US Bank brought this lawsuit as securities intermediary forLima Acquisition LP, which owns 12 life insurance policies issued by PHL. US Bank alleged that BHL breached the termsof the policies and violated various laws by raising the rates on the policiesin 2010 and 2011. It added claims for violationsof the Connecticut Unfair Trade Practices Act and the Connecticut UnfairInsurance Practices Act, and PHL moved to dismiss. The magistrate judge recommended granting themotion in part and denying it in part.
The policy terms allow policyholders to choose how much theywish to pay each month, and the account accrues interest. Fees are deduced, including the cost ofinsurance (what the insurer pays for the cost of bearing the mortality risk).The policies allow the insurer to adjust those rates, but only based on certainspecified factors, most significantly mortality. There’s no fixed monthlypremium, but the account has to be big enough to cover the fees; if it’s not,the policy will lapse.
US Bank alleged that, to induce consumers to buy thepolicies, PHL misrepresented the circumstances under which rate increases mightoccur, and then further misrepresented that the rate increases that did happenwere “in accordance with” the policies’ terms. Life expectancy has increased, which should have decreased the cost ofinsurance, but PHL allegedly increased the cost instead in violation of policyterms, both to increase its fees and to induce policyholders to let thepolicies lapse, relieving PHL of the risk of payment. PHL allegedly “knowingly and intentionallydisseminated false and misleading policy illustrations that overstated the costof insurance rates to induce policyholders to lapse or surrender theirpolicies.” Moreover, PHL allegedly madefalse and misleading statements in its policies, stating that policyholdersneeded only to pay enough in premiums to cover their monthly policy charges,but PHL began charging more for policyholders who pay only their minimummonthly charges. Also, PHL allegedlymade false and misleading statements about the flexibility of the policies,first in policies issued in 2005-2007 and also to the plaintiff immediatelybefore it acquired ownership interests in the policies in 2010.
Initially, there’s no private cause of action under CUIPA;however, CUTPA provides consumers with remedies for violations of other laws,including CUIPA, so the CUIPA-related allegations remain important. CUTPA provides a remedy for any person whohas suffered an ascertainable loss of money or property as a result of anunfair trade practice.
It has a three-year statute of limitations running from thedate of the violation (not from discovery or from injury). The lawsuit wasfiled in November 2011, so claims based on conduct before November 2008 shouldbe time-barred. But some of the alleged misrepresentations in the complaintclearly occurred after then, such as the allegations that PHL made false andmisleading statements before US Bank bought interests in the policies in 2010and that after the 2010 rate increases PHL said they were in accordance withthe terms of the policies.
PHL argued that its alleged misrepresentations about theflexible nature of the policies were made in 2005-2007, and also in pressreleases in 2003 and 2006, so claims were time-barred. But PHL wasn’t alleged to have wronged this plaintiff before November2008. There was no reason why violationsagainst someone else should start the limitations period as to US Bank’sclaims, even though US Bank wasn’t affected by the initial violation. “To barthe plaintiff's claim, as the defendant argues, would mean that the defendantcan make the statements at issue here to anyone in the future with impunitybecause any claims based on the statements would be untimely.” Thus, thelimitations period started to run when the statements were made to US Bankduring the period immediately before it bought into the policies in 2010.
In order to prove this variety of CUTPA claim, US Bankneeded to prove the traditional common-law elements of negligentmisrepresentation: (1) a misrepresentation of fact; (2) which the defendantknew or should have known was untrue; (3) on which the plaintiff reasonablyrelied on the misrepresentation; and (4) which caused pecuniary harm.
PHL argued that US Bank failed to pleadmisrepresentation. First, PHL arguedthat claims about policy flexibility were mere opinion/puffery, subject tovarying interpretations depending on how different people thought. But misrepresentations about specificcharacteristics, including policy terms, are not puffery. Moreover, “qualitative statements can bemisrepresentations of existing facts if those statements are belied by conditionsknown to the defendants.” The challengedstatements about the policies were that they gave policyholders the“opportunity to lower premiums, as well as adjust the amount and timing ofpremium payments”; were “designed to balance protection and cash accumulationwith features suited to meet policyholders' evolving personal or businessplanning needs”; “offer increased choice and policy design flexibility to meetthe needs of the high net worth” policyholders; were “appropriate for thoselooking to minimize long term insurance costs while seeking competitivereturns”; and “featur[e] flexible premiums and adjustable-death benefits.”
In their full context, these statements could be more thanpuffery. If in fact the policyholderwould be penalized for paying only the monthly policy charges or adjusting theamount of monthly payments, then the policies weren’t as advertised. These statements weren’t simple hopes butwere, it was alleged, intended and understood to describe the policies’essential characteristics. “To find themto be mere puffery would drain all meaning from descriptions such as ‘flexible’or ‘lower premium payments’ and leave policyholders unable to rely on anyqualitative descriptions of insurance policies.”
However, the statement that rate increases were “inaccordance with the terms” of the policies was nonactionable opinion. Its truthdepended on the legal effect of a contract's provisions, and an insurer's legalopinion of the terms of its policies wasn’t actionable.
PHL argued that the complaint didn’t allege reasonablereliance, but the proper question wasn’t whether it contained the magic phrasebut rather whether the pleadings plausibly alleged facts from which reasonablereliance could be inferred. US Bank pledreliance on the insurer’s representations; it was “entirely plausible” thatsuch reliance was reasonable. US Bankhad no reason to believe that the representations were false or misleading and PHLdidn’t argue that US Bank was unreasonable to rely on them.
Likewise, the complaint was pled with sufficientparticularity under Rule 9(b), providing fair notice of the claim. The sufficiency of the pleadings may dependon the nature of the case, the complexity or simplicity of the relevanttransactions, etc. It was enough that USBank identified several specific statements and documents in which thestatements were made—“namely, the defendant's press releases, letters regardingits cost of insurance rate increases, and marketing materials” and how thestatements were false and misleading, even if it didn’t identify which personat US Bank received those representations.
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