O'Donnell v. AXA Equitable Life Ins. Co.

210 Conn.App. 662

270 A.3d 751

Richard T. O'DONNELL

v.AXA EQUITABLE LIFE INSURANCE COMPANY

AC 44215

Appellate Court of Connecticut.

Argued October 12, 2021

Officially released February 15, 2022

David A. Slossberg, Milford, with whom were Sara A. Sharp, and, on the brief, Daniella Quitt, pro hac vice, for the appellant (plaintiff).

Jay B. Kasner, pro hac vice, with whom were Kurt Wm. Hemr, pro hac vice, John W. Cerreta, Hartford, and Thomas D. Goldberg, Stamford, for the appellee (defendant).

Moll, Cradle and Bishop, Js.

BISHOP, J.

In this putative class action, the plaintiff, Richard T. O'Donnell, appeals from the judgment of the trial court rendered after it granted the motion filed by the defendant, AXA Equitable Life Insurance Company,¹ for entry of judgment on the plaintiff's stricken complaint. On appeal, the plaintiff claims that the court improperly concluded that his amended complaint (1) was not "materially different" from his original complaint and (2) failed to adequately allege that the defendant's actions caused him damages.² We agree with the plaintiff, and, accordingly, we reverse the judgment of the trial court.

The plaintiff alleges the following facts in his amended complaint. The plaintiff is a resident of the state of Connecticut. The defendant is a company organized under New York law with its principal place of business also in New York. The defendant is authorized to do and does business in Connecticut. The defendant offers a broad portfolio of life insurance products and a variety of annuity products, including fixed deferred annuities, payout annuities, and variable annuities. A variable annuity, the product at issue in the present action, is a contract between the purchaser, also known as the "annuitant," and the insurance company. Pursuant to the contract, the insurance company agrees to make periodic payments to the annuitant, beginning either immediately or at some future date. The defendant's annuity policies permitted the policyholders to allocate their premiums toward various investment options, each with different risk-reward characteristics.

In November, 2008, the plaintiff purchased a variable annuity policy from the defendant. The policy that the plaintiff and other putative class members purchased permitted them to acquire, for an additional premium, a guarantee that certain benefits would increase by a minimum percentage each year.³ The policy also included a reset provision, which provided that the value of guaranteed benefits could only increase and never decrease. The guarantee, in combination with the reset provision, effectively immunized the benefits of the policy from the risks of stock market volatility. The policy also provided that the defendant (1) would comply with all applicable laws, (2) had established and would maintain the accounts under New York law, (3) would not change the investment strategy for the variable annuity policy unless approved by the Superintendent of Insurance of New York State (superintendent) or deemed approved in accordance with such law or regulation, and (4) would not make a material change to the policy without prior approval of the superintendent. Although the policy did grant the defendant some discretion over investment options, it did not permit the defendant to make material changes to the investment strategy without complying with applicable New York law.

In 2011, after the plaintiff had already purchased his annuity policy from the defendant, the defendant changed the investment strategy associated with the plaintiff's and other putative class members’ policies. The defendant implemented the new investment policy, referred to as the "AXA Tactical Manager Strategy" (ATM Strategy), without seeking approval from the New York State Department of Financial Services (NYDFS), as required by the terms of the contract and New York law. The ATM Strategy was a material change to the investment policy pursuant to New York Insurance Law § 4240 (e),⁴ which required the defendant to seek approval of the change from the NYDFS prior to its implementation. Under § 4240 (e), an amendment that changes the investment strategy is not automatically approved but, rather, is treated as an original filing. An amendment that does not change the investment strategy is automatically deemed approved after thirty days, unless the superintendent disapproves. Because the defendant did not properly inform the NYDFS of the nature of the changes and that the changes should be treated as an original filing, the ATM Strategy was automatically, but improperly, deemed approved. By not seeking the requisite approval from the NYDFS, the defendant breached the terms of the contract.

The plaintiff also alleged the following facts. The breach caused the plaintiff and other policyholders damages. To implement the ATM Strategy, the defendant sold all or substantially all of the plaintiff's and other policyholders’ investment positions without their permission. This left the plaintiff's and other policyholders’ accounts with no equity exposure. After the market recovered, the defendant bought these positions back at much higher prices, immediately resulting in substantial losses passed on to the plaintiff and other policyholders. In other words, alleged the plaintiff, the ATM Strategy reduced the defendant's risks and costs by using derivatives to hedge its own equity exposure to market volatility at the expense of the variable annuity customers who purchased their policies, in part, for the opportunity to benefit from market volatility. The ATM Strategy altered the very nature of the product held by policyholders. It materially changed the variable annuity products and reduced the value of the annuity accounts. The reduction of the value of the accounts also diminished the periodic reset amounts built into the policies. In the case of the plaintiff, the defendant's breach cost him approximately $90,000, or almost 20 percent of his original investment. The members of the putative class lost in excess of $100 to $200 million dollars during the relevant period.

Soon after the defendant's implementation of the ATM Strategy, the NYDFS commenced an investigation of the defendant concerning the implementation of the ATM Strategy. The focus of the investigation was whether the defendant had properly informed the NYDFS of the implementation of the ATM Strategy. After the conclusion of the investigation, the NYDFS found that the defendant had failed to seek the requisite approval for the material changes to the investment strategy under the ATM Strategy. Specifically, the NYDFS found that while the ATM Strategy effectively changed the nature of the product the policyholders had purchased, the defendant failed to explain in its filings with the NYDFS that it was making such changes to the policies. The absence of detail and discussion in the filings regarding the significance of the implementation of the ATM Strategy had the effect of misleading the NYDFS regarding the scope and potential effects of the changes. The NYDFS had approved the filings on the false belief that the changes were merely routine additions of funds or similar alterations. As a result, the defendant entered into a consent order with the NYDFS on March 14, 2014.⁵ According to the consent order, "[h]ad the [NYDFS] been aware of the extent of the changes, it may have required that the existing policyholders affirmatively opt in to the ATM Strategy." The consent order required the defendant to (1) pay $20 million to the NYDFS, (2) seek all necessary approvals in connection with the ATM Strategy in the future, and (3) issue written reports to the NYDFS concerning changes to certain accounts on a quarterly basis for a period of five years from the date of the consent order.

The plaintiff commenced this putative class action against the defendant on August 21, 2015. In his complaint, the plaintiff asserted a single claim for breach of contract against the defendant. On December 27, 2018, the defendant filed both a motion to strike the sole count of the plaintiff's complaint and a motion to dismiss the plaintiff's complaint to the extent that it purported to assert claims on behalf of members of a putative class who are not Connecticut residents. The court heard oral argument on the two motions on May 6, 2019.

The court granted the defendant's motion to strike, concluding that "the causation of damages the plaintiff has alleged for his breach of contract claim are speculative, and that, as a result, his complaint fails to plead facts that sufficiently allege the causation element of his breach of contract claim." The plaintiff then filed an amended complaint pursuant to Practice Book § 10-44.⁶ The defendant filed a motion for entry of judgment, or alternatively, to strike the sole count of the amended complaint. After hearing oral argument on the defendant's motion, the court granted the defendant's motion for entry of judgment and rendered judgment in favor of the defendant. This appeal followed. Additional facts and procedural history will be set forth as necessary.

We begin by setting forth the applicable principles of law and standard of review that guide our analysis. "Our review of the court's ruling on the defendant[’s] motion to strike is plenary." St. Denis v. de Toledo , 90 Conn. App. 690, 694, 879 A.2d 503, cert. denied, 276 Conn. 907, 884 A.2d 1028 (2005). "In ruling on a motion to strike, we take the facts alleged in the complaint as true." Id., at 691, 879 A.2d 503. "After a court has granted a motion to strike, the plaintiff may either amend his pleading [pursuant to Practice Book § 10-44 ] or, on the rendering of judgment, file an appeal. ... The choices are mutually exclusive [as] [t]he filing of an amended pleading operates as a waiver of the right to claim that there was error in the sustaining of the [motion to strike] the original pleading. ... If the allegations in [the plaintiff's] substitute...