on August 27, 2015 in the amount of $6,000.00. ECF No. 39 at 1. The check cleared plaintiff's bank account on or about September 11, 2015, and defendant placed it into a suspense account upon receipt. ECF No. 40 at 3. Plaintiff paid her next premium in the amount of $22,000, which cleared her account on November 2, 2015. Those funds were also placed in a suspense account. ECF No. 40-2 at 14. The funds placed into the suspense account were not credited to the policy until November 12, 2015, the date defendant received all outstanding documents and considered the policy to be finalized. Id.

In October 2016 defendant issued plaintiff her first annual statement outlining her policy's performance through October 7, 2016. See ECF No. 38-2. The policy statement lists no activity until December 8, 2015, two months after the policy date. Id. at 5. According to the annual statement, no premium payments were made as of the October 8, 2015 or November 8, 2015 monthly processing dates. Id. at 4. The statement also shows that no administrative fees were charged, nor was any interest paid, for either the October or November dates. Id. The account value is listed as $0.00 for both processing dates. Id.

December 8, 2015 is the first monthly processing date that shows any activity on the account. Id. The statement lists the following activity: $28,000 in premium fees, $4,822.42 in administrative charges, $60.00 in policy charges, $213.97 in cost of insurance charges, $447.26 in rider charges, and $69.39 in credited interest and index credits. The overall account value is listed as $22,525.74. Id. On the January 8, 2016 monthly processing date, the following activity is listed: $674.14 for administrative charges, $20.00 for policy charges, $71.45 for cost of insurance charges, and 149.35 for rider charges. Id. Therefore, the December 8, 2015 charges were about three times higher than the subsequent monthly charges. Defendant did not credit plaintiff's account with any interest for the payments received prior to November 12, 2015.

II. PROCEDURAL BACKGROUND

Plaintiff filed this case on September 27, 2019. ECF No. 1. In her complaint, plaintiff named two defendants: Security Life of Denver Insurance Company and Voya Financial, Inc. ECF No. 1. Plaintiff, individually and on behalf of a putative class, brought a single breach of contract claim against defendants. Id. Defendants filed their initial answer on December 3, 2019 and an amended answer on January 17, 2020. ECF Nos. 13, 27. On March 25, 2020 the Court dismissed Voya Financial, Inc. as a party, leaving SLD as the sole defendant in this case. ECF Nos. 33, 34.

On August 21, 2020 plaintiff filed a motion for partial judgment, and defendant filed a motion for summary judgment. ECF Nos. 38, 40. Plaintiff filed its brief in opposition to defendant's motion on September 4, 2020. Defendant responded to plaintiff's motion on that same day. On September 25, 2020 an oral argument was held telephonically, and the parties argued their positions. ECF No. 44. The matter is now ripe for review.

III. STANDARD OF...