Whitman v. State Farm Life Ins. Co.

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WILLIAM T. WHITMAN, et al., Plaintiffs, v. STATE FARM INSURANCE COMPANY, Defendant.

Civil Action No. 3:19-cv-06025-BJR

United States District Court, W.D. Washington, Tacoma

September 6, 2022

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

BARBARA J. ROTHSTEIN, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Plaintiffs a class of individuals who purchased life insurance from Defendant State Farm, brought suit against Defendant alleging claims for breach of contract, conversion, violations of the Washington Consumer Protection Act (“WCPA”), and for declaratory judgment. Before the Court are cross-motions for summary judgment as to all of Plaintiffs' claims. Having reviewed the motions, the oppositions thereto, the record of the case, and the relevant legal authorities, the Court will grant Defendant's motion for summary judgment and deny Plaintiffs' motion. The reasoning for the Court's decision follows.

II. BACKGROUND

The parties' dispute arises out of a life insurance policy (the “Policy”) sold by Defendant since at least 2001. Policy, Dkt. 149-2 at 3. The dispute focuses on how the monthly cost of Plaintiffs' insurance was calculated, more particularly on the deductions Defendant made from Plaintiffs' individual accounts. On September 20, 2021, the Court certified a class of all persons in the State of Washington who own or owned a universal life insurance policy issued by State Farm on Form 94030 whose policy was in-force on or after January 1, 2002 and who was subject to at least one monthly deduction. Dkt. 125.

A. The Policy

The Policy is described on its cover page as “[f]lexible premium adjustable life insurance” and is somewhat novel in design. Policy, Dkt. 149-2 at 1. Unlike a traditional insurance policy, the premium amount is not fixed by the insurer and need not be paid every month. Policy, Dkt. 149-2 at 9. The Policy states that policyholders can “make premium payments in any amount at any time.”^[1] Policy, Dkt. 149-2 at 9. What the Policy calls a “premium” is more akin to a deposit made to a savings account.^[2] The account into which policyholders make deposits accrues interest and funds can be withdrawn from it. Policy, Dkt. 149-2 at 3, 9. Instead of a traditional premium, the insurance is paid for by a set of fixed monthly deductions from the account. Policy, Dkt. 1492 at 8-9. The Policy would not necessarily lapse if a policyholder did not make a monthly deposit, but it would lapse if the account lacked funds sufficient to cover the monthly deductions. See Policy, Dkt. 149-2 at 9.

The Policy authorizes Defendant to make three different types of monthly deductions: “(1) the “cost of insurance” charge; (2) a “charge for any riders” (not at issue here); and (3) a $5.00 “monthly expense charge.””^[3] Policy, Dkt. 149-2 at 9; Plaintiffs' SJ Motion, Dkt. 147 at 2. This dispute concerns the meaning of (1) and (3): the “cost of insurance” and “monthly expense charge” deductions.

B. The Monthly Cost of Insurance Provision

The monthly “cost of insurance” (“COI”) deduction is a fixed monthly amount set by Defendant at the outset of each new Policy year. Policy, Dkt. 149-2 at 10. The COI deduction is described in the Policy as follows:

Monthly Cost of Insurance Rates. These rates for each policy year are based on the Insured's age on the policy anniversary, sex, and applicable rate class. A rate class will be determined for the Initial Basic Amount and for each increase. The rates shown on page 4 are the maximum monthly cost of insurance rates for the Initial Basic Amount. Maximum monthly cost of insurance rates will be provided for each increase in the Basic Amount. We can charge rates lower than those shown. Such rates can be adjusted for projected changes in mortality but cannot exceed the maximum monthly cost of insurance rates. Such adjustments cannot be made more than once a calendar year.

Policy, Dkt. 149-2 at 10 (emphasis added). The primary subject of the parties' dispute is the phrase: “based on the Insured's age on the policy anniversary, sex, and applicable rate class.” “Rate Class” is defined elsewhere in the Policy as “the underwriting class of the person insured.” Policy, Dkt. 149-2 at 5. In the case of the named Plaintiff, the rate class was “Standard Rate ClassMale Non-Tobacco.” Policy, Dkt. 149-2 at 10.

Plaintiffs claim that Defendant did not base its monthly deduction only on age, sex, and rate class, but instead “inflated [its] rates with undisclosed loads after considering and including unlisted profit and expense factors.” Plaintiffs' SJ Motion, Dkt. 147 at 3-4. Plaintiffs assert that the COI deduction should have been calculated based only on “mortality factors” specific to the policyholder, such as age, sex, and tobacco use, and that Defendant's profit and expense considerations should not have been part of the calculation.

Defendant does not dispute that profit and expense (i.e., non-mortality) factors influenced the COI but only insofar as these factors were weighed in determining the rate classes that were used as part of the COI calculation. Defendant's SJ Motion, Dkt. 154 at 4. According to Defendant, “[t]he rate selection process is separate (both topically and temporally) from State Farm's earlier actuarial process for developing those rates for the various cohorts of Insureds years before the Policy was ever sold.” Defendant's SJ Motion, Dkt. 154 at 4 (emphasis in original). In other words, Defendant used non-mortality factors to determine its base rates (rate development), and the mortality factors of a particular policyholder acted as multipliers in determining that individual's monthly COI (rate selection).

C. The $5.00 Monthly Expense Charge Provision

The second provision at issue is the fixed $5.00 “monthly expense charge” deduction. The provision is listed under the heading “Monthly Deductions” where the COI is also listed. Policy, Dkt. 149-2 at 3. Unlike the COI, the monthly expense charge is not defined or discussed elsewhere in the Policy. The provision states only that “[t]he monthly expense charge is $5.00.” Policy, Dkt. 149-2 at 3.

Plaintiffs contend that the plain language of the expense charge provision implies that “State Farm is not authorized to deduct more than $5.00 for expenses in each Monthly Deduction, and that State Farm cannot therefore deduct $5.00 each month for the Expense Charge and also deduct undisclosed expenses through the COI Charge.” Plaintiffs' SJ Motion, Dkt. 147 at 14. Plaintiffs claim that Defendant violated the expense charge provision by effectively charging Plaintiff for other expenses through the COI formulation. Plaintiffs' SJ Motion, Dkt. 147 at 15.

Defendant urges a less literal interpretation of the provision, arguing that a reasonable policyholder would understand that the $5.00 expense charge could not be the only expense deduction, because there were clearly other “expenses” and “costs” listed. Defendant's SJ Motion, Dkt. 154 at 21. Defendant points to a section of the Policy that breaks down the amounts that were to be deducted from Plaintiffs' account. Defendant's SJ Motion, Dkt. 154 at 20 (citing Policy, Dkt. 149-2 at 9). That section “expressly provides that ‘each' monthly deduction will ‘include' separate charges for both the ‘Monthly Expense Charge' ($5) and the ‘Monthly Cost of Insurance.'” Defendant's SJ Motion, Dkt. 154 at 20. The Policy also describes a separate 5% premium “expense” charge.^[4] Policy, Dkt. 149-2 at 3. Defendant contends that “[Plaintiff's] reading of ‘expense' for purposes of the alleged cap [on expense-related deductions] would wipe out the cost of insurance clause,” because “cost” and “expense” essentially mean the same thing. Defendant's SJ Motion, Dkt. 154 at 20.

III. APPLICABLE LAW

A. Summary Judgment

“The standard for summary judgment is familiar: ‘Summary judgment is appropriate when, viewing the evidence in the light most favorable to the nonmoving party, there is no genuine dispute as to any material fact.'” Zetwick v. County of Yolo, 850 F.3d 436, 440 (9th Cir. 2017) (quoting United States v. JP Morgan Chase Bank Account No. Ending 8215, 835 F.3d 1159, 1162 (9th Cir. 2016)). A court's function on summary judgment is not “to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). If there is not, summary judgment is warranted. Contract interpretation is a question of law and is appropriate for summary judgment. United States v. King Features Entm't, Inc., 843 F.2d 394, 398 (9th Cir. 1988); see also Syrovy v. Alpine Res., Inc., 68 Wash.App. 35, 39 (1992) (“Whether a contract is ambiguous and the legal effect of a contract are, in general, questions of law.”).

B. Contract Interpretation

Contract disputes are governed by state law, and the parties agree that Washington law applies. See Defendant's SJ Motion, Dkt. 154 at 10; Plaintiffs' SJ Motion, Dkt. 147 at 5. Washington courts construe insurance policies like any other contract. Kut Suen Lui v. Essex Ins. Co., 375 P.3d 596, 599 (Wash. 2016). Courts give the policy “a fair, reasonable and sensible construction as would be given to the contract by the average person purchasing insurance.” Providence Health & Servs. V Certain Underwriters at Lloyd's London, 440 F.Supp.3d 1223, 1228 (W.D. Wash. 2020) (citations omitted). The policy must be viewed “as a whole; a phrase cannot be interpreted in isolation.” Allstate Ins. Co. v. Peasley, 932 P.2d 1244, 1246 (Wash. 1997). A disputed provision “will not be given a forced or constrained construction that would lead to an absurd conclusion.” Mid-Century Ins. Co. v. Zanco, 456 F.Supp.3d 1213, 1224 (E. D....