Litigation Update
Recent Developments That Will Help
Your Company Prevail in Litigation
Jason A. Walters
Alabama▪ District of Columbia ▪ Mississippi ▪ North Carolina ▪ Tennessee
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Post-Glenn, the “sliding scale approach is no
longer valid.”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.”
Post-Glenn Std. of Review

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.
Post-Glenn Std. 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.
Post-Glenn Discovery Cases

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.”
Post-Glenn Discovery Cases

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.
Post-Glenn Discovery Cases




Allen v. MetLife, No. 7:08-CV-B-0752-W (N.D. Ala.
March 3, 2009); Blankenship v. MetLife, No. 2:08CV-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
Documents Bar Claims:
Reliance Not Reasonable

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.
Documents Bar Claims:
Reliance Not Reasonable

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.
Documents Bar Claims:
Reliance Not Reasonable

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.”
Documents Bar Claims:
Statute of Limitations

Paine v. Jefferson Nat’l Life Ins. Co., 2008 WL
4809824 (E.D. Ark. Oct. 28, 2008)




Plaintiff purchased thirteen $100,000 singlepremium 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.
Documents Bar Claims:
Statute of Limitations

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.
Documents Bar Claims:
Statute of Limitations

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.
Documents Bar Claims:
Statute of Limitations

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.”
STOLI—Insurable Interest

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.
STOLI—Insurable Interest

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
Class Action Litigation

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 interestcrediting 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.”
Class Action Litigation

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
•


Focus on electronic discovery
Imposes settlement hurdles:
•

In some cases to a “legal certainty”
Burdensome notice requirements to regulators
Interlocutory appeal rarely granted
Class Action Hypothetical

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
Class Action Hypothetical

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.”
Amount in Controversy—
Section 1332

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.”
Amount in Controversy—
Section 1332

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)