Alabama ▪ District of Columbia ▪ Mississippi ▪ North Carolina ▪ Tennessee Litigation Update...

Alabama▪ District of Columbia ▪ Mississippi ▪ North Carolina ▪ Tennessee

Litigation Update Recent Developments That Will Help

Your Company Prevail in Litigation

Jason A. Walters

Topics

MetLife v. Glenn and its progeny Tort claims barred by the receipt of documents Agent litigation STOLI Class actions Miscellaneous cases

MetLife v. Glenn

Two holdings: Conflict of interest exists when:

• Plan grants administrator discretionary authority to evaluate benefit claims; and

• Administrator itself pays valid benefit claims. Conflict of interest should be weighed as a factor

in determining whether administrator abused its discretion.

Glenn does NOT…

Glenn does NOT change the standard of review Glenn expressly rejected de novo review Remains abuse of discretion (arbitrary/capricious)

Glenn is NOT a discovery case

Post-Glenn Std. of Review

Schwing v. Lilly Health Plan, 562 F.3d 522 (3d Cir. April 14, 2009) Post-Glenn, the “sliding scale approach is no longer

valid.” Courts “should apply a deferential abuse of

discretion standard of review across the board and consider any conflict of interest as one of several factors.”

Benefits decision was not close enough for the conflict to act as a “tie breaker.”


Smith v. Health Services of Coshocton, 2009 WL 481603 (6th Cir. Feb. 25, 2009) Rejected plaintiff’s argument that Glenn required

“a more penetrating scope of judicial review than has previously been utilized.”

Stated that it would be a “serious misreading” of Glenn to suggest that the opinion creates a heightened standard of review.


Jenkins v. Price Waterhouse Long Term Disability Plan, 564 F.3d 856 (7th Cir. 2009) Deferential standard “doesn’t make us a rubber

stamp, but it does mean that we cannot reverse course unless a decision is ‘downright unreasonable.’”

Measured against this standard of review, the plaintiff’s appeal “stands little chance.”

All that is required for judgment in favor of the administrator is “rational support in the record.”

Post-Glenn Discovery Cases

The Glenn court held that a conflict of interest:“should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration.”

Glenn, 128 S.Ct. at 2351.


McGahey v. Harvard Univ. Flexible Benefits Plan, 2009 WL 799464 (D. Mass. March 25, 2009) Denied plaintiff’s request for extensive discovery Must be “some very good reason” to overcome

the “strong presumption” that the review is limited to the administrative record.

Discovery not permissible “where a plaintiff can point to nothing more than a structural conflict of interest.”


Christie v. MBNA Group Long Term Disability Plan, 2008 WL 4427192 (D. Me. Sept. 25, 2008)

Glenn “was not a case about discovery.”

Because the conflict of interest was already established, the plaintiff did not need to conduct discovery beyond the administrative record.


Allen v. MetLife, No. 7:08-CV-B-0752-W (N.D. Ala. March 3, 2009); Blankenship v. MetLife, No. 2:08-CV-BE-0639-S (N.D. Ala. April 2, 2009)

Discovery limited to the administrative record. In Allen, the court denied the plaintiff’s motion to

compel the deposition of a claim adjustor. In Blankenship, the court denied plaintiff’s

motion to compel discovery responses on the issue of conflict of interest.

Effect of Written Documents

Documents negate reasonable reliance element of fraud

Documents trigger running of limitations period

Documents Bar Claims:Reliance Not Reasonable

AmerUs Life Ins. Co. v. Smith, 5 So. 3d 1200 (Ala. 2008) Two policies issued in 1987 providing a total of $3.5

million in life insurance coverage Agent: Policies will last 42 years and premiums will

remain level for 42 years Policies issued with class C rating, resulting in lapse

after 15 years Plaintiff received policies, statement of policy cost

benefit information, and annual statements $6.5 million jury verdict


AmerUs Life Ins. Co. v. Smith, 5 So. 3d 1200 (Ala. 2008) (cont’d) Court held that plaintiff’s reliance was

unreasonable in light of documents provided. Cost-benefit statement disclosed that interest

rates and COI could change and that policy would lapse in 6 years under guaranteed assumptions.

Alabama Supreme Court reversed and rendered judgment in favor of AmerUs.


Alvarez v. Insurance Co. of North America, 2008 WL 647784 (3d Cir. 2008) Purported class action involving long term care

policies. Plaintiff alleged fraudulent misrepresentation and

suppression regarding premium increases. Policy and related materials disclosed that insurer

could increase premiums. Court affirmed dismissal, holding that documents

precluded reliance.


Rakes v. Life Investors Ins. Co. of America, 2008 WL 2518717 (N.D. Iowa 2008) Purported class action based on premium increases for

long term care policies. Plaintiffs sued for fraud, alleging policy was undersold

with intention of raising premiums. Plaintiffs received multiple documents disclosing the

company’s right to increase premiums. Court granted summary judgment, holding that the

“repeated, unequivocal disclosures” made plaintiffs’ reliance unreasonable.

Documents Bar Claims:Statute of Limitations

Beavers v. MetLife, 2009 WL 1067035 (5th Cir. April 22, 2009) Plaintiffs alleged MetLife breached terms of participating

policies by misallocating surplus profits to other lines of business from 1984 - 2000.

Court held that claims were not “inherently undiscoverable” with due diligence.

Plaintiffs and class members “could have studied their policies, contacted MetLife, or posed inquiries to the appropriate insurance regulatory boards concerning the smaller dividends.”


Paine v. Jefferson Nat’l Life Ins. Co., 2008 WL 4809824 (E.D. Ark. Oct. 28, 2008) Plaintiff purchased thirteen $100,000 single-premium

endowment policies in 1988. Plaintiff borrowed $500/month/policy. Plaintiff alleged the agent and company

misrepresented how the loans and interest would be calculated, resulting in erroneous policy values.

Plaintiff further alleged that the policy values were inconsistent with the terms of the policies.


Paine v. Jefferson Nat’l Life Ins. Co., 2008 WL 4809824 (E.D. Ark. Oct. 28, 2008) (cont’d) Court held that claims were time-barred. The court found that the policies, annual

statements and various correspondence with the insurer put the plaintiff on notice of his claims and triggered the running of the applicable limitations periods.

Currently on appeal to Eighth Circuit.


Weathers v. MetLife, 2008 WL 2806666 (Miss. Ct. App. 2008) Vanishing premiums case Misrepresentations contrary to policy terms MS Court of Appeals held that limitations

period began to run when the policy was delivered

Mississippi Supreme Court reversed on July 2.


Weathers v. MetLife, 2009 WL 1886867 (Miss. July 2, 2009) MS Supreme Court reversed, holding that a

question of fact existed regarding whether the misrepresentations contradicted the terms of the policy.

Policy stated premiums would be paid for 59 years, but did not address how premiums would be paid after the vanish date.

No dissent.

Agent Cases

Often overlooked Can be expensive to litigate Practice tips:

Beware of marketing materials that refer to “partnering” with the agent/IMO/FMO

Use caution when terminating “for cause”• Rolling business is difficult to establish as a matter of law

Monitor agent/employee litigation In litigation, drill down in accounting records

Agent Litigation

Hopkins v. Cornerstone America, 454 F.3d 338 (5th Cir. 2008) Court held that management-level “sales leaders”

were “employees” under the Fair Labor Standards Act and were thus entitled to overtime pay.

Sales leaders managed agents and were compensated by overwrite commissions.

Court found that in light of insurers’ control, agents could not reasonably be considered “in business for [themselves].”

Agent Litigation

Walker v. Bankers Life and Cas. Co., 2008 WL 2883614 (N.D. Ill. Jul. 28, 2008) Agents, on behalf of class, alleged that insurer

misclassified them as independent contractors rather than as employees, thereby denying rights and benefits due under California law.

The court decertified the class, holding that “resolving the common issue of misclassification would require an onerous inquiry into each agent’s relationship with Bankers Life.”

Agent Litigation

Mollica v. Conseco Ins. Co., No. CV-07-J-1753-S, (N.D. Ala. 2009) 7 agents alleged various misrepresentations in

connection with the rollout of a new UL policy. Agents alleged that the misrepresentations resulted in

years of lost profits. Court granted summary judgment, holding that

evidence did not support fraud and suppression claims and that plaintiffs could not reasonably rely on misrepresentations regarding underwriting requirements for new policy.

STOLI

Stranger Owned Life Insurance

STOLI

Developing area of the case law. Insurers are fighting back. Rescission actions:

Lack of insurable interest Material misrepresentation on application

• Income• Net worth• Existence of agreement to assign policy• Applications pending with other companies

STOLI—Insurable Interest

First Penn-Pacific Life Ins. Co. v. Evans, 2009 WL 497394 (4th Cir. Feb. 26, 2009) (Ariz. Law) Insurable interest existed in a STOLI transaction. Even though the insured planned to sell the policy at

the time he applied for it, an insurable interest existed because an individual clearly has an insurable interest in his own life.

Evaluating the subjective intent of the insured “would be unworkable and would inject uncertainty into the secondary market for insurance.”


Sun Life Assurance Co. of Canada v. Paulson, 2008 WL 5120953 (D. Minn. Dec. 3, 2008) Court held that Sun Life failed to adequately allege

that the applicant and a third party shared a “mutual intent” at the time of application to subsequently assign the policy.

Third party must be identified in complaint. Court held that an insurer must be able to show

this mutual intent in order to establish that the insurable interest requirement is lacking.


Life Product Clearing LLC v. Angel, 530 F. Supp. 2d 646 (S.D.N.Y. 2008) In determining existence of insurable interest,

court must “consider[] the intent of the insured … at the time the policy is procured.”

Court denied motion for judgment on the pleadings, holding that the estate sufficiently alleged that the insured “intended to transfer the policy … prior to procuring it.”

STOLI—Misrep on Application

Jefferson-Pilot Life Ins. Co. v. Marietta Campbell Ins. Group, 2008 WL 3582751 (D. Minn. 2008) Insured failed to disclose apps “pending” with other

companies, although they were submitted after she submitted her JP application.

Court held that under doctrine of uberrimae fidei, “if an applicant for insurance discovers facts that make portions of his application no longer true while the company deliberates, he must make full disclosure of the newly discovered facts.”

See also PHL Variable Ins. Co. v. Fulbright McNeill, Inc., 519 F.3d 825 (8th Cir. 2008) (non-STOLI)

Other Rescission (Non-STOLI)

West Coast Life Ins. Co. v. Hoar, 558 F.3d 1151 (10th Cir. 2009) Misrepresentation on application regarding

whether the applicant engaged in a “hazardous avocation or hobby.”

Applicant disclosed that he skied, but did not disclose that he “heli-skied”.

Insured broke his neck in avalanche. Court held that it was a material misrepresentation

that voided the policy.

Class Action Litigation

Certification decisions

SLUSA preclusion

Class action hypothetical


Avritt v. Reliastar Life Ins. Co., 2009 WL 455808 (D. Minn. Feb. 23, 2009) Plaintiffs alleged that the insurer improperly credited

interest to its fixed deferred annuity policies by paying higher interest rates on “new money” than on “old money”.

Court held that predominance and superiority requirements were lacking because the interest-crediting practices were allegedly “undisclosed or misrepresented,” so “the expectations of the individual members of the putative class can be expected to be varied rather than largely uniform.”


Ruppert v. Principal Life Ins. Co., 252 F.R.D. 488 (S.D. Iowa 2008) 401(k) trustee sued plan provider under ERISA based on

provider’s alleged participation in revenue sharing fee arrangements with mutual funds included in its pre-packaged 401(k) plans.

Court denied certification because the provider’s mutual fund offerings and revenue sharing fees varied from plan to plan.

Fiduciary status and breach of that duty would have to be determined on a plan by plan basis.

Class Actions—SLUSA

Instituto de Prevision Militar v. Merrill Lynch, 546 F.3d 1340 (11th Cir. 2008) Involved misappropriation of investment funds State law tort claims and fed. securities claims Consolidated with related cases for discovery Court affirmed dismissal because the action was

part of a “group of lawsuits” under SLUSA. SLUSA “does not require district courts to act like a

prospector panning for a few non-precluded theories amid a river of precluded ones.”

Class Action Hypothetical

Jurisdiction A: Record of granting class certification Defendant has the burden of proving the amount

of damages in dispute• In some cases to a “legal certainty”

Focus on electronic discovery Imposes settlement hurdles:

• Burdensome notice requirements to regulators Interlocutory appeal rarely granted


Jurisdiction B: Appellate court rarely approves of certification Defendant does not have to prove disputed

damages Minimal focus on electronic discovery Automatic right to appeal certification ruling No notice requirements to regulators


Answer: Jurisdiction A

• Federal court in 11th Circuit

Jurisdiction B • Alabama state court

Amount in Controversy—CAFA

Freeman v. Blue Ridge Paper Products, 551 F.3d 405 (6th Cir. 2008) Plaintiffs filed five separate suits covering distinct six-

month periods, each limiting class damages to less than $4.9 million.

Court: “CAFA was clearly designed to prevent plaintiffs from artificially structuring their suits to avoid federal jurisdiction.”

Since there was “no colorable reason for breaking up the lawsuits,” the court aggregated the suits and denied remand.

Amount in Controversy—CAFA

Proffitt v. Abbott Laboratories, 2008 WL 4401367 (E.D. Tenn. September 23, 2008) Plaintiffs filed 11 suits that were identical except

for the time periods that they covered. Each suit claimed less than $5 million dollars in damages.

Court held that “the intent of CAFA [is] being undermined by the device of filing multiple lawsuits based on completely arbitrary time periods.” Accordingly, the suits were aggregated and remained in federal court.

Amount in Controversy—Section 1332

McPhail v. Deere & Co., 529 F.3d 947 (10th Cir. 2008) Court held that “once the estimate [of the amount in

controversy] has been made … then the case stays in federal court unless it is legally certain that the controversy is worth less than the jurisdictional minimum.”

Court held that “complaint that presents a combination of facts and theories of recovery that may support a claim in excess of $75,000 can support removal.”


In re 1994 Exxon Chemical Fire, 558 F.3d 378 (5th Cir. 2009) Plaintiffs pleaded below jurisdictional amount. Plaintiffs also alleged injuries to physical and

mental health, emotional distress, property damage, and punitive damages.

These claims satisfied the amount in controversy. Court concluded that plaintiffs failed to

“demonstrate to a legal certainty that they cannot recover more than the jurisdictional amount.”


Kok v. Kadant Black Clawson, Inc., 274 Fed. Appx. 856 (11th Cir. 2008) Plaintiff disavowed recovery beyond $74,999 in

his motion to remand, but not in his complaint. Court held that evidence of plaintiff’s past salary

satisfied the amount in controversy. Thus, even post-Lowery, case-specific evidence

can be used to establish the amount in controversy in the 11th Circuit.

Miscellaneous Cases

Allstate Life Ins. Co. v. Parnell, 292 Fed. Appx. 264 (5th Cir. 2008) No fiduciary duty existed because “[r]eliance on the

advice of an insurance agent during the purchase of insurance does not create a fiduciary relationship” and that “mere unilateral trust in an agent selling an annuity does not create a fiduciary duty to inform the client of all implications of the transaction.”

Court held that the agent owed no duty to disclose absent a fiduciary relationship, which did not exist.

Miscellaneous Cases

Two courts have upheld juvenile smoker rates:

Ross v. Metropolitan Life Ins. Co., 297 Fed. Appx. 187 (3d Cir. 2008)

Alleman v. State Farm Life Ins. Co., 2009 WL 1833604 (3d Cir. 2009)

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