Bambulis v. Protective Life Insurance Company et al
Filing
40
ORDER AND REASONS granting 26 Motion for Summary Judgment. Signed by Judge Ivan L.R. Lemelle. (ijg, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
BERNICE F. BAMBULIS
CIVIL ACTION
VERSUS
NO. 11-2256
PROTECTIVE LIFE INSURANCE CO, et al
SECTION B(5)
ORDER & REASONS
Before the Court is Defendant Protective Life Insurance
Company’s (“Protective Life”) Motion for Summary Judgment (Rec.
Doc. No. 26) pursuant to Rule 56 of the Federal Rules of Civil
Procedure
and
Plaintiff
Bernice
F.
Bambulis’
Memorandum
in
Opposition to Protective Life Insurance Company’s Motion for
Summary Judgment (Rec. Doc. No. 30). Defendant then filed a surreply thereto. (Rec. Doc. No. 33).
For
the
reasons
pronounced
below,
IT
IS
ORDERED
that
Defendant’s Motion for Summary Judgment (Rec. Doc. No. 26) be
GRANTED.
Causes of Action and Facts of Case:
This action arose over the termination of a life insurance
policy and an alleged misunderstanding over the tax consequences
of
that
Insurance
closure.
Company
On
June
20,
(“Kemper”)
1988,
issued
Kemper
a
Investors
Life
single-premium
life
insurance policy to Bambulis. (Rec. Doc. No. 26-1, at 1). The
policy was issued for a premium of $100,000.000 and Kemper later
assigned its rights under the policy to Protective Life (Id.).1
The policy provided that upon written request, the policy would
be “surrendered,” meaning terminated, and a “surrender value”
would distributed to the plaintiff. (Id. at 2; Rec. Doc. No. 263, at 13). On August 24, 2006, Kemper received a letter from the
Plaintiff asking Kemper to close her account. (Rec. Doc. No. 264, at 1). On September 6, 2006, Kemper responded with a letter
to the Plaintiff, informing her that the surrender of the policy
would result in a realization of a $182,972.93 taxable gain and
asking her whether she wished Kemper to withhold any amount for
taxes. (Rec. Doc. No. 26-5, at 1). The Plaintiff did not opt
into such withholding, nor did she go through with surrendering
the policy at that time. (Rec. Doc. No. 30, at 2). Subsequently,
on June 29, 2010, Bambulis sent Kemper a loan surrender form.
(Rec. Doc. No. 26-6, at 2-3). In Section 2 of the Surrender
Form, entitled “Total Surrender,” the Plaintiff checked the box
next
to
the
following
language:
“I
hereby
SURRENDER
my
contract/certificate.” (Id.). Section 3 of the Surrender Form
informed the Plaintiff that the surrender may be subject to
federal and state taxes and asked her whether she would like
taxes
withheld.
(Id.
at
3).
The
1
Plaintiff
checked
a
box
Plaintiff filed and the Court granted a motion to dismiss Defendant Kemper
Investors Life Insurance from the action because Protective Life Insurance
Company agreed to accept whatever liability Kemper had after Kemper assigned
its rights under the policy to Protective Life. (See Rec. Doc. Nos. 16, 17).
References to Kemper in the pleadings or in this Court’s opinion all refer to
Protective Life.
2
indicating that she did not want income tax withheld. (Id.). The
Plaintiff signed the Surrender Form next to language that read
“your
signature
certifies
that
the
information
provided
is
complete and accurate. You also understand that the Company will
process this request according to the information provided.”
(Id.).
Along
with
the
Surrender
Form,
Plaintiff
enclosed
a
letter to Kemper, indicating her belief that no tax should be
owed for the surrender of the Policy because the Policy was
purchased with the proceeds of a 401(k). (Id. at 1). On June 29,
2010, the Surrender form was rejected due to certain errors in
the form. (Rec. Doc. No. 30, at 2). On July 23, 2010, the
plaintiff submitted a new signed Surrender Form: she checked
boxes indicating that she did not want income tax withheld and
that she wished to surrender her contract. (Id. at 3; Rec. Doc.
No. 26-7, at 2-3).
Kemper then terminated the policy. (Rec.
Doc. No. 26-1, at 3). On July 21, 2011, Plaintiff made a formal
demand on Protective Life, seeking reinstatement of the policy.
(Rec. Doc. No. 26-2, at 4). The demand letter alleged that upon
surrender
of
realized
a
the
policy,
taxable
gain,
the
plaintiff
which
she
was
deemed
alleges
to
amounted
have
to
$221,661.43. (Id.). The letter further alleges that, as a result
of the realized gain, the plaintiff incurred federal income tax
liability in the amount of $77,652.00 and Louisiana state income
tax liability in the amount of $10,275.00. (Id.).
3
Protective
Life refused to reinstate the policy. (Id.).
The Plaintiff’s
original Petition was filed in the 22nd Judicial District for the
Parish of St.Tammany, Louisiana. (Id.). Protective Life then
removed
the
action
to
federal
court
on
September
8,
2011,
pursuant to 28 U.S.C. § 1441(a) based on diversity jurisdiction.
(Rec. Doc. No. 1).
Law and Analysis
A. Summary Judgment Standard
Summary judgment is proper if the pleadings, depositions,
interrogatory
affidavits,
answers,
show
that
and
there
admissions,
is
no
together
genuine
issue
with
as
to
any
any
material fact and that the moving party is entitled to judgment
as a matter of law.
Fed. R. Civ. P. 56; see also Celotex Corp.
v. Catrett, 477 U.S. 317, 327 (1986).
A genuine issue exists if
the evidence would allow a reasonable jury to return a verdict
for the nonmovant.
242, 248 (1986).
Anderson v. Liberty Lobby, Inc., 477 U.S.
Although the Court must consider the evidence
with all reasonable inferences in the light most favorable to
the nonmoving party, the nonmovant must produce specific facts
to demonstrate that a genuine issue exists for trial.
Webb v.
Cardiothoracic Surgery Assocs. of N. Texas, 139 F.3d 532, 536
(5th Cir. 1998).
use
affidavits,
The nonmovant must go beyond the pleadings and
depositions,
interrogatory
responses,
admissions, or other evidence to establish a genuine issue.
4
Id.
Accordingly,
conclusory
rebuttals
of
insufficient to avoid summary judgment.
the
pleadings
are
Travelers Ins. Co. v.
Liljeberg Enter., Inc. 7 F.3d 1203, 1207 (5th Cir. 1993).
B. LUPTA Claims
Bambulis
brings
claims
against
Defendant,
an
insurance
company, under LUPTA and characterizes the Defendant’s failure
to inform her of the potential tax consequences of surrender as
an “unfair trade practice.” (Rec. Doc. No. 30, at 15). Under
LSA-R.S.
51:1406(1),
transactions
subject
LUPTA
to
does
the
not
apply
jurisdiction
to
of
“actions
or
the...insurance
commissioner.” Although the Fifth Circuit has held that 1406(1)
does not create jurisdiction under the insurance commissioner,
Lamarque v. Massachusetts Indemnity & Life Insurance Company,
794 F.2d 197, 198 (5th Cir. 1986), the majority of courts have
ruled otherwise. See Travelers Indem. Co. v. Powell Ins., Co.,
Civ.
No.95-4188,
1996
WL
578030,
at
*4
(E.D.La.
Oct.
4,
1996)(“since an action for unfair trade practices against an
insurance company falls within the jurisdiction of the insurance
commissioner, it is exempt from LUPT[A] pursuant to LSA-R.S.
51:1406"); Alarcon v. Aetna Casualty and Surety Company, 88-CA487 (La.App.3 Cir. 1/18/89), 538 So.2d 696 (no private cause of
action
against
Pennsylvania
insurance
General
companies
Insurance
under
Co.,
LUPTA);
85-826
Comeaux
(La.App.3
v.
Cir.
6/25/86), 490 So.2d 1191, 1193 (same); West v. Fireman’s Fund
5
Ins.
Co.,
683
F.Supp.
156-57
(M.D.La.
1988)(recognizing
Larmarque and explicitly rejecting it). Furthermore, LSA-R.S.
22:2 provides that “[i]t shall be the duty of the commissioner
of insurance to administer the provisions of [the insurance]
Code” and the insurance code contains specific provisions, see
La.R.S. 22-1211, et seq., regarding the unfair trade practices
of insurance companies. Thus, Plaintiff’s claims under LUPTA
must be dismissed.
C. Attorney Fees
Under
LSA-R.S.
51:1409,
reasonable
attorney
fees
may
be
awarded to the defendant in a case brought under LUPTA “[u]pon a
finding by the court that an action under this section was
groundless and brought in bad faith or for the purposes of
harassment.” “This provision is penal in nature and is subject
to reasonably strict construction.” Double-Eight Oil and Gas
L.L.C. v. Caruthurs Producing Co., Inc., 41,451-CA (La.App.2
Cir. 11/20/06), 942 So.2d 1279, 1286. Defendant’s only support
for its contention that Plaintiff brought LUPTA claims in bad
faith is that Defendant had previously informed Plaintiff that
LUPTA was inapplicable. (Rec. Doc. No. 26-11, at 6). Plaintiff’s
failure to take the Defendant at its word does not prove bad
faith.
The
Court
will
not
award
attorney
Protective Life under LSA-R.S. 51:1409(A).
6
fees
to
Defendant
D. LSA-R.S. 22:1969, et seq.
LSA-R.S. 22:1968 states that “[w]henever the commissioner
shall have reason to believe that any person has been engaged or
is engaging in this state in any unfair trade practice...the
commissioner shall issue a notice of wrongful conduct to said
person....describing the unfair trade practice and citing the
law which is deemed by the commissioner to be violated.” LSAR.S.
22:1969,
captioned
cited
provision
by
and
the
Plaintiff,
enumerates
follows
penalties
for
the
above-
failure
to
respond to the insurance commissioner’s notice. The penalties do
not apply independent of such notice. The Insurance Commissioner
has not sent any notice to Kemper or Protective (Rec. Doc. No.
26-11, at 6) and thus the Plaintiff cannot seek a remedy under
the cited provisions.
Further, LSA-R.S. 22:1973 involves an insurer’s good faith
duties. It states that “[a]n insurer...owes to his insured a
duty
of
good
faith
and
fair
dealing.
The
insurer
has
an
affirmative duty to adjust claims fairly and promptly and to
make a reasonable effort to settle claims with the insured.”
However,
various
federal
courts
have
held
that
insurance
companies do not owe a duty to beneficiaries of a life insurance
policy to advise them of the tax consequences of those policies.
See Metropolitan Life Ins. Co. v. Barretto, 178 F.Supp.2d 745,
750 (S.D.Tex. 2001)(insurance company had no duty to advise on
7
tax consequences of life insurance policy to the estate of the
insured); Kessler v. Lincoln Nat. Life Ins. Co., 620 F.Supp.
282,
284
(D.D.C.
1985)(absent
a
duty
supported
by
legal
precedent, insurer is not obliged to inform insured about tax
law changes which may affect insured’s policy).
Plaintiff argues that defendant’s inaction in response to
her
letter
explaining
her
view
on
the
tax
consequences
associated with the surrender transaction shows bad faith. (Rec.
Doc. No. 30, at 15) but cites no authority to support this
contention. Given Plaintiff’s June 29, 2010 letter to Kemper
(See
Rec.
withholding
Doc.
No.
section
26-6,
of
at
the
1)
and
Surrender
the
text
Form,
of
stating
the
tax
that
the
applicant “may be subject to tax penalties under the estimated
tax rules if [her] withholding and estimated tax payments are
not
sufficient”
clearly
aware
(Rec.
that
Doc.
there
No.
may
26-7,
have
liability. Further, no evidence
has
at
been
been
3),
an
Plaintiff
issue
as
to
was
tax
presented that the
insurance company sought to mislead Bambulis or induce her to
surrender the policy. Thus, failure to inform Bambulis of the
tax consequences associated with her decision to surrender the
policy does not constitute bad faith. Plaintiff may not seek a
remedy under LSA-R.S. 22:1969, et seq.
E. Contract Claim
8
Under
Louisiana
Law,
insurance
policies
are
treated
as
contracts and thus are interpreted and applied in accordance
with the provisions of the Louisiana Civil Code dealing with
contracts.
(citing
See
Travelers
Louisiana
Casualty
Ins.
Indem.
Co.,
Guaranty
1996
Ass’n
v.
WL
578030,
Interstate
at
*2
Fire
&
Co., 93-C-0911 (La. 1/14/94), 630 So.2d 759, 763).
Under Louisiana Law, “a contract is an agreement by two or more
parties
whereby
obligations
are
created,
modified,
or
extinguished.” La. Civ. Code. art. 1906. “A contract is formed
by the consent of the parties established through offer and
acceptance.” La. Civ. Code art. 1927. However, “[c]onsent may be
vitiated by error, fraud or duress.” La. Civ. Code art. 1948.
Plaintiff
argues
that
the
surrender
of
her
insurance
policy
constitutes an extinguishment of obligations within the meaning
of La. Civ. Code art. 1906 (Rec. Doc. No. 30, at 7). In support
of
this
contention,
Plaintiff
points
out
that
the
Surrender
Value Provisions of the insurance contract at issue state that
“[p]ayment of the Surrender Value shall discharge the Company
from its obligations under this Policy.” (Id. at 8; Rec. Doc.
No. 26-3, at 13)(emphasis added). The request for surrender and
compliance
with
the
request
do
not
constitute
offer
and
acceptance such that a new contract was formed, rather these
actions constituted compliance with the original terms of the
insurance
contract.
Defendant
was
9
not
entitled
to
refuse
Plaintiff’s request. Plaintiff only entered into one contract
with Kemper - the initial contract for the insurance policy.
Plaintiff does not contend that there was error, fraud or duress
in formation of the initial contract. Therefore, Plaintiff’s
claims under this theory must be dismissed.
Accordingly, for the reasons stated above, IT IS ORDERED
that Defendant’s Motion for Summary Judgment (Rec. Doc. No. 26)
be GRANTED.
New Orleans, Louisiana this 11th day of December, 2012.
______________________________
UNITED STATES DISTRICT JUDGE
10
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