Gunn v. Cont'l Cas. Co.

622 F.Supp.3d 694

Carlton F. GUNN, individually andon behalf of all persons similarly situated, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.

18 C 3314

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

Signed August 19, 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 Plaintiff.

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

Elizabeth Anne Thompson, Saul Ewing Arnstein & Lehr LLP, Chicago, IL, for Amici American Council of Life Insurers, American Property Casualty Insurance Association.

Michael Raupp, Husch Blackwell LLP, Kansas City, MO, for Amicus National Association of Insurance Commissioners.

MEMORANDUM OPINION

CHARLES P. KOCORAS, District Judge:

This matter is before the Court on Defendant Continental Casualty Company's ("Continental") Consolidated Rule 56 Filed Rate Defense Motion and Rule 12(b)(6) Motion to Dismiss. For the following reasons, the Court denies the Rule 56 Motion and grants the Motion to Dismiss in part.

BACKGROUND

Plaintiff Carlton Gunn brought this case as a putative class action against Continental, which issued a group long-term care insurance policy to Gunn's employer, the federal judiciary, in Washington D.C. Gunn alleged that Continental breached its contract, committed torts, and violated consumer protection laws by raising his premiums dramatically. This Court originally dismissed the case on the pleadings based on Continental's assertion of a filed-rate defense, relying on the Washington State Insurance Commissioner's approval of the new, higher premiums for individuals insured in Washington.

Gunn appealed, however, and the Seventh Circuit remanded the case back to this Court with instructions to engage in a comprehensive choice of law analysis. See Gunn v. Cont'l Cas. Co., 968 F.3d 802 (7th Cir. 2020). Continental subsequently filed the instant "Consolidated Rule 56 Filed Rate Defense Motion and Rule 12(b)(6) Motion to Dismiss." The motions are fully briefed, and the Court accepted briefs from the American Council of Life Insurers, American Property Casualty Insurance Association, and the National Association of Insurance Commissioners as amici curiae.

The factual allegations of Gunn's First Amended Complaint ("FAC") are fully set forth in the Seventh Circuit's opinion, but it bears repeating them here. For purposes of Continental's Motion to Dismiss, we assume the truth of the following factual allegations.

In 1999, Continental delivered a group long-term care insurance policy to the federal judiciary—specifically, to the Federal Judiciary Group Long Term Care Insurance Trust in Washington D.C. As with life insurance, the cost of long-term care insurance increases with the age of the applicant. As Continental advertised for this policy, "the younger you are when your coverage begins, the lower your premiums will be for the duration of your participation in the plan."

In 2000, Gunn was an assistant federal defender in the State of Washington eligible for coverage under the judiciary's policy. He purchased coverage under the policy, relying in part on Continental's representation in its marketing materials that it would raise premiums, if at all, only "for everyone in your age category who has the kind of coverage plan that you do." The master policy and Gunn's individual coverage certificate similarly promised that Continental would raise premiums "only if we change the premiums for all insureds in the same premium class." The master policy provided specifically that "Premium is computed as stated in the Master Application," which contained tables of premium rates according to payment schedule, age on effective date of coverage, and amount of daily benefit. No mention was made of rates varying based on the individual insured's state of residence.

To protect against the long-term effects of inflation on the policy's costs and benefits, Gunn also purchased what Continental called a "Lifetime Compound Automatic Benefit Increase benefit." That feature would "automatically increase the daily benefit for nursing home care that you select now by 5% annually on a compounded basis." "This means," Continental explained, "you will not need to worry about increasing your premium in the future." Purchasing the automatic benefit increase feature more than doubled Gunn's baseline premium.

Seventeen years later, Gunn received a letter from Continental informing him that his premium rates would rise by 25 percent each year for the next three years, adding up to a near doubling of the premium, from about $700 to about $1,400 annually. The letter also said that the effective dates of the increases would depend ultimately on the approval of "certain states," which might or might not be forthcoming at the same time, or at all. Gunn believes this geographic disparity breaches Continental's promise to raise rates only uniformly within a "premium class." He also contends he should be protected from the dramatic premium increases precisely because he already paid to protect himself against inflation by buying the automatic benefit increase.

Gunn's FAC asserts claims for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing (Count II), unfair and deceptive practices under the District of Columbia's consumer protection statute (Count III), fraud (Count IV), and fraudulent concealment (Count V). On behalf of himself and a putative class of insureds under the judiciary's group policy, Gunn seeks rescission (whether of the master policy or his individual certificate, he does not say) and an injunction against further rate increases, or alternatively compensatory, statutory, and punitive damages.

Continental brings a combined Rule 56 filed rate defense motion and a Rule 12(b)(6) motion to dismiss. Continental argues the filed rate doctrine bars all of Gunn's claims. Alternatively, Continental argues Gunn's claims must be dismissed for failure to state a claim.

DISCUSSION

I. Choice of Law for Common Law Claims

First things first. A federal court exercising its diversity jurisdiction over state-law claims applies the choice-of-law rules of the state in which it sits. Gunn, 968 F.3d at 808. Here, that state is Illinois, which applies forum law unless an actual conflict with another state's law is shown, or the parties agree that forum law does not apply. Id. Importantly, Illinois recognizes the doctrine of dépeçage, or "cutting into pieces" a single claim and subjecting different issues to different jurisdictions' laws. Spinozzi v. ITT Sheraton Corp., 174 F.3d 842, 848 (7th Cir. 1999). "The party seeking the choice-of-law determination bears the burden of demonstrating a conflict." Bridgeview Health Care Ctr., Ltd. v. State Farm Fire & Cas. Co., 2014 IL 116389, ¶ 14, 381 Ill.Dec. 493, 10 N.E.3d 902.

We begin with Gunn's breach of contract claim. Continental argues for the application of D.C. law, whereas Gunn insists Illinois law applies. While the Seventh Circuit suggested Illinois would likely choose D.C. law to govern the breach of contract claim, it is important to note that neither party argued for the application of Illinois law to any of Gunn's claims before the Seventh Circuit. Gunn, 968 F.3d at 808-09. That is not the case here. And, here, Continental makes no attempt to articulate any difference between Illinois, Washington, and D.C. law—much less an outcome determinative one. Continental's failure to demonstrate any conflict between Illinois and D.C. law renders a choice-of-law analysis inappropriate. Sosa v. Onfido, Inc., 8 F.4th 631, 638 (7th Cir. 2021). Accordingly, Illinois law applies to Gunn's breach of contract claim.

The same can be said for Gunn's common law fraud claims. Gunn argues for the application of Illinois law, whereas Continental claims Washington law applies. Again, Continental fails to demonstrate a conflict between Illinois and Washington law, so a choice-of-law analysis is not required. Illinois law applies to Gunn's common law fraud claims. See Sieving v. Cont'l Cas. Co., 535 F.Supp.3d 762, 772-73 (N.D. Ill. 2021); Brown v. Cont'l Cas. Co., 591 F.Supp.3d 340, 348-49 (N.D. Ill. 2022).

With respect to Gunn's claim for breach of the covenant of good faith and fair dealing, Continental has identified a conflict: Illinois recognizes no such cause of action, but D.C. does.¹ LaSalle Bank Nat'l Ass'n v. Paramont Props., 588 F. Supp. 2d 840, 853 (N.D. Ill. 2008); Wright v. Howard Univ., 60 A.3d 749, 754 (D.C. Cir. 2013). Continental argues D.C. law controls, presumably because it also argues D.C. law controls the breach of contract claim. Gunn's Response does not address the choice of law issue with respect to its breach of the duty of good faith claim, and only mentions the covenant of good faith and fair dealing within the context of its breach of contract argument. The Court need not conclusively resolve whether Illinois or D.C. law applies to this claim, however, because as discussed below, the claim fails no matter which State's law applies. See Brown, 591 F.Supp.3d at 346-47.

II. Rule 56 Filed Rate Defense Motion

First, a few words about state-based regulation of insurance. The McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15 (1945), commits the regulation of insurance, including long-term care insurance, to the individual states and the District of Columbia, such that insurers must follow the laws of each state where they do business. The parties' proffered experts agree: each state has the authority to regulate the permissible rates for its residents regardless of where the insurer is headquartered or a group policy issued, including certificate holders of a group policy issued from another state.

Each state takes a different approach to handling the...