Brown v. Cont'l Cas. Co.

591 F.Supp.3d 340

Damian B. BROWN, an individual, and James Mueksch, an individual, on behalf of themselves and all others similarly situated, Plaintiffs,

v.CONTINENTAL CASUALTY COMPANY, Defendant.

Case No. 21-cv-2349

United States District Court, N.D. Illinois, Eastern Division.

Signed March 15, 2022

Daniel J. Kurowski, Hagens Berman Sobol Shapiro LLP, Chicago, IL, John M. DeStefano, III, Pro Hac Vice, Robert B. Carey, Pro Hac Vice, Hagens Berman Sobol Shapiro LLP, Phoenix, AZ, Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, for Plaintiffs.

Brent R. Austin, Caroline Malone, Gregory M. Schweizer, Michael L. McCluggage, Eimer Stahl LLP, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

MARY M. ROWLAND, United States District Judge

This case arises from alleged misrepresentations contained in Defendant Continental Casualty Company's long-term care insurance policy issued to Wells Fargo. Two Wells Fargo employees, Plaintiffs Damian Brown and James Mueksch, obtained coverage under the policy. They claim that the policy stated that Defendant would not raise premiums unless it could do so on a nationwide basis for insureds in a particular age group. In spite of this language, Plaintiffs claim Defendant raised premiums on a State-by-State basis, at different times, by different amounts. Plaintiffs assert that Defendant's conduct amounts to a breach of contract, fraud, and violations of the California Unfair Competition Law (UCL). Plaintiffs bring a complaint on behalf of a putative class. [1]. Defendant has moved to dismiss Plaintiffs’ class action complaint. [18]. For the reasons explained below, this Court grants in part and denies in part Defendant's motion.

I. Background

This Court accepts as true the following allegations from Plaintiffs’ complaint [1].

Crescent Plaza Hotel Owner, L.P. v. Zurich Am. Ins. Co. , 20 F.4th 303, 307 (7th Cir. 2021).

A. The Policy

Plaintiffs were insured under a group long-term care policy issued and delivered to Wells Fargo & Company. [1] ¶¶ 10, 12. At the times they purchased their policies, Brown resided in California and Mueksch resided in Arizona. Id. Long-term care insurance pays for a variety of services like adult daycare, an assisted living facility, or skilled nursing home. Id. ¶ 14. According to Plaintiffs, purchasers of long-term care coverage secure a more favorable premium by obtaining coverage at an early age. Id.

Defendant issued and delivered group long-term care policy number 9725TQ (the Policy) to Wells Fargo in California; the Policy's effective date is January 1, 2002. Id. ¶ 18. As an employee of Wells Fargo, Brown purchased a certificate of coverage under the Policy with a coverage effective date of January 1, 2010. Id. ¶ 20. Mueksch, another Wells Fargo employee, purchased a certificate of coverage under the Policy with a coverage effective date of September 1, 2013. Id. ¶ 21. Defendant underwrote and established the Policy form, premium rates, and actuarial risk pool for Wells Fargo employees nationwide. Id. ¶ 22.

Under the heading "PREMIUM," Plaintiffs’ Policy certificates state:

We cannot change the Insured's premiums because of age or health. We can, however, change the Insured's premiums based on his or her premium class, but only if We change the premiums for all other Insureds in the same premium class. A change may be made, as provided in the following paragraph, on any Premium Due Date after the end of the Premium Rate Guarantee Period. The Premium Rate Guarantee Period starts on the Participating Employer's Effective Date. The length of this period is stated in the Schedule of the Master Application.

Id. ¶ 25.

B. Premium Increases

Originally, Brown's certificate carried a bi-weekly premium of $3.42, or a quarterly premium of $29.29, and Mueksch's certificate carried a bi-weekly premium of $24.56, or a quarterly premium of $183.56. Id. ¶ 33.

In 2017, Defendant wrote each Plaintiff a letter, stating that his premium would increase by 45.475% in a phased manner, with a 15% increase occurring on May 1, 2017, a 15% increase occurring on May 1, 2018, and a 10% increase occurring on May 1, 2019. Id. ¶ 34. The letter then gave Plaintiff three options to respond to the anticipated premium increase: (1) continue current coverage by paying the new premium; (2) reduce coverage to help "minimize the effect" of the premium increase; or (3) execute a non-forfeiture benefit, discontinuing premium payments and accepting a reduced maximum benefit. Id. ¶ 35. Brown decided to pay the increased premium, keeping his current coverage in place, while Mueksch discontinued his coverage. Id. ¶¶ 36, 37.

Plaintiffs claim that in the 2017 letter, Defendant disclosed for the first time that the premium increase is not uniform for everyone in the same age group or premium class. Id. ¶ 38. Specifically, Defendant stated:

Since Continental ... must receive approval or authorization from certain states prior to implementing an increase, it is possible that these states will not approve or authorize the same percentage increase or authorize an increase at the same time. It is also possible some states may deny [Continental]’s request for an increase, or require it be reduced or spread over multiple years. In addition, impacted certificate holders have different premium due dates and have different premium billing mechanisms. Premium increases will be staggered in accordance with the timing of regulatory approvals or authorizations and method of premium payment.

Id. ¶ 38.

As a result, Plaintiffs and the putative class members have been subjected to disparate increases in the cost of their premiums depending upon the State that they live in. Id. ¶ 40. Plaintiffs claim that these disparate increases violate the Policy because Defendant has not met its duties to increase premiums "based on [the insured]’s premium class" and "for all other insureds in the same premium class." Id. ¶¶ 41, 42. As a result, insureds living in different states "bear a disproportionate cost" of coverage, therein subsidizing the premiums of other insureds in contravention of the Policy. Id. ¶ 43. According to Plaintiffs, Defendant knew at the time it issued the Policy that premium increases would and could only be made State-by-State and not for the entire premium class or age group. Id. ¶ 44.

C. Plaintiffs’ Claims and Procedural History

In their complaint, Plaintiffs bring state-law claims for: (1) breach of contract (first cause of action); (2) breach of the implied covenant of good faith and fair dealing (second cause of action); (3) violation of the California Unfair Competition Law (third cause of action); (4) fraudulent concealment (fourth cause of action); and (5) declaratory and injunctive relief (fifth cause of action). Defendant has moved to dismiss the complaint in its entirety under Federal Rule of Civil Procedure 12(b)(6). [18].

II. Legal Standard

A motion to dismiss tests the sufficiency of a claim, not the merits of the case. Gunn v. Cont'l Cas. Co. , 968 F.3d 802, 806 (7th Cir. 2020). To survive a motion to dismiss under Rule 12(b)(6), the claim "must provide enough factual information to state a claim to relief that is plausible on its face and raise a right to relief above the speculative level." Haywood v. Massage Envy Franchising, LLC , 887 F.3d 329, 333 (7th Cir. 2018) (quoting Camasta v. Jos. A. Bank Clothiers, Inc. , 761 F.3d 732, 736 (7th Cir. 2014) ); see also Fed. R. Civ. P. 8(a)(2) (requiring a complaint to contain a "short and plain statement of the claim showing that the pleader is entitled to relief"). A court deciding a Rule 12(b)(6) motion accepts the well-pleaded factual allegations as true and draws all permissible inferences in the pleading party's favor. Degroot v. Client Servs., Inc. , 977 F.3d 656, 659 (7th Cir. 2020). Dismissal for failure to state a claim is proper "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 558, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

III. Analysis

Because Defendant has moved to dismiss Plaintiffs’ complaint in its entirety, this Court will address each count in order below. In addition, Defendant has raised a threshold choice of law issue which this Court will address first before turning to the merits of the claims.

A. Choice of Law for Common Law Claims (Counts I, II, IV)

The parties dispute which State or States’ law applies to the common law claims in Counts I, II, and IV. As a federal state sitting in diversity, this Court applies the same choice of law analysis that an Illinois state court would apply. Mathis v. Metro. Life Ins. Co. , 12 F.4th 658 (7th Cir. 2021), reh'g denied (Sept. 24, 2021). An Illinois court engages in a choice of law analysis only if there exists a conflict between forum law and the law of another State such that the conflict is outcome-determinative. W. Side Salvage, Inc. v. RSUI Indem. Co. , 878 F.3d 219, 223 (7th Cir. 2017). If there is no outcome-determinative conflict, the Court applies the forum law. Id. ; see also Gunn v. Cont'l Cas. Co. , 968 F.3d 802, 808 (7th Cir. 2020).

This Court begins with the contract claims in Counts I and II. Defendant argues that Minnesota law applies to the contract claims because Wells Fargo's principal place of business lies in Minnesota, and in a similar case concerning premium increases in the context of long-term care coverage, the Seventh Circuit instructed that under Illinois choice of law rules, the law of the "employer's principal place of business, where the master policy was delivered" presumptively governs contract claims. Gunn , 968 F.3d at 809. In support of its argument, Defendant points to the Policy itself, which lists Wells Fargo's address as located in Minneapolis, Minnesota. See [19-1] at 2. In response, Plaintiffs urge this Court to apply California law because they have alleged that, contrary to the address listed on the Policy, Defendant in fact delivered the Policy to...