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Brown v. Phoenix Life Insurance Co.

United States District Court, M.D. Louisiana

March 4, 2019

WILLIAM BROWN
v.
PHOENIX LIFE INSURANCE COMPANY

          RULING AND ORDER

          JOHN W. deGRAVELLES JUDGE UNITED STATES DISTRICT COURT

         This matter comes before the Court on two motions. First before the Court is Defendant's Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. 13) filed by Defendant Phoenix Life Insurance Company (“Phoenix” or “Defendant”). Plaintiff William E. Brown (“Plaintiff” or “Brown”) opposes the motion. (Doc. 18.) Phoenix has filed a reply. (Doc. 20.) Oral argument is not necessary.

         Second, this matter comes before the Court on Plaintiff's Motion to Defer Prescription to Trial. (Doc. 21.) Defendant Phoenix opposes the motion. (Doc. 23.) Plaintiff Brown has filed a reply. (Doc. 24.)

         The Court has carefully considered the law, facts in the record, and arguments and submissions of the parties and is prepared to rule. For the following reasons, Defendant's motion is granted, and Plaintiff's motion is denied.

         I. Relevant Factual Background

         The following factual allegations are taken from Plaintiff's Amended Complaint. (Doc. 8.) They are assumed to be true for purposes of this motion. Thompson v. City of Waco, Tex., 764 F.3d 500, 502-03 (5th Cir. 2014).

         Phoenix and its agent sold a universal life insurance policy to Brown in December 1986. (Doc. 8 at 6.) Brown asserts that Phoenix's agent described the policy (hereafter referred to as “the Policy” or “the written Policy”) to Brown as follows: “VISTAFLEX Policy K02623586 is a type of Universal Life Insurance. Universal Life (UL) is a combination of permanent insurance and an investment fund that provides coverage for [Brown's] entire life (Letter dated February 6, 2009).” (Id.) Brown claims that at the time of sale, Phoenix's agent represented to Brown the following: (a) the Policy is a universal life insurance policy with a $150, 000 death benefit and a $1, 200 annual or $100 monthly premium for the life of the Policy; (b) the premium would be invested in an investment fund, earning interest at 9.75%; and (c) the investment fund would increase in value over time and could be used to pay premiums to provide life insurance for Brown's life or could be used to reduce premiums. (Doc. 8 at 7-8.)

         At the time of sale, Brown was given an “Application for Insurance, ” as well as an “ILLUSTRATION.” (Doc. 8 at 8.) Brown signed the Application for Insurance, which stated in pertinent part that the “[P]olicy and insurance applied for will take effect when the [P]olicy is delivered to the owner and the full first premium is paid in cash during the lifetime of the proposed insured(s)…” (Doc. 5-4 at 3.) According to the recital in the Application, in addition to Brown's signature, Brown also submitted and paid the first premium. (Doc. 8 at 6.) The ILLUSTRATION that was also given to Brown at the time of sale provided Brown with information pertaining to the “annual outlay, ” “assumed interest, ” and “cash value” of the Policy. (Doc. 8 at 8.) The ILLUSTRATION's footnotes referenced that the interest rate and cost of insurance were subject to change and that additional premiums would be required in month 7 of year 19 or the Policy could lapse. (Id.) No. records appear in Brown's file that would suggest that Phoenix's agent discussed or provided an explanation and/or projection for the “cost of insurance”. (Id.)

         After the sale of the Policy, Phoenix proceeded to send Brown monthly “Premium Notices” for over 30 years, which reflected a $100 monthly premium. (Doc. 8 at 7.) All premiums were paid by Brown from the time of sale in December 1986 until the filing of the Petition. (Doc. 8 at 6.)

         The dispute arising from Brown's Amended Complaint stem from two main issues. First, at an unspecified point in time, Phoenix began imposing extra or additional charges on Brown (also referred to as “mortality charges, ” “cost of insurance, ” and/or “additional premiums”), while also deducting extra or additional charges from the investment fund (also referred to as: “cash value” and/or “policy account value”). (Doc. 8 at 9.) Brown states that in 2018 Phoenix intended to charge $6, 443 for the “mortality charges” plus a $11, 321.04 premium payment to pay the “mortality charges” and fund the investment; thereby, charging “9.4 times” more than the original $1, 200 premium. (Doc. 8 at 3.) Brown's files reflect that Phoenix sent Brown a “Lost Policy Certificate” in response to Brown's request for a copy of the Policy. (Doc. 8 at 7.) Brown claims that the Lost Policy Certificate did not disclose the additional “mortality charges, ” but only reflected a single [level] monthly premium of $100. (Id.) Additionally, Brown references in his Amended Complaint that the monthly Premium Notices only reflected a premium amount $100/month without mention of “mortality charges, ” “additional premiums, ” and/or “cost of insurance.” (Doc. 8 at 7.)

         The second issue arises from Brown's allegation that Phoenix failed to deliver the Policy. (Doc. 8 at 7.) Brown's records reflect that he requested that Phoenix deliver the Policy to him six times in writing (Doc. 8 at 7), and, despite this, Phoenix and its agent failed to deliver the Policy to Brown for over 31 years. (Doc. 8 at 6.) Brown's written requests are as follows:

(a) [First written request: no copy in Brown's file]
(b) [Handwritten letter, undated]: “This is my second request to company headquarters for my life insurance policy.”
(c) November 23, 1988 letter: “This is my third request to Home Life[1] headquarters for my insurance policy…I have not been able to obtain the policy from the agent or the company. Please send me the policy immediately.”
(d) May 17, 1995 letter: “In reviewing my life insurance policies, I realized that I still have not received a copy of my Home Life policy…I am requesting a return of the premiums paid.”
(e) January 12, 2009 letter: “Please send a copy of the agreement that authorizes Phoenix to increase the premiums and a copy of the premium schedule for past and future years…As your files will show, I have never received a copy of the policy. All I have is a Lost Policy Certificate.”
(f) August 3, 2015 letter: “3. Enclosed is a Lost Contract Agreement and a check for $35. (As stated in previous correspondence, I never received the original insurance policy from Home Life or the agent, Andy Goodyear, New Orleans).”

(Doc. 8 at 2-3.)

         In 2015, twenty-nine (29) years after the sale of the policy and payment of the first premium, Phoenix sent a “duplicate” and “representative” copy of the Policy to Brown. (Doc. 8 at 10.) In 2018, Phoenix's customer care representative told Brown that there was no delivery receipt in the Phoenix file. (Id.)

         Brown makes several claims. First, Brown argues pursuant to La. Civ. Code art. 1986 that he is entitled to specific performance of the terms agreed upon orally with Phoenix's agent at the time of sale of the Policy in 1986. (Doc. 8 at 10.) More specifically, Brown wishes to enforce the alleged oral agreement in which Brown and Phoenix's agent agreed that Brown could maintain the Policy permanently by paying an annual premium of $1, 200 without additional charges (“mortality charges” or “costs of insurance”) or deductions. (Id.)

         Second, and in the alternative, Brown claims that the “mortality charges” deducted from the investment fund constitutes a breach of contract as to the (oral) terms agreed upon which were that the Policy could be maintained by a $1, 200/year premium. (Doc. 8 at 12.) Additionally, Brown asserts that Phoenix acted in “bad faith” in selling a universal life insurance policy to Brown on the basis that it was “permanent insurance” plus an investment fund, while instead imposing additional costs on the insured which ultimately lead to the lapse of the Policy. (Doc. 8 at 12.) Brown claims he is entitled to recover damages, including unforeseeable damages, caused by the bad faith breach of contract. (Doc. 8 at 12.)

         Again, Brown restates the contention that instead of receiving permanent insurance, Phoenix charged additional costs making the Policy unaffordable and thereby causing the Policy to terminate due to Brown's inability to pay the additional premiums. (Doc. 8 at 16.) Brown claims thirdly that, pursuant to La. Civ. Code arts. 1948, 1949, and 1950, the Policy should be rescinded for error and/or fraud because Phoenix's agent caused Brown to believe in error that the Policy provided permanent insurance. (Doc. 8 at 13.)[2]

         Fourth, and in the alternative to Brown's specific performance and breach of contract claims, Brown asserts that Phoenix's failure to deliver the Policy in violation of La. R.S. § 22:634 and its' failure to comply with the Application for Insurance results in an absolute nullity. (Doc. 8 at 11.) Brown states he is entitled to restitution of all premiums paid plus interest from the date of payment compounded annually. (Doc. 8 at 11.)

         II. Rule 12(b)(6) Standard

         “Federal pleading rules call for a ‘short and plain statement of the claim showing that the pleader is entitled to relief,' Fed.R.Civ.P. 8(a)(2); they do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.” Johnson v. City of Shelby, Miss., 135 S.Ct. 346, 346-47 (2014) (citation omitted).

         Interpreting Rule 8(a) of the Federal Rules of Civil Procedure, the Fifth Circuit has explained:

The complaint (1) on its face (2) must contain enough factual matter (taken as true) (3) to raise a reasonable hope or expectation (4) that discovery will reveal relevant evidence of each element of a claim. “Asking for [such] plausible grounds to infer [the element of a claim] does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal [that the elements of the claim existed].”

Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 257 (5th Cir. 2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 1965 (2007)).

         Applying the above case law, the Western District of Louisiana has stated:

Therefore, while the court is not to give the “assumption of truth” to conclusions, factual allegations remain so entitled. Once those factual allegations are identified, drawing on the court's judicial experience and common sense, the analysis is whether those facts, which need not be detailed or specific, allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” [Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949 (2009)]; Twombly, 55[0] U.S. at 556. This analysis is not substantively different from that set forth in Lormand, supra, nor does this jurisprudence foreclose the option that discovery must be undertaken in order to raise relevant information to support an element of the claim. The standard, under the specific language of Fed.R.Civ.P. 8(a)(2), remains that the defendant be given adequate notice of the claim and the grounds upon which it is based. The standard is met by the “reasonable inference” the court must make that, with or without discovery, the facts set forth a plausible claim for relief under a particular theory of law provided that there is a “reasonable expectation” that “discovery will reveal relevant evidence of each element of the claim.” Lormand, 565 F.3d at 257; Twombly, 55[0] U.S. at 556.

Diamond Servs. Corp. v. Oceanografia, S.A. De C.V., No. 10-00177, 2011 WL 938785, at *3 (W.D. La. Feb. 9, 2011) (citation omitted).

         In deciding a Rule 12(b)(6) motion, all well-pleaded facts are taken as true and viewed in the light most favorable to the plaintiff. Thompson v. City of Waco, Tex., 764 F.3d 500, 502-03 (5th Cir. 2014). The task of the Court is not to decide if the plaintiff will eventually be successful, but to determine if a “legally cognizable claim” has been asserted.” Id. at 503.

         III. Discussion of Defendant's Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. 13)

         A. Summary of Ruling

         As stated above, Plaintiff asserts four main claims: (1) specific performance, (2) breach of contract and bad faith damages, (3) rescission for error and/or fraud, and (4) a declaration that the policy is an absolute nullity because it was not delivered. The Court will address each of these claims in turn below.

         In sum, having carefully considered the law and allegations of the Complaint, the Court finds that Plaintiff has failed to state any cognizable claim. First, Plaintiff's claims for specific performance, breach of contract, and bad faith damages all fail because all insurance contracts must be in writing, so, as a matter of law, Plaintiff cannot enforce an alleged oral or partially oral agreement. Second, Plaintiff's claim for rescission for error and/or fraud fail both because these claims have prescribed. And third, Plaintiff cannot declare the insurance policy an absolute nullity because, under Louisiana jurisprudence, Courts routinely enforce undelivered policies. For all these reasons, Plaintiff has failed to state a valid claim, and the Defendant's motion to dismiss will be granted.

         B. Plaintiff's Claim for Specific Performance and the Enforceability of Oral Life Insurance Polices

         1. Parties' Arguments

         a. Defendant's Argument in Support of its Motion to Dismiss (Doc. 13-1)

         Defendant argues dismissal is appropriate in this case for several reasons. The Defendant maintains that the parties could not and did not create an oral life insurance policy. (Doc. 13-1 at 7.) Further, the Defendant highlights that Plaintiff does not wish to enforce the written contract of insurance that he signed with Phoenix's agent in 1986, but rather Plaintiff seeks specific performance of an oral insurance policy based on Plaintiff's alleged oral communications with Phoenix's agent in 1986. (Doc. 13-1 at 1-2.) Applying the standard set out in Louisiana Maintenance Services, Inc. v. Certain Underwriters at Lloyd's of London, 616 So.2d 1250, 1252 (La. 1993); La. R.S. 22:867; La. R.S. 22:864; and La. R.S. 22:931, Defendant argues that Plaintiff cannot sustain a claim for enforcement of a purported oral insurance policy because the parties could not create an oral life insurance policy since, Defendant argues, Louisiana law mandates that insurance contracts must be in writing and can only be altered or amended in writing. (Doc. 13-1 at 7.) Moreover, Defendant states that Plaintiff knew he was applying for and receiving a Vista Flex Policy, rather than the oral agreement/policy, since Plaintiff signed the Policy Application.

         Plaintiff's signature on the Application acknowledged that Plaintiff was applying for a “Vista Flex” policy and that Plaintiff understood that the agent had no authority make a different contract: “It is understood and agreed as follows: 2. No. agent has authority…to make or alter any contract or policy.” (Doc. 5-4 at 1-3.) Defendant argues that these actions by Plaintiff confirm that Plaintiff purchased and understood he was purchasing the written, Vista Flex policy with flexible premiums, rather than an oral policy which guaranteed permanent insurance if $12, 000 in annual premiums were paid. (Doc. 20 at 1.)

         b. Plaintiff's Opposition to Defendant's Motion to Dismiss (Doc. 18)

         Plaintiff asserts that the initial communication between him and Phoenix's agent created a new life insurance policy or, alternatively, modified the written Policy's terms because insurance policies “must be constructed from terms agreed upon at the inception. . .” Further, in support of this argument, Plaintiff states that the Lost Policy Certificate provided the amount of the premium but did not mention additional costs evidencing Plaintiff's intent and understanding of the terms at the “inception.” (Doc. 18 at 4.)

         In an effort to support his argument that the oral terms are enforceable rather than the written terms, Plaintiff argues that since the Policy was undelivered, the terms in the written Policy are unenforceable. (Doc. 18 at 1.) Relying on the language from Louisiana Maint. Serv. which states that, “…under Louisiana law an insurer cannot take advantage of favorable policy terms where it delayed delivery of the policy after the insured paid the premium, ” Plaintiff asserts that the Phoenix cannot enforce the terms of the undelivered written Policy to raise the cost of insurance.” 616 So.2d at 1253. (Doc. 18 at 1.)

         In the Reply to Defendant's argument that oral insurance policies are unenforceable in Louisiana pursuant to La. Rev. Stat. 22:867 (Doc. 13-1 at 7), Plaintiff asserts that the oral communication is considered a binding contract because the Lost Policy Certificate, Application for Insurance, and Annual Reports are part of the Policy itself making the contract ‚Äúpart oral, part written, part ...


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