Woods et al v. Liberty National Life Insurance Company
Filing
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MEMORANDUM OPINION AND ORDER GRANTING 8 MOTION to Dismiss. All counts of the Complaint, except Count One, are DISMISSED WITH PREJUDICE. Signed by Judge Virginia Emerson Hopkins on 1/4/2018. (JLC)
FILED
2018 Jan-04 PM 01:32
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
EASTERN DIVISION
SUE S. WOODS, et al,
Plaintiffs,
v.
LIBERTY NATIONAL LIFE
INSURANCE COMPANY,
Defendant.
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Civil Action No.:
1:17-CV-1586-VEH
MEMORANDUM OPINION AND ORDER
I.
INTRODUCTION
On August 10, 1987, Sue Woods and her husband, Fred Woods1, purchased
policy number 027835793 (the “Policy”), a cancer policy, from Liberty National Life
Insurance Company (“Liberty National”). The Plaintiffs claim that the agent who sold
them the Policy
represented to Fred prior to the Plaintiffs’ purchase of the Policy in 1987
that [the Policy] would cover all costs and expenses arising out of any
cancer suffered by Sue after the Policy’s inception. Amongst other things,
the agent specifically told Fred that the cancer policy the Plaintiffs were
purchasing would cover anything Sue and Fred needed it to cover
pertaining to any cancer suffered by Sue in the future.
(Doc. 1-1, at 5, ¶11). The Plaintiffs allege that Fred relayed this information to Sue, and
1
In this opinion, these individuals will often be referred to merely as “Sue” and “Fred.”
that, based on the agent’s representations, Sue and Fred then decided to purchase the
policy.
In February 2015, Sue was diagnosed with cancer. The Plaintiffs contend that
Liberty National has failed to live up to its promise to pay “anything Sue and Fred
needed it to cover pertaining to any cancer suffered by Sue in the future.” On August
9, 2017, they filed suit against Liberty National and various “fictitious defendants” in
the Circuit Court of Calhoun County, Alabama. (Doc. 1-1). The Complaint alleges that
Liberty National is liable for: breach of contract (Count One); fraud (Counts Three,
Four, Five); deceit (Count Six); and promissory fraud (Count Seven). The Complaint
alleges that the fictitious defendants are liable for breach of contract (Count Two);
fraud (Counts Eight, Nine, and Ten); deceit (Count Eleven); and promissory fraud
(Count Twelve). As to both Liberty National and the fictitious defendants, the
Complaint also sets out a claim for rescission. (Count Thirteen). On September 15,
2017, Liberty National removed the action to this Court. (Doc. 1).
The case comes before the Court on Liberty National’s Partial Motion To
Dismiss (the “Motion”) pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. (Doc. 8). For the reasons stated herein, the motion will be GRANTED.
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II.
ANALYSIS 2
A.
Fictitious Party Practice
Liberty National “moves this Court to dismiss all counts not directed against
Liberty National as there is no fictitious party practice in federal court.” (Doc. 8 at 2).
The Eleventh Circuit has stated:
As a general matter, fictitious-party pleading is not permitted in federal
court. See, e.g., New v. Sports & Recreation, Inc., 114 F.3d 1092, 1094
n. 1 (11th Cir.1997). We have created a limited exception to this rule
when the plaintiff's description of the defendant is so specific as to be “at
the very worst, surplusage.” Dean v. Barber, 951 F.2d 1210, 1215–16
(11th Cir.1992).
Richardson v. Johnson, 598 F.3d 734, 738 (11th Cir. 2010). The Plaintiffs concede that
Count Two of the Complaint is due to be dismissed because it “does not state a claim
against a specific real party using a specific name.” (Doc. 9 at 16, n. 4). Accordingly,
Count Two will be dismissed.
The Plaintiffs argue that the remaining counts, to the extent directed towards the
name of “the specific agent [who] sold them the subject policy,” should not be
dismissed, because this fictitious party is specifically described. (Doc. 9 at 16; see also
2
Since there is no issue as to whether the asserted claims are “plausibly” pled, the Court
has omitted its typical motion to dismiss legal standard, which sets out the analysis from Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007) (“Twombly”) and Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (“Iqbal”).
3
doc. 9 at 17).3 The Court agrees to the extent that the Complaint describes all persons
who “acted as an agent or agency for any named or fictitiously named Defendant herein
in the sale of the insurance policy” (doc. 1-1 at 4, ¶5), otherwise identified as
“Fictitious Defendants ‘G,’ ‘H,’ and ‘I’” (doc. 1-1 at 4, ¶5).4
B.
The Rule of Repose
The Eleventh Circuit has written:
“Alabama's judicially created rule of repose serves to bar claims
that arise out of events that are more than twenty years old. Ex parte
Grubbs, 542 So.2d 927, 930–31 (Ala.1989). Alabama’s rule of repose “
‘is similar to a statute of limitations, but [is] not dependent upon one,’ ”
and has a greater breadth than any such statute. McDurmont v. Crenshaw,
489 So.2d 550, 552 (Ala.1986) (quoting Boshell v. Keith, 418 So.2d 89,
91 (Ala.1982)). Unlike a statute of limitations, “the only element of the
rule of repose is time.” Boshell, 418 So.2d at 91. “[The rule of repose] is
not affected by the circumstances of the situation, by personal disabilities,
or by whether prejudice has resulted or evidence obscured.” Id. There is
some debate in Alabama law concerning the types of claims to which the
doctrine is applicable. It is unclear, for example, whether the rule applies
to personal injury actions. Spain v. Brown & Williamson Tobacco Corp.,
230 F.3d 1300, 1307 (11th Cir.2000) (acknowledging uncertainty about
the scope of actions to which the rule of repose applies). However, it is
clear that any claim in Alabama courts, brought more than twenty years
after the time when it first could have been, is barred if the rule of repose
applies. Boshell, 418 So.2d at 91. The Alabama Supreme Court
articulated the rationale for the rule as follows:
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The Plaintiffs state that they do not remember the name of this person.
4
Since the Court ultimately holds that all claims against all of the fictitious defendants are
due to be dismissed, it will not strike the other fictitious defendants.
4
As a matter of public policy ... it has long been the settled
policy of this state ... that antiquated demands will not be
considered by the courts.... It is necessary for the peace and
security of society that there should be an end of litigation,
and it is inequitable to allow those who have slept upon their
rights for a period of 20 years ... to demand an accounting.”
Moore v. Liberty Nat. Life Ins. Co., 267 F.3d 1209, 1213–14 (11th Cir. 2001) (quoting
Snodgrass v. Snodgrass, 176 Ala. 276, 58 So. 201, 201–02 (Ala.1912)). “The rule of
repose begins running on a claim as soon as all of the essential elements of that claim
coexist so that the plaintiff could validly file suit.” Am. Gen. Life & Acc. Ins. Co. v.
Underwood, 886 So. 2d 807, 812 (Ala. 2004) (citing Spain v. Brown & Williamson
Tobacco Corp., 872 So.2d 101, 129 (2003) (Johnstone, J., writing specially)). “If a
plaintiff’s actual injury resulting from a tort is the payment of premiums for an
insurance policy, the payment of the first premium for the policy establishes the element
of damage essential to a claim for the tort.” Underwood, 886 So. 2d at 813 (emphasis
added) (citing Boswell v. Liberty Nat'l Life Ins. Co., 643 So.2d 580 (Ala.1994), and
Donoghue v. American Nat'l Ins. Co., 838 So.2d 1032 (Ala.2002)).
1.
The Fraud-Based Claims (Counts Three Through Six and Eight
Through Eleven)
The holding in the Underwood case resolves the issue before the Court. Counts
Three though Six and Eight through Eleven all sound in some type of fraud, which
requires the showing of a reliance by the Plaintiffs upon the Defendant’s
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misrepresentation5 of a material existing fact which proximately caused the Plaintiffs
damage. Deng v. Scroggins, 169 So. 3d 1015, 1024 (Ala. 2014). According to the
Complaint, in 1987, Liberty National misrepresented that the Policy would cover
“anything Sue and Fred needed it to cover pertaining to any cancer suffered by Sue in
the future.” (Doc. 1-1 at 5, ¶ 11). This was a representation of a material fact–the
Policy’s coverage. The Plaintiffs claim that they relied on this representation to their
detriment by purchasing the Policy in 1987, and, beginning in 1987, paying premiums.
(Doc. 1-1 at 5, ¶¶ 13-14). Accordingly, all of the essential elements of the Plaintiffs’
fraud based claims coexisted in 1987, and the rule of repose began running at that time.
See, Am. Gen. Life and Acc. Ins. Co. v. Underwood, 886 So. 2d 807, 812 (Ala. 2004)
(“The rule of repose begins running on a claim as soon as all of the essential elements
5
In Alabama, “[m]isrepresentations of a material fact made willfully to deceive, or
recklessly without knowledge, and acted on by the opposite party, or if made by mistake and
innocently and acted on by the opposite party, constitute legal fraud.” Ala. Code § 6-5-101; see
also, Hughes v. Hertz Corp., 670 So. 2d 882, 885 (Ala. 1995) (“Under § 6–5–101, ‘legal fraud’
includes misrepresentations of material fact made ‘by mistake and innocently,’ as well as
misrepresentations made ‘willfully to deceive, or recklessly without knowledge.’”) (quoting Ala.
Code § 6-5-101). Counts Three and Eight allege an “intentional” false statement. Counts Four
and Nine allege a “reckless” false statement. Counts Five and Ten allege a “mistaken” false
statement. Counts Seven and Eleven allege “deceit,” which “under §§ 6–5–103 and –104 results
from either a willful or a reckless misrepresentation or a suppression of material facts with an
intent to mislead.” Hughes, 670 So. 2d at 888 (internal quotation and citation omitted); see also,
Ala. Pattern Jur. Instr. 18.04 (noting that “deceit” requires a showing that the defendant
intentionally stated to the plaintiff that a present or past important fact was true; that the
defendant’s statement was false; that the defendant knew that the statement was false when it
made it and the plaintiff did not know it was false; and that the plaintiff took, or failed to take,
some action based on the defendant’s statement and was harmed).
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of that claim co-exist so that the plaintiff could validly file suit.”). Since more than 20
years elapsed between the payment of the first premium and the filing of this lawsuit,
the rule of repose bars the fraud-based claims.
The Plaintiffs argue that Underwood is distinguishable on its facts because it
involved a life insurance policy and not a cancer policy. (Doc. 9 at 8). They state:
In that context, Woods respectfully suggests that it is essential that
this Court recognize the very nature of a cancer policy and that it do so
in light of the facts here. Unlike a life insurance policy, which only pays
one benefit at the death of the insured, a cancer policy does not begin
paying any benefits to the living insured until a diagnosis of cancer. In
effect, a cancer policy is not a contract fully performed by both parties
until cancer occurs.
For purposes of repose, the “actual injury” suffered by Woods here
includes not just premiums paid but also benefits promised but unpaid.
Woods did not suffer the latter actual injury until after February of 2015
when Sue Woods first received benefits from Liberty National for her
cancer.
(Doc. 9 at 8) (emphasis added). The Plaintiffs cite no authority for this argument.
Contrary to the Plaintiffs’ assertion, in this context there is no relevant distinction
between a cancer policy and a life insurance policy. Both pay a benefit, whatever that
might be, upon the happening of a triggering event, whether that be the contracting of
cancer by an insured or the death of an insured. Furthermore, a misrepresentation as to
the coverage of either type of policy would necessarily result in “benefits promised but
unpaid.” Whether or not the contract was “fully performed,” and whether or not all of
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the Plaintiffs’ injuries had manifested, the Plaintiffs were injured when, in 1987, they
paid the first premium. The rule of repose began running at that time.
The Plaintiffs also argue that the running of the rule of repose was stayed. As
stated in Underwood:
“The only circumstance that will stay the running of the 20–year period
of repose is a recognition of the existence of the claimant's right by the
party defending against the claim.” Boshell, 418 So.2d at 92. The
recognition must be distinct. [Ballenger v. Liberty Nat. Life Ins. Co., 271
Ala. 318, 323, 123 So. 2d 166, 170 (1960)]. Such a recognition will
restart the running of the 20–year period. Hendley v. First Nat'l Bank of
Huntsville, 234 Ala. 535, 537, 176 So. 348, 350 (1937). For example, a
partial payment on a mortgage debt is sufficient recognition by the
mortgagor of the lien of the mortgage to start a new 20–year repose
period running on the mortgagee's claims under the mortgage. Hendley,
supra. Likewise, a statement in a deed that the property conveyed by the
deed is subject to a mortgage is a sufficient recognition of the lien of the
mortgage to start a new 20–year repose period running on the mortgagee's
right to enforce the lien. Braun v. Pettyjohn, 176 Ala. 592, 594–95, 58
So. 907, 908 (1912).
Underwood, 886 So. 2d at 812. The Plaintiffs argue that the payment of benefits to
them, since February of 2015 when Sue was diagnosed, “started the running again of
the statute of repose.” (Doc. 9 at 10). However, the payment of benefits was not a
“distinct recognition”that the Plaintiffs were promised more than they received, i.e.
coverage for “anything Sue and Fred needed it to cover pertaining to any cancer
suffered by Sue in the future.” Instead, it is merely a recognition that they were due
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some benefits.6
2.
The Promissory Fraud Claims (Counts Seven and Twelve)
The Alabama Supreme Court has stated that “[a] claim of promissory fraud is
one based upon a promise to act or not to act in the future.” Southland Bank v. A & A
Drywall Supply Co., 21 So. 3d 1196, 1210 (Ala. 2008) (internal quotations and
citations omitted). The claim includes all of the elements of fraud-based claims, plus
the following additional elements: “proof that at the time of the misrepresentation, the
defendant had the intention not to perform the act promised, and [] proof that the
defendant had an intent to deceive.” Southland Bank, 21 So. 3d at 1210 (internal
quotations and citations omitted). The Complaint alleges:
Liberty National, by itself and by and through its authorized agents, in
connection with its sale of insurance and the Policy to Sue and Fred, as
aforesaid, made promises to the Plaintiffs that it intended not to keep,
thereby harming the Plaintiffs. As such, the foregoing statements, acts and
omissions of Liberty National, by itself and by and through its authorized
6
As noted by the Defendant:
If Liberty National had paid “anything Sue and Fred needed it to cover
pertaining to cancer” in the past and then stopped doing so, perhaps Plaintiffs
would have a point. But here, the very nature of Plaintiffs’ claims is that Liberty
National does not recognize the existence of their right to payment for “anything”
related to cancer. Plaintiffs filed this suit precisely because Liberty National has
paid them less than what they claim they were told they would receive. Plaintiffs
must concede that this lawsuit would never have been brought if, in fact, Liberty
National recognized their right to payment for “anything” related to cancer.
(Doc. 10 at 6-7).
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agents, in connection with the sale of insurance and the Policy to Sue and
Fred, constitute promissory fraud.
(Doc. 1-1 at 12, ¶47 (Count Six); see also doc. 1-1 at 16, ¶57 (Count Twelve). This
language establishes that the additional elements for Counts Six and Twelve were
present in 1987, when the Policy was sold to the Plaintiffs.7 The rule of repose bars
these claims as well.8
3.
The Rescission Claim (Count Thirteen)
“Under Alabama law, a claim of “rescission” is equitable in nature and is one
asserted by a party to a contract seeking to rescind the agreement because of an
adverse party's actions.” Wildfire Grp., LLC v. Prime Ins. Co., No.
2:12-CV-847-MHT-PWG, 2015 WL 10015378, at *11 (M.D. Ala. Sept. 22, 2015)
(Greene, M.J.), report and recommendation adopted, No. 1:12CV847-MHT, 2016 WL
540797 (M.D. Ala. Feb. 9, 2016), judgment entered, No. 1:12CV847-MHT, 2016 WL
540828 (M.D. Ala. Feb. 9, 2016); see also, Ballew v. Charter Realty ERA, 603 So. 2d
877, 883 (Ala. 1992) (recognizing the “equitable principle of rescission”). In this case,
the Plaintiffs argue that the contract should be rescinded because it is unconscionable.
7
As noted previously, all of the elements of the fraud-based claims, which are also
elements of the promissory fraud claims, occurred at the time of the payment of the first premium
by the Plaintiffs.
8
To the extent that the Plaintiffs’ arguments regarding the fraud-based claims, which the
Court addressed in its discussion of those claims, apply to this claim, they are rejected for the
reasons stated in the previous section.
10
(Doc. 1-1 at 16).
There is some question as to whether “unconscionability” can be the basis for
affirmative relief since “unconscionability is an affirmative defense, and the party
asserting the defense bears the burden of proof.” Leeman v. Cook's Pest Control, Inc.,
902 So. 2d 641, 645 (Ala. 2004) (emphasis added). Assuming that unconscionability
can be the basis for affirmative relief, the Plaintiffs’ rescission claim is barred by the
rule of repose. The Alabama Supreme Court has stated:
This Court has stated that “ ‘[a]n unconscionable ... contractual
provision is defined as a ... provision “such as no man in his sense and not
under delusion would make on the one hand, and as no honest and fair
man would accept on the other.” ’ ” Southern United Fire Ins. Co. v.
Howard, 775 So.2d 156, 163 (Ala.2000) (quoting Layne v. Garner, 612
So.2d 404, 408 (Ala.1992), quoting in turn Lloyd v. Service Corp. of
Alabama, 453 So.2d 735, 739 (Ala.1984), and Hume v. United States,
132 U.S. 406, 410, 10 S.Ct. 134, 33 L.Ed. 393 (1889)). In Layne v.
Garner, this Court first undertook to announce an explicit standard for
determining whether a contract or contractual provision is
unconscionable:
“In addition to finding that one party was unsophisticated
and/or uneducated, a court should ask (1) whether there was
an absence of meaningful choice on one party's part, (2)
whether the contractual terms are unreasonably favorable to
one party, (3) whether there was unequal bargaining power
among the parties, and (4) whether there were oppressive,
one-sided, or patently unfair terms in the contract.”
612 So.2d at 408. “For ease of discussion,” this Court has at times
reduced the Layne v. Garner test to two essential elements: “(1) terms
that are grossly favorable to a party that has (2) overwhelming bargaining
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power.” American Gen. Fin., Inc. v. Branch, 793 So.2d 738, 748
(Ala.2000). In addition, this Court recognizes a distinction between
“substantive unconscionability” and “procedural unconscionability.”
Substantive unconscionability
“ ‘relates to the substantive contract terms themselves and
whether those terms are unreasonably favorable to the more
powerful party, such as terms that impair the integrity of the
bargaining process or otherwise contravene the public
interest or public policy; terms (usually of an adhesion or
boilerplate nature) that attempt to alter in an impermissible
manner fundamental duties otherwise imposed by the law,
fine-print terms or provisions that seek to negate the
reasonable expectations of the nondrafting party, or
unreasonably and unexpectedly harsh terms having to do
with price or other central aspects of the transaction.’ ”
Ex parte Thicklin, 824 So.2d 723, 731 (Ala.2002) (emphasis omitted)
(quoting Ex parte Foster, 758 So.2d 516, 520 n. 4 (Ala.1999), quoting in
turn 8 Richard A. Lord, Williston on Contracts § 18:10 (4th ed.1998)).
Procedural unconscionability, on the other hand, “deals with ‘procedural
deficiencies in the contract formation process, such as deception or a
refusal to bargain over contract terms, today often analyzed in terms of
whether the imposed-upon party had meaningful choice about whether
and how to enter into the transaction.’ ” Thicklin, 824 So.2d at 731
(quoting Foster, 758 So.2d at 520 n. 4).
Leeman, 902 So. 2d at 645. Whether the Plaintiffs are alleging procedural or
substantive unconscionability, all of the aforementioned elements were present at the
time the Plaintiffs purchased the Policy, which was more than 20 years ago.
The only argument made by the Plaintiffs for not applying the rule of repose to
their rescission claim is the following:
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[The Plaintiffs allege] that Liberty National does not have a copy
of the original cancer policy issued to Sue Woods, alluding to the
language stamped on the policy finally received by them stating:
Liberty National Life Insurance Company does not maintain
copies of original copies [sic] that are issued to its
customers. This policy is a reproduction of the original
policy. The reproduced policy is a reasonable facsimile
of the original; however, it may differ in certain
respects. Liberty National Life Insurance Company does
not in any way represent or certify that this is an exact
duplication of the original policy that was issued.
[(Doc. 1-1 at 6-7, ¶22) (emphasis added)]. Given Woods alleges that: (1)
Woods never received a copy of the original policy issued to Sue Woods,
see Complaint, ¶ 15; (2) the document Woods finally received from
Liberty National some 30 years later purporting to be the purchased
policy acknowledges on its face that it is not the original, Liberty National
does not have it, and it may differ from the substitute, see Complaint, ¶¶
21-22; and (3) Woods has paid $56,000.00 in premiums, see Complaint,
¶ 14, for $7000.00 of benefits, see Complaint, ¶ 19, equity and good
conscience demand that the insurance policy in this case be rescinded. To
dismiss the claim for rescission based solely on the pleadings at this stage
in this litigation would signal permission to cancer policy issuers like
Liberty National that in circumstances like these they need not retain any
cancer policy that has been in force and in their possession for twenty or
more years and proceed to pay later-claimed benefits to such a policy’s
insured using their discretion.
(Doc. 9 at 14-15). This argument ignores the fact that, unlike a statute of limitations,
“the only element of the rule of repose is time.” Boshell, 418 So.2d at 91. “[The rule
of repose] is not affected by the circumstances of the situation, by personal disabilities,
or by whether prejudice has resulted or evidence obscured.” Id. The Plaintiffs have
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supplied no authority for the proposition that the rule should be applied any differently
for their rescission claims. The rule of repose bars this claim as well.9
III.
CONCLUSION
Based on the foregoing, it is hereby ORDERED, ADJUDGED, and
DECREED as follows:
1.
The Motion To Dismiss is GRANTED.
2.
All counts of the Complaint, except Count One, are DISMISSED with
prejudice.
DONE and ORDERED this 4th day of January, 2018.
VIRGINIA EMERSON HOPKINS
United States District Judge
9
Furthermore, “[a]s a precondition to rescission . . . the plaintiff must tender a return of
the consideration within a reasonable time after discovery of the fraud.” Edmondson v.
Dressman, 469 So. 2d 571, 573 (Ala. 1985). The Complaint does not plead, and there otherwise
is no indication in this case, that the Plaintiff made such a tender. Accordingly, for this additional
reason, the rescission count fails to state a claim upon which relief may granted.
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