Wood et al v. United of Omaha Life Insurance Company et al

Filing 39

OPINION AND ORDER re 15 MOTION to Dismiss for Failure to State a Claim by Defendant United of Omaha Life Insurance Company. Count I of Plaintiffs' Complaint is DISMISSED. Plaintiffs have leave to amend their Complaint no later than 6/17/2016. Signed by Judge Joseph S Van Bokkelen on 5/19/16. (cer)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
DOUGLAS R. WOOD, individually and as
Personal Representative of the ESTATE OF
STEPHEN RAY WOOD, and GREGORY S.
WOOD,
Plaintiffs,
v.

Case No. 1:15-CV-260-JVB

UNITED OF OMAHA LIFE INSURANCE
COMPANY and NORTHWESTERN
MUTUAL LIFE INSURANCE COMPANY,
Defendants.

OPINION AND ORDER
This matter is before the Court on Defendant United of Omaha’s Motion to Dismiss
(DE 15). For the following reasons, Count I of Plaintiffs’ complaint is dismissed with leave
to amend.

A. Background
Plaintiffs are the estate of Stephen Wood (“Wood”) and his sons. Defendants are
United of Omaha (“Omaha”) and Northwestern Mutual (“Northwestern”), two life insurance
companies with whom Wood did business. Plaintiffs are suing Defendants under Indiana
state law for breach of contract and negligence, respectively. This Court has jurisdiction
under 28 U.S.C. § 1332(a) because the parties have diverse citizenship and the amount in
controversy exceeds $75,000.
The relevant allegations in Plaintiffs’ complaint are as follows. In early 2013, Wood
purchased a life insurance policy from Omaha with a single premium payment of $400,000.
(Compl. at 4 ¶12.) In December 2013, he discovered that although he intended his adult sons
1

and fiancée to be beneficiaries, only his fiancée was actually listed on the policy. (Compl. at
4‒5 ¶15.) He arranged with a Northwestern insurance agent to have the necessary written
request sent to Omaha in order to cancel his Omaha policy and transfer it to Northwestern.
(Compl. at 6 ¶21.) The $400,000 surrender value of the Omaha policy would then be used to
purchase two Northwestern policies providing benefits for his sons and his fiancée. (Compl.
at 5 ¶16‒20.)
Shortly thereafter, on December 24, 2013, Wood died. (Compl. Ex. A at 2.) Omaha
received Wood’s written request to transfer the policy on December 30. (Compl. at 6 ¶23.)
Nonetheless, on January 14, 2014, Omaha paid Wood’s fiancée the full $400,000 amount of
the policy. (Compl. at 6 ¶23.)
Plaintiffs are now suing both Northwestern and Omaha for the amount they would
have received had Wood’s instructions been followed, as well as punitive damages. (Compl.
at 8 ¶¶36, 38.) They allege that Omaha breached the policy agreement by not transferring the
policy upon receiving the written request. (Count I, Compl. at 7.) They also allege that
Northwestern was negligent in not taking sufficient action to ensure transfer of the policy.
(Count II, Compl. at 8.)

B. Legal Standard
The purpose of a Rule 12(b)(6) motion to dismiss for failure to state a claim is to test
the pleading’s sufficiency, not to decide the merits. See Gibson v. Chicago, 910 F.2d 1510,
1520 (7th Cir.1990). A complaint must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Additionally, “a
complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint is facially plausible if a
2

court can reasonably infer from factual content in the pleading that the defendant is liable for
the alleged misconduct. Id. When a court reviews a motion to dismiss under Rule 12(b)(6), it
views all well-pleaded allegations in the light most favorable to the plaintiff. Hecker v. Deere
& Co., 556 F.3d 575, 580 (7th Cir.2009).

C. Discussion
Omaha’s motion to dismiss raises two arguments: first, that the policy specified that
any duties to Wood were extinguished upon his death, and second, that Plaintiffs failed to
plead that Wood satisfied the requirements for a valid transfer request under the policy. For
the following reasons, the Court rejects the first argument and accepts the second.

(1)

Omaha has not established that its alleged obligation to honor Wood’s transfer
request ceased upon his death
Omaha argues that under the policy’s terms, all duties to Wood were extinguished

upon his death. The policy agreement informs the policyholder that “your rights of ownership
end at your death,” including the right to receive payments. (Compl. Ex. B. at 13.) According
to Omaha, this necessarily includes the right to cancel the agreement, because cancellation
entails payment of the surrender value. Thus, Omaha argues, the transfer request became void
when Wood died, even if the request was otherwise valid.
But Omaha’s proposed reading has unsettling results. This reading implies, for
example, that even if Wood had gone to Omaha's headquarters to deliver all the documents
needed for a policy transfer, and then died while driving home, his death would instantly
extinguish Omaha's duty to complete the transfer. Under Indiana law, “a contract will not be
interpreted literally if doing so would produce absurd results.” Beanstalk Grp., Inc. v. AM
Gen. Corp., 283 F.3d 856, 860 (7th Cir. 2002). This principle does not preclude finding that
parties bargained for an unusual result, if there is evidence to support such a finding. Id. But
3

at this stage of the proceedings, at which the Court is bound to view the facts in the light most
favorable to Plaintiffs, the Court reads the policy agreement as simply limiting duties to
Wood’s estate involving the ordinary payment of benefits under the policy, and not as
posthumously voiding a duly-made transfer request.
Accordingly, the complaint is not subject to dismissal on this basis.

(2)

The complaint fails to state that conditions precedent have been satisfied
The Omaha policy specified two requirements for cancellation: a written request from

the policyholder, and return of the policy to Omaha. (Compl. Ex. B. at 9.) The complaint
alleges that the written request was sent, but not that the policy itself was returned.
Accordingly, Omaha argues that Plaintiffs have not stated a claim for breach of contract,
because Plaintiffs have not alleged that the conditions were met for a valid cancellation
request.
Under the Federal Rules, “it suffices to allege generally that all conditions precedent
have occurred or been performed.” Fed. R. Civ. P. 9(c). But Rule 9(c) still requires a plaintiff
to at least make this general allegation. Plaintiffs’ complaint does not allege either generally
or specifically that the policy’s conditions for cancellation were satisfied. Accordingly, the
complaint does not support an inference that Omaha breached the contract when it failed to
cancel the policy. Count I of the complaint accordingly fails to state a claim against Omaha
upon which relief can be granted.
The parties additionally dispute both the meaning of “return” under this provision of
the policy and the degree of compliance with this provision that would be necessary to trigger
Omaha’s obligation to cancel the policy. These disputes go to the question of which acts
would have satisfied the policy’s requirements under Indiana law. As a general matter,
Indiana courts require strict compliance with insurance policy provisions involving the
4

change or removal of a beneficiary. Cook v. Equitable Life Assur. Soc. of U. S., 428 N.E.2d
110, 115 (Ind. Ct. App. 1981). But Indiana also recognizes substantial compliance when a
policyholder has done all he can to comply. Bowers v. Kushnick, 774 N.E.2d 884, 887 (Ind.
2002). Applying those rules to this case, even if Wood did not return the policy to Omaha,
that failure would not necessarily void his request to transfer or cancel a policy. Rather, under
Indiana law the transfer request might still be valid if Wood did everything in his power to
make a valid request.
This question of the necessary degree of compliance has not been sufficiently
developed for the Court to resolve it at this stage. First, as stated above, the complaint does
not sufficiently allege compliance at all. Second, even if compliance had been alleged, there
is not yet evidence in the record to establish Wood’s actual degree of compliance, so there is
no way to measure it against the Indiana standard.
D. Conclusion
For the reasons above, pursuant to Rule 12(b)(6), the Court DISMISSES Count I of
Plaintiffs’ complaint (DE 1). Pursuant to Rule 15(a)(2), the Court gives Plaintiffs leave to
amend their complaint no later than June 17, 2016.

SO ORDERED on May 19, 2016.

S/ Joseph S. Van Bokkelen
JOSEPH S. VAN BOKKELEN
UNITED STATES DISTRICT JUDGE

5