Sieving v. Cont'l Cas. Co.

535 F.Supp.3d 762

David SIEVING, Plaintiff,

v.CONTINENTAL CASUALTY COMPANY, Defendant.

No. 20-cv-5127

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

Signed April 26, 2021

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, Eimer Stahl LLP, Chicago, IL, for Defendant.

Memorandum Opinion and Order

Elaine E. Bucklo, United States District Judge

Plaintiff David Sieving is a California resident insured under a group long-term care policy issued by Defendant Continental Casualty Company ("Continental"). In September 2016, Continental sent a letter to Mr. Sieving informing him that his insurance premium would increase by 95.5%. The letter also provided that due to regulatory requirements that varied by state, the premium increase would likely not be uniformly implemented across insured individuals nationwide. Mr. Sieving initiated the instant putative class-action lawsuit against Continental alleging, inter alia, breach of contract and fraud. Specifically, Mr. Sieving contends Continental was required to make any premium increases consistent across a nationwide class, and further that it was foreclosed from raising premiums at all for insureds, such as Mr. Sieving, who had purchased inflation-protection coverage in the form of an automatic benefit increase. Continental has moved to dismiss the complaint in its entirety [15]. For the reasons that follow, the motion to dismiss is granted in part and denied in part.

I.

In reviewing the sufficiency of a complaint pursuant to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), I "accept all well pled facts as true and draw all permissible inferences in favor of the plaintiff." Agnew v. Nat'l Collegiate Athletic Ass'n , 683 F.3d 328, 334 (7th Cir. 2012). To survive a motion to dismiss, the complaint must state a claim "that is plausible on its face" after conclusory allegations are disregarded. W. Bend Mut. Ins. Co. v. Schumacher , 844 F.3d 670, 675 (7th Cir. 2016) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ).

Long-term care insurance covers a variety of services for people who become unable to care for themselves, including assistance in the home, adult daycare, assisted living, and nursing home services. Continental, a Delaware corporation headquartered in Illinois, issued and delivered the group long-term care policy at issue, policy number 9774, to the Employees Long Term Care Insurance Trust ("Employees Trust"), located in Illinois, in September 1989. Mr. Sieving, who was an employee of Northrop Grumman Space Systems Division at the time, purchased a certificate under the policy with an effective date of July 1, 2003. Mr. Sieving was able to purchase his certificate because his employer had access to insurance through Northrop Grumman Federal Credit Union Space Systems Division, a participating organization under the policy.

When Mr. Sieving bought his certificate, he purchased inflation protection with an automatic-benefit-increase option. That is, he selected a higher premium of $110.80 per month (more than double what his "base rate" premium would have been), and in exchange, his benefit level automatically increased by 5% each year, compounded annually. The automatic benefit increases had the purpose of helping protect Mr. Sieving against the increasing costs of long-term care over time.

The insurance policy itself included the following language,¹ under the heading "PREMIUM": "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." ECF No. 1 ¶ 23.

Mr. Sieving alleges that he reviewed and relied upon a marketing brochure issued by Continental at the time he purchased his certificate. Id. ¶ 30. The marketing brochure provided, with respect to premium changes:

LEVEL PREMIUM RATES DO NOT INCREASE JUST BECAUSE YOU GROW OLDER

Since your premium is based on a fixed daily benefit and on your age at the time you apply, CNA [Continental] can predict the appropriate premium to charge you. As a result, premiums are expected to remain level over your lifetime. CNA reserves the right to change premiums for the entire plan if necessary based on our experience, but you can never be singled out for a rate increase because you get older, become ill, or file claims.

Id. ¶ 29. In an outline of coverage attached to the brochure, Continental also included the following language:

OUR RIGHT TO CHANGE THE PREMIUM. Your premium is based on your age on your application date. Your premium will not increase because you grow older. It will remain the same unless the rates are increased for everyone in your age group; you cannot be singled out for a rate increase for any reason.

Id. ¶ 34. The brochure also featured rate tables showing premium amounts based on age at the time of purchase and benefit level. Id. ¶ 37.

In addition, the brochure included a section describing the two available inflation-protection options available under the policy. Under the first option, called the "Future Purchase Option" feature, the insured would be given an opportunity to increase benefits every three years, which he or she could accept or decline. The benefit increase would trigger a premium increase based on the insured's age at the time of the increase. The second option, which Mr. Sieving selected, was called the "Automatic Benefit Increase Option." That option was described as follows:

For an additional fixed premium, this allows your benefits to increase automatically every year. If you choose this option, your daily Nursing Home and Community Based Care Benefits and your Lifetime Maximum Benefit Amount will all increase by 5% per year, compounded annually for as long as you are insured, with no corresponding annual increase in premium and without further proof of insurability, even while you are withdrawing benefits.

Id. ¶ 67. The brochure included a pro and con section for the automatic benefit increases, listing as pros "Level, easy to budget premium," and "Benefits go up every year without corresponding premium increases." Id. ¶ 68.

Mr. Sieving's premiums did not increase for thirteen years. However, on September 1, 2016, Continental sent a letter to Mr. Sieving informing him that his premium would increase by 95.5%, with a 70% increase occurring as of November 1, 2016, and a 15% increase occurring November 1, 2017. In a Frequently Asked Questions section appended to the letter, Continental included the following language:

6. Will the premium rate increase be effective for everyone?

Since Continental Casualty Company (CCC) 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 CCC's request for an increase, or require it be reduced or spread over multiple years.... Premium increases will be staggered in accordance with the timing of regulatory approvals or authorizations and method of premium payment.

Id. ¶ 42.

Mr. Sieving alleges that this was the first time Continental disclosed that a "premium increase is not uniform for everyone in the same age group or premium class." Id. He also contends that Continental misled him into believing premiums would remain constant for those who purchased inflation protection with automatic benefit increases. Id. ¶ 64. Mr. Sieving brings the instant class action asserting six claims for relief, including for breach of contract, fraud, and declaratory and injunctive relief.

II.

In Count I, Mr. Sieving asserts a claim for breach of contract. He claims that Continental breached the policy both by increasing premiums at different rates for insureds in different states, and by increasing premiums for those who had purchased automatic-benefit-increase inflation protection.

With respect to the breach regarding disparate nationwide rates, Mr. Sieving points to the following language in the insurance policy: "We can ... 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. " ECF No. 1 ¶ 23 (emphasis added). "Premium class" is nowhere defined in the policy. Id. ¶ 26. Mr. Sieving argues that "premium class" can only mean "the nationwide pool of insureds under the group insurance plan within a given age group." Id. Continental argues that it was not empowered to raise rates consistently nationwide because of the state-by-state regulatory framework. Accordingly, because "[i]t is presumed that parties contract with knowledge of the existing law," Braye v. Archer-Daniels-Midland Co. , 175 Ill.2d 201, 222 Ill.Dec. 91, 676 N.E.2d 1295, 1303 (1997), "premium class" cannot refer to a nationwide group.

I conclude that on the record currently before me, the term "premium class" is ambiguous. "A policy is ambiguous if it is subject to more than one reasonable interpretation." Newman v. Metro. Life Ins. Co. , 885 F.3d 992, 998 (7th Cir. 2018) (citing Thompson v. Gordon , 241 Ill.2d 428, 349 Ill.Dec. 936, 948 N.E.2d 39, 48 (2011) ). "Undefined terms are construed as an ‘average, ordinary, normal, and reasonable person’ would understand them" in the context of the contract "as a whole." Id.

Mr. Sieving has presented one plausible interpretation of the policy—that Continental promised not to raise premiums unless it could do so for all of the insureds in a particular age group "class" nationwide. Continental was not, as it argues, powerless to promise consistent nationwide premiums, because it could have raised premiums only to the extent allowed by the most restrictive state.

However, "premium...