Originally published July 10, 2008

This commentary reports on several recent developments involving Sutherland's Class Action practice.

Modal Premiums – Life Insurance

On April 10, 2008, the First Judicial District Court of Santa Fe County, New Mexico in McNabb v. New York Life Insurance Company (No. D-0101-cv9902640) dismissed with prejudice a putative modal premium class action filed against Sutherland's client, New York Life Insurance Company. The controversy centered upon whether New York Life breached its common law duty to disclose material facts regarding premiums in its individual life insurance policies.

Like most insurance companies, New York Life engages in modal billing, whereby life insurance premium payments are paid semi-annually, quarterly or monthly. If the insured chooses to forgo paying the policy premium in an annual lump sum, the insured typically pays a slightly higher aggregate premium for the ability to pay modally.

Plaintiffs alleged that New York Life did not disclose in its policies the total modal premium to be paid by insureds if they chose to pay on a monthly, quarterly or semi-annual basis and the effective annual interest rate, if payment was made other than annually. According to the plaintiffs, the omitted information was material to insureds, and New York Life's failure to disclose was a breach of its common law duty. In their Amended Complaint, plaintiffs sought restitution, rescission and prejudgment interest, as well as injunctive relief on behalf of themselves and all others in numerous states who had paid premiums more frequently than annually under New York Life policies.

Almost a dozen insurers have settled modal premium class litigation, paying more than $30 million in plaintiffs' attorneys' fees and millions more in class benefits. However, in New York Life's case, the District Court dismissed, with prejudice, the matter before it and all claims known and unknown which were or could have been brought in the litigation. New York Life paid no attorneys' fees to plaintiffs' counsel or any class benefits. Each party was responsible for its own costs, and because no class was certified, notice to the putative class members of the dismissal was not required.

Click here for a copy of the "Joint Motion to Dismiss and Enter Agreed Final Judgment" and the "Agreed Final Judgment."

Rate Increases – Health Insurance

On June 18, 2008, the Fourth District Court of Appeal of Florida in Friedman v. New York Life Insurance Company (No. 4 DO7-1744) affirmed the trial court's dismissal with prejudice of plaintiff's third amended putative class action complaint against Sutherland's client, New York Life Insurance Company. Plaintiff, a certificate holder under a group insurance policy issued to the members of the American Veterinary Medical Association ("AVMA"), alleged that New York Life improperly raised her health insurance premiums. Plaintiff further alleged that the AVMA out-of-state group health insurance policy did not comply with Section 627.6515 of the Florida Insurance Code, thereby making the group health policy subject to the provisions of Part VII of the Florida Insurance Code. Plaintiff/appellant alleged that at least six Florida statutory provisions were violated by the group health policy. Defendant argued that plaintiff/appellant failed to state how she had been harmed by the alleged six statutory violations. Defendant further asserted that, because her claims were not properly pled, they should be dismissed with prejudice. After three attempts by plaintiff to amend the complaint and five motions to dismiss being granted (the last with prejudice), the Court of Appeals unanimously agreed that plaintiff/appellant had not asserted a viable cause of action.

This decision is extremely important because the West Palm Beach/Miami area has become a locus of life and health insurance class action activity. Insurers should continue to assert defective pleading defenses where appropriate.

Click here for a copy of the appellate court opinion.

Antitrust – Title Insurance

On June 25, 2008, a New Mexico federal district court in Murphy v. Fidelity National Title Insurance Company (No. Civ. 06-441-WFD/DJS) entered final judgment on its previous dismissal with prejudice of a putative class action lawsuit filed against three Sutherland clients, Commonwealth Land Title Insurance Company, Lawyers Title Insurance Corporation and Transnation Title Insurance Company, other title underwriters1 and various state defendants.2

This class action lawsuit asserted that the title carriers had violated New Mexico antitrust and other laws by conspiring to set excessive title rates and bribing state insurance officials. Plaintiffs contended they were forced to pay excessive and unreasonable prices for their title insurance because of defendants' actions.

The lawsuit requested the court to impose declaratory relief that would have prevented the title defendants from charging the same title rates and using the same forms in New Mexico. In addition, the lawsuit sought monetary damages and restitution from the title insurance defendants.

The title insurance defendants questioned how plaintiffs could seek to hold the title insurance defendants liable for charging statutorily required title rates, and asserted that plaintiffs' claims failed as a matter of law.

The federal district court agreed, holding that under the "filed rate doctrine," where, as here, title insurance rates were established by a governing regulatory agency, they are considered to be per se reasonable and cannot be challenged in judicial proceedings brought by ratepayers. Plaintiffs had attempted to avoid the application of the filed rate doctrine by alleging that the filed rates were manipulated in part due to alleged wrongdoing on the part of state insurance officials. Despite these vague allegations, the court recognized that allowing plaintiffs to recover based upon regulatory mandated but allegedly "unreasonable" rates would greatly disrupt New Mexico's regulatory scheme for title insurance.

Second, the court noted that the New Mexico Antitrust Act specifically exempts from its coverage, arrangements that are approved by a regulatory body acting under statutory authority. In mandating that title insurers use the same form and charge the same rate, the New Mexico legislature clearly had articulated a state policy to displace competition.

Third, the court held that plaintiffs' vague assertions that the title insurers had improperly swayed the Superintendent of Insurance to set favorable title rates did not influence its ruling. The court noted that it is inappropriate to apply antitrust statutes in the political arena to limit an individual's ability to seek government action. In other words, advocating for a proposed title rate is an exercise of one's First Amendment right to petition the government, and the antitrust statutes should not be applied to hinder that right.
Fourth, the court dismissed the various claims plaintiffs brought under different New Mexico statutes as failing to set forth a valid claim. Likewise, the court held that plaintiffs could not assert a private right of action against the title insurance companies under the New Mexico Constitution.

Finally, to the extent that plaintiffs claimed that the New Mexico state regulatory scheme governing title insurance rates was unconstitutional under the New Mexico State Constitution, the court chose not to weigh in on that question and, instead, returned the case against the state defendants to New Mexico state court. Plaintiffs are expected to appeal this decision to the 10th U.S. Circuit Court of Appeals.

Click here for a copy of the federal district court opinion.

Alleged Revenue Sharing – IRC § 403(b) Annuity

Sutherland previously reported in its May 28, 2008, client alert on the favorable decision for its clients in Jerre Daniels-Hall, et al. v. National Education Association, et al. (No. C 07-5339 RBL, W.D. Wash.), rejecting plaintiffs' attempt to apply ERISA to alleged revenue sharing practices involving an IRC § 403(b) annuity offered to public school teachers. Click here for a copy of the decision. Plaintiffs have since appealed that decision to the 9th U.S. Circuit Court of Appeals.

Footnotes

1 The other title underwriters named as defendants were First American Title Insurance Company, Commerce Title, Old Republic National Title Insurance Company, United General Title Insurance Company, Fidelity National Title Insurance Company, Chicago Title Insurance Company, Ticor Title Insurance Company and Stewart Title Guaranty Company.

2 The lawsuit also named as defendants the New Mexico Public Regulation Commission ("PRC"), individual PRC Commissioners, the New Mexico Department of Insurance and the Superintendent of Insurance.

© 2008 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purposes and is not intended to constitute legal advice.