LEGAL ALERT
August 30, 2010
© 2010 Sutherland. All Rights Reserved.
This communication is for general informational purposes only and is not intended to constitute legal advice or a recommended
course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in
making decisions of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult independent
counsel before making any decisions or taking any action concerning the matters in this communication. This communication does
not create an attorney-client relationship between Sutherland and the recipient.
1
www.sutherland.com
Eighth Circuit Affirms Denial of Class Certification in Fixed Annuity Interest
Crediting Case
On August 12, 2010, the U. S. Court of Appeals for the Eighth Circuit affirmed the denial of class
certification in Avritt v. Reliastar Life Ins. Co., No. 09-2843 (8th Cir. Aug. 12, 2010), a case in which
Plaintiffs challenged the manner in which interest was credited to fixed annuities. (Please click here for
opinion).
In Avritt, the annuity contracts in question provided for a guaranteed minimum interest crediting rate, with
discretion for the insurer to credit additional interest. Plaintiffs alleged that the insurer’s practice of paying
lower interest rates on “old money” and higher rates on “new money” (i.e., banding) violated various
duties of good faith, loyalty, and fair dealing. They further alleged misrepresentations and omissions in
statements about the interest rate crediting practices. Plaintiffs alleged that these practices resulted in a
breach of contract, a violation of the Washington Consumer Protection Act (WCPA), and a violation of the
California Unfair Competition Law (California UCL).
Plaintiffs sought to certify, under Rule 23(b)(2) or 23(b)(3), a class of California residents who were
purchasers or holders of or beneficiaries under relevant annuity contracts issued from 1992 to 2002. The
U.S. District Court for the District of Minnesota denied class certification. See Avritt v. Reliastar Life Ins.
Co., No.07-1817, 2009 WL 455808 (D. Minn. Feb. 23, 2009). (Please click here for our Legal Alert on the
district court decision.) The Eighth Circuit held that the district court did not abuse its discretion in
denying class certification under both Rules 23(b)(2) and 23(b)(3).
With respect to Rule 23(b)(3), the Eighth Circuit held that Plaintiffs had not met their burden to establish
that common questions predominated over individual questions as to any of their claims:
Breach of Contract/Implied Covenant Claims: The court held that the existence of two more
reasonable interpretations of the contract would require extrinsic evidence about the intent of the
parties, the explanation of the contract given during sales discussions, and each purchaser’s
understanding of the contract. The court agreed with the district court that to establish a breach
of contract, Plaintiffs would need to rely on their argument that the contractual duty of good faith
and fair dealing required applying a particular formula. Because this theory was based on the
expectations of the parties, separate proof of the expectations of individual class members would
be required. The court further stated that whether the insurer “acted in bad faith by emphasizing
its non-guaranteed interest rate for new deposits and encouraging purchasers to believe that the
introductory rate was indicative of future rates is a question closely tied to the circumstances of
each individual plaintiff.” (Slip Op. at 11). The Eighth Circuit also rejected the holding of a
Washington state court in Curtis v. Northern Life Ins. Co., No. 61372-3-1, 2008 WL 4927365
(Wash. Ct. App. Nov. 17, 2008), that a breach of implied covenant claim could be based on
disclosures in regulatory filings and thus could be pursued on a class basis. To the contrary, the
Eighth Circuit held that Washington state law required that the duty of good faith and fair dealing
must arise out of the contract itself.
WCPA Claim: The court noted that under Schnall v. AT&T Wireless Services, Inc., 225 P.3d 929
(Wash. 2010), WCPA actions may be brought only on behalf of persons residing within the state.
