Jakobovits v. Allianz Life Insurance Company of North America

Filing 94

MEMORANDUM AND OPINION re: 46 MOTION for Summary Judgment . filed by Allianz Life Insurance Company of North America, 52 MOTION for Summary Judgment . filed by Isaac Jakobovits: Plaintiff Isaac Jakobovits, as trustee of LITE Trust I, brings this breach of contract and declaratory judgment action against Defendant Allianz Life Insurance Company of North America ("Allianz"). Jakobovits seeks damages for Allianz's alleged breach of nine lapsed life ins urance policies on three different individuals (one of whom is now deceased), as well as an order reinstating the policies as to the two living insureds. Both parties move for summary judgment. For the reasons stated above, Plaintiff's motion fo r summary judgment is denied and Defendant's motion for summary judgment is granted in part and denied in part. Plaintiff lacks standing to bring claims on the Stern and Rosenberg policies. Defendant's motion is denied as to the Oberlander policies because a jury question remains as to whether Defendant breached the implied covenant of good faith and fair dealing. Defendant's motion is denied in all other respects. The Clerk of Court is directed to terminate the motions pending at ECF Nos. 46 and 52. (Signed by Judge William H. Pauley, III on 7/18/2017) (jwh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ISAAC JAKOBOVITS, as Trustee of
:
the LITE TRUST I,
Plaintiff,

OPINION & ORDER

:
15cv9977

-against-

:
:

ALLIANCE LIFE INSURANCE
COMPANY OF NORTH AMERICA,

:

Defendant.
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WILLIAM H. PAULEY III, United States District Judge:
Plaintiff Isaac Jakobovits, as trustee of LITE Trust I, brings this breach of contract
and declaratory judgment action against Defendant Allianz Life Insurance Company of North
America (“Allianz”). Jakobovits seeks damages for Allianz’s alleged breach of nine lapsed life
insurance policies on three different individuals (one of whom is now deceased), as well as an
order reinstating the policies as to the two living insureds. Both parties move for summary
judgment. For the reasons stated below, Plaintiff’s motion is denied and Defendant’s motion is
granted in part and denied in part.
BACKGROUND
This dispute arises out of nine life insurance policies issued by Allianz in 2007
and 2008 on the lives of three individuals—Sandor Oberlander, Herman Stern, and David

Rosenberg. 1 The policies have a collective face value of more than $80 million. After a series
of purported assignments, they came to rest in the hands of Plaintiff, an investment trust that
purchased them in a block of approximately 40 insurance contracts for $80,000. (Defendant’s
Rule 56.1 Statement, ECF No. 48 (“Def.’s First 56.1”), ¶ 34.)
Aside from two small payments made on each of the Stern policies, none of the
policyholders in the chain of ownership made any payments beyond the initial premiums
required to open the accounts. During 2009 and 2010, Allianz placed each policy into the
contractual “grace period” before lapsing them due to non-payment. In total, Allianz received
nearly $6 million in premiums on the nine policies and has paid no benefits under them. At
present, two of the insureds are still alive—Stern is 89 years old, and Rosenberg is 83.
Oberlander passed away in December 2014.
I.

Terms and Operation of the Policies
The policies at issue, which are substantively identical, are “Generation Planner II

Life Insurance Policies.” Under each, the owner has no set schedule of premium payments but
rather must pay a “flexible premium . . . until the death of the Insured.” (Plaintiff’s Rule 56.1
Statement, ECF No. 56 (“Pl.’s First 56.1”), ¶ 33.) This flexible premium depends on the amount
that the owner, at the time of the purchase, selects as the anticipated premium payments each
year. (Def.’s First 56.1 ¶ 3.) The contracts contain three different “tests” to determine whether a
policy has lapsed—the “Policy Protection Test,” the “Net Cash Value Test,” and the

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Allianz claims—and Plaintiff does not appear to dispute—that all nine policies were pieces of a “Stranger
Originated Life Insurance” or “STOLI” transaction. A STOLI transaction is one in which individuals (typically
elderly persons) are offered cash or other incentives to purchase life insurance using funds loaned to them by
investors. The insured then assigns the policy to an investment vehicle in satisfaction of the loan, and the investors
service the policy in hopes of profiting by collecting benefits at the insured’s death. Although purchasing life
insurance with the intent of selling it to strangers became illegal in 2009, such transactions were legal at the time the
policies in this case were issued. See N.Y. Insurance Law § 7815.

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“Guaranteed Death Benefit Test”—all of which take into account whether the policy owner has
made sufficient minimum monthly payments. (Def.’s First 56.1 ¶¶ 2–5.) If the cash balance on
a policy fails to meet each of the three tests at the end of any monthly billing cycle, Allianz
places the policy into a “grace period.”
The grace period starts a 61-day clock that ends with termination of the policy if
the owner fails to make sufficient premium payments to keep it in force. (Def.’s First 56.1 ¶ 6.)
To prevent termination, the policy owner must submit a payment “sufficient to keep [the] policy
in force for three months.” (Pl.’s First 56.1 ¶ 35.) That is, the owner can remove the policy from
the grace period by submitting a premium payment sufficient to cause the cash balance to satisfy
one of the three tests for three months. The grace period provision also provides that, “[a]t least
30 days prior to Termination,” Allianz will “send written notification to your last known address
advising that the Grace Period has begun.” (Pl.’s First 56.1 ¶ 35.)
Following lapse (i.e. expiration of the 61-day grace period without sufficient
payment), the policy owner can reinstate coverage via a series of contractual requirements,
including notice within three years of lapse and a showing that the insured is “still insurable
pursuant to [Allianz’s] underwriting standards.” (Def.’s First 56.1 ¶ 8.)
II.

Origination and Assignment of the Stern, Oberlander, and Rosenberg Policies
Between December 2007 and March 2008 Allianz issued the nine policies to

trusts held in the names of the three insureds—two policies on the life of Stern, three on
Oberlander, and four on Rosenberg. (Def.’s First 56.1 ¶¶ 10–12.) The insureds paid the initial
premiums required to obtain the policies (collectively, approximately $5.5 million), and Allianz
received two subsequent payments on the Stern policies in the total amount of about $250,000.

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(Def.’s First 56.1 ¶ 13.) No further premium payments were made on any of the nine policies.
(Def.’s First 56.1 ¶ 13.)
The policies have changed hands a number of times. Premium Funding Group
(“PFG”), a premium-financing company, loaned the insureds the initial premium payments in
exchange for a collateral assignment of the policies. (Def.’s First 56.1 ¶¶ 29–30.) Prior to
making these loans, PFG performed complex “life expectancy reports” and valuations of the
policies as to each insured. (Def.’s First 56.1 ¶ 28.) Although the parties sharply dispute the
effectiveness of the subsequent assignments, the alleged chain of ownership for each policy is as
follows: (1) the initial owners (the trusts in the names of the insureds) assigned the policies to
Global Secured Capital Fund (“GSCF”) while the policies were still in force; (2) after lapse,
GSCF assigned the policies to JMA Investors LLC (“JMA”); (3) in March 2013, JMA assigned
its interest to Plaintiff LITE Trust I (“LITE”), the current owner of all nine policies. (Pl.’s First
56.1 ¶¶ 14–31.)
III.

Grace Period and Lapse
Because the policy owners made no premium payments on any of the policies

(aside from the two small payments on the Stern policies in September 2009), each policy
entered the contractual grace period between October 2009 and March 2010. (Def.’s First 56.1
¶ 13.) Allianz sent Grace Notices on each policy exactly thirty-two days before lapse. (Def.’s
First 56.1 ¶ 20.) After receiving no further payments, Allianz lapsed the policies. (Def.’s First
56.1 ¶ 23.)
The focal point of this suit is the contents of these Grace Notices, which
overstated the minimum payments required to keep the policies in force by between 74% and
584%. (Pl.’s First 56.1 ¶ 54.) In total, the nine Grace Notices instructed the policy owners to

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pay nearly $950,000 more than they were actually required to pay in order to prevent lapse under
the terms of the contract. (Pl.’s First 56.1 ¶ 53.) Instead of the amounts required to keep the
policies in effect for three months (as set out in the contracts), the Grace Notices requested
payments that would have kept the policies in force for five months (in the cases of the
Rosenberg and Stern policies) and seventeen months (in the case of the Oberlander policies).
(Pl.’s First 56.1 ¶¶ 57–59.) Representatives of the policy owners called and emailed Allianz
many times during the grace period regarding the minimum payments, and Allianz employees
repeatedly confirmed the amounts represented in the Grace Notices. Despite repeated contact
with Allianz, however, no policy owner ever tendered payment in any amount during the grace
period. (Def.’s First 56.1 ¶ 13.)
LEGAL STANDARD
Summary judgment should be rendered if the record shows that “there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).
The burden of demonstrating the absence of any genuine dispute as to a material fact rests with
the moving party. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). Once the
moving party has made an initial showing that there is no genuine dispute of material fact, the
non-moving party cannot rely on the “mere existence of a scintilla of evidence” to defeat
summary judgment but must set forth “specific facts showing that there is a genuine issue for
trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). “A dispute
about a ‘genuine issue’ exists for summary judgment purposes where the evidence is such that a
reasonable jury could decide in the non-movant’s favor.” Beyer v. Cty. of Nassau, 524 F.3d 160,
163 (2d Cir.2008) (quoting Guilbert v. Gardner, 480 F.3d 140, 145 (2d Cir. 2007)). “Where the

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record taken as a whole could not lead a rational trier of fact to find for the nonmoving party,
there is no ‘genuine issue for trial.’” Scott v. Harris, 550 U.S. 372, 380 (2007) (citing
Matsushita, 475 U.S. at 586–87). This Court resolves all factual ambiguities and draws all
inferences in favor of the non-moving party. See Liberty Lobby, 477 U.S. at 255; see also
Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005).
DISCUSSION
These summary judgment motions present three dispositive issues. First, the
parties dispute whether there was an effective contract between Plaintiff and Allianz and, if so,
which party was in breach. Second, Allianz argues that Plaintiff’s declaratory judgment claims
are duplicative of the primary claims and therefore subject to dismissal. Finally, Allianz seeks
summary judgment on the basis of the two-year statute of limitations under New York Insurance
Law § 3211(d).
I.

Breach of Contract
To prove breach of contract, a plaintiff must show: “(1) the existence of a contract

between the plaintiff and the defendant; (2) the performance of the plaintiff’s obligations under
the contract; (3) breach of the contract by the defendant; and (4) damages to the plaintiff caused
by the defendant’s breach.” Prickett v. N.Y. Life Ins. Co., 896 F. Supp. 2d 236, 251 (S.D.N.Y.
2012).
The parties’ arguments on this issue collapse these four elements into two distinct
questions. First, the existence of the contract and the issue of damages both depend on whether
the alleged assignments were effective to confer ownership of the policies to Plaintiff. If the
assignments were effective, a contract exists between Plaintiff and Allianz, and Plaintiff stands
in the shoes of all prior policy owners as to damages.

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Second, there is no question that Plaintiff (through the actions of LITE’s
predecessors in interest) breached by failing to make premium payments under the policies. The
material issue is whether Allianz breached first by overstating the amounts due in the Grace
Notices and, if so, whether that breach caused the failure to pay the premiums. If Allianz’s
breach caused Plaintiff’s breach, Allianz cannot thereafter rescind the policies and retain the
profits created by its own improper conduct. If, on the other hand, Allianz performed under the
contract and the policy owners simply failed to pay premiums, Plaintiff is entitled to no relief.
A. Whether a Contract Exists Between Plaintiff and Allianz
Under New York law, “[n]o contract or policy of insurance . . . shall be
enforceable except for the benefit of some person having an insurable interest in the property
insured.” Cassadei v. Nationwide Mut. Fire Ins. Co., 21 A.D.3d 681, 682 (3d Dep’t 2005)
(internal citations omitted). An “insurable interest” is “any lawful and substantial economic
interest.” Cassadei, 21 A.D.3d at 682. The import of this rule is that “[o]nly the policy owner
has standing to sue based on an insurance policy.” Pike v. N.Y. Life Ins. Co., 72 A.D.3d 1043,
1049 (2d Dep’t 2010). An insurable interest—and the corresponding standing to sue—is freely
assignable, even “to one without an insurable interest in the insured’s life . . . so long as the
policy was valid in its inception.” Kramer v. Phoenix Life Ins. Co., 15 N.Y.3d 539, 551 (N.Y.
Ct. App. 2010) (internal citations omitted). A valid assignee “stands in the shoes of [the]
assignor” as to the assignor’s rights and obligations under the original contract. Septembertide
Publishing, B.V. v. Stein & Day, Inc., 884 F.2d 675, 682 (2d Cir. 1989).
Allianz argues that Plaintiff lacks standing because the various assignments of the
nine policies were ineffective due to lack of notice to Allianz. Alternatively, Allianz claims that

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Plaintiff cannot show an unbroken chain of ownership between LITE and the original policy
holders.
1. Lack of Notice
Each policy contains an identical assignment clause, which permits the policy
owner to “assign or transfer all or specific ownership rights of this policy.” (Declaration of
Cynthia Rice (“Rice Decl.”), ECF No. 49, Ex. K at 34.) The clause provides that “[a]n
assignment will be effective upon Notice,” and that Allianz “will record your assignment.” (Rice
Decl., Ex. K at 34.) “Notice” is defined in the policies simply as “[Allianz’s] receipt of a
satisfactory written request.” (Rice Decl., Ex. K at 24.)
The record contains only a handful of instances in which Allianz received and/or
responded to notice of an assignment of rights. Allianz recorded the collateral assignments and
releases in favor of the two PFG entities shortly after issuing each policy. (See Declaration of
Andres Healy (“Healy Decl.”), ECF No. 79, Ex. 111 at 1–3.) Plaintiff points to no further
evidence of Allianz receiving notice of or recording any subsequent assignment of the Stern or
Rosenberg policies. As to the Oberlander policies, however, Allianz denied JMA’s April 2011
request for an ownership change (to reflect the assignment by GSCF to JMA) because “the
policies have lapsed, [and] therefore, we cannot honor the ownership change requests.” (Healy
Decl., Ex. 143 at 1.)
Plaintiff argues that the notice provisions cannot affect the assignments of these
policies because the language in the provisions does not explicitly void improper assignments.
Anti-assignment provisions, like any restraints on alienation, require “clear language . . .
mak[ing] the assignment void.” Pro Cardiaco Pronto Socorro Cardiologica S.A. v. Trussell, 863
F. Supp. 135, 137 (S.D.N.Y. 1994). As such, New York courts have long held that assignments

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are valid regardless of contractual prohibitions against transfer unless those prohibitions employ
the “plainest words.” Allhusen v. Caristo Constr. Corp., 303 N.Y. 446, 452 (N.Y. 1952)
(voiding an assignment clause where the clause stated that “assignment by the second party . . .
without the written consent of the first party shall be void”).
The assignment clause in the Allianz policies is, however, not an anti-assignment
provision at all. It does not purport to void any invalid assignments or require Allianz’s consent
for an assignment to be effective; rather, it permits the policy owner to freely “assign or transfer
all or specific ownership rights of this policy,” and provides that any assignment “will be
effective upon Notice.” (Rice Decl., Ex. K at 34 (emphasis added).) The provision affirmatively
requires Allianz to record each noticed assignment—“[w]e will record your assignment”—and
disclaims any responsibility for the “validity and effect” thereof, as well as any liability “for
actions taken on payments made before we receive and record the assignment.” (Rice Decl., Ex.
K at 34. (emphasis added).)
Plaintiff cites a bevy of cases regarding the language required to make antiassignment provisions effective, but this situation is more analogous to Estate of Piper v. Met.
Tower Life Ins. Co., No 07-CV-9548, 2009 WL 2431956 (S.D.N.Y. Aug. 10, 2009). In that
case, the policy at issue contained a notice provision directing the insured to “please give us your
name, address and policy number [in any communications] . . . [and] notify us promptly of any
changes. We will write to you at your last known address.” Estate of Piper, 2009 WL 2431956,
at *2. After notices mailed to a new address were returned undeliverable, the insurer obtained a
last known address using the insured’s social security number and sent notices to that address
(where the insured no longer lived) until the policy lapsed due to nonpayment. Estate of Piper,
2009 WL 2431956, at *3. The court found that plaintiffs’ breach of contract claims failed

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“because the Policy unambiguously provides that the policyholder has a duty to maintain a valid
address on file, and that MetLife is to use the last known address when the current address on file
fails.” Estate of Piper, 2009 WL 2431956, at *6. Similarly, the assignment provision in this case
creates a duty for the policy owner to provide notice to Allianz of any assignment, and a
corresponding duty for Allianz to record that assignment. Indeed, Allianz appears to have no
discretion when it comes to recording assignments under these policies, and any dispute over
whether a written request was “satisfactory” would only be warranted if there were any written
assignment requests in the record for the Stern and Rosenberg policies.
Because there are no such written requests in the record, there is no genuine
dispute of material fact as to whether Allianz ever received notice of the assignments of the Stern
and Rosenberg policies to LITE. And because the policy terms unambiguously provide that an
assignment is “effective upon Notice,” the purported transfers of the Stern and Rosenberg
policies were ineffective to give Plaintiff an insurable interest in them. Accordingly, Allianz is
entitled to summary judgment as to the Stern and Rosenberg policies due to Plaintiff’s lack of
standing.
This Court arrives at a different conclusion, however, with respect to the
Oberlander policies. It is undisputed that in March 2010, both GSCF and the initial owner of the
Oberlander policies notified Allianz of the first assignment (from the initial owner to GSCF), and
that Allianz subsequently confirmed that it had updated its records to reflect the change. (Pl.’s
First 56.1 ¶ 19.) Accordingly, the assignment by the original owners to GSCF was effective
under the terms of the policy.
When GSCF notified Allianz one year later of its assignment of the policies to
JMA, however, Allianz refused to recognize the change in ownership because “[o]ur records

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reflect that the policies have lapsed, therefore, we cannot honor the ownership change requests.”
(Healy Decl., Ex. 143 at 1.) The terms of the policy do not require that the policy be in effect
prior to assignment, and thus Allianz’s wrongful refusal to recognize the assignment cannot
destroy Plaintiff’s standing in this matter. Plaintiff’s failure to notice (and Allianz’s failure to
record) the subsequent assignments of the Oberlander policies to LITE by JMA does not compel
summary judgment on these claims, as Allianz’s communications with JMA and GSFC in March
2011 suggested that any future notice would not be accepted. See Sunshine Steak, Salad &
Seafood, Inc. v. W.I.M. Realty, Inc., 522 N.Y.S.2d 292, 293 (N.Y. App. Div. 1987).
2. Chain of Ownership
Alternatively, Allianz argues that Plaintiff cannot prove an unbroken chain of
ownership between the initial owners and LITE. Allianz is not entitled to summary judgment on
these grounds because Plaintiff has submitted evidence that, at the very least, create a question of
material fact as to the validity of the transfer of each policy between the various owners.
Contrary to Allianz’s contention, the “say-so of the transferee” can be sufficient to prove
ownership under New York law. See Bourne v. Haynes, N.Y.S.2d 332, 333 (N.Y. Sup. 1962)
(“Where there is satisfactory evidence of an oral assignment of the policy and delivery of the
policy, the lack of writing to evidence the assignment does not bar recovery.”) Because the
record contains documents that attest to each transfer of the Oberlander policies, Allianz cannot
obtain summary judgment on this theory. (See Pl.’s First 56.1 ¶¶ 19–24.)
B. Whether Allianz Breached the Contract
As discussed above, this issue turns on whether Allianz itself breached by
overstating the amounts in the Grace Notices and, if so, whether that breach caused Plaintiff’s
failure to pay premiums. The question of Plaintiff’s breach is, as a threshold matter, not in

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dispute. “Punctuality in the payment of premiums in the case of a life insurance policy is of the
very essence of the contract; and, when payment is not made at the time, the company has the
right to forfeit.” Holly v. Metro Life Ins. Co., 105 N.Y. 437, 444 (N.Y. 1887). Here, the parties
agree that—aside from the initial premiums and the two payments on the Stern policies shortly
after origination—no policy owner made a single premium payment on any of the nine policies.
Because Plaintiff (as assignee of the policies) materially breached by failing to
pay any premiums, Allianz is entitled summary judgment unless Allianz itself breached and
thereby caused the policy owners to stop paying. See In re Preston’s Will, 29 N.Y.2d 364, 371
(N.Y. 1972) (an insurance company may not “depend upon a default in which its own negligence
or wrongful act contributed, and but for which a lapse might not have occurred”). Plaintiff
argues that Allianz breached the policies in two ways: first, by lapsing the policies after refusing
to allow the owners to pay the minimum premiums required under the contracts and, second, by
issuing Grace Notices that substantially overstated the amount due to prevent termination.
1. Actual Breach—Allianz’s Refusal to Allow Minimum Payments
Plaintiff’s first theory is one of actual breach—that is, breach of the “ThreeMonths Provision” of the Death Benefit Protection Rider (“DBP Rider”), under which a policy
owner can prevent lapse during the Grace Period by paying enough premium to satisfy one of the
three tests for three months. To prevail, Plaintiff must identify the specific contractual
provisions at issue and show that Allianz failed to perform under them. See Katz v. American
Mayflower Life Ins. Co. of N.Y., 14 A.D.3d 195, 198 (1st Dep’t 2004) (dismissing breach of
contract claims where plaintiff “has not, and cannot, identify any contractual provision that has
been breached”). When a policy’s terms “are clear and unambiguous, the court should enforce

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[their] plain meaning and may not consider extrinsic evidence of the parties’ understanding or
intent.” Katz, 14 A.D.3d at 200.
There can be no reasonable dispute that Allianz complied with the notification
clause of the Grace Period provision, which simply required the company to send, at least thirty
days before lapse, “written notification to [the policy holder’s] last known address advising that
the Grace Period has begun.” (Rice Decl., Ex. K at 28.) Plaintiff argues instead that the
overstated premium amounts on the Grace Notices violated the following sentence, which
advises that policies in the Grace Period will be lapsed unless “[a] premium payment sufficient
to keep this policy in force for three months . . . [is] received prior to the last day of the Grace
Period.” (Rice Decl., Ex. K at 28.) The Grace Period provision does not, however, require
Allianz to include any minimum payment amounts in the Grace Notice; it merely obligates
Allianz to send the notice itself. Cf. Weiss v. Lincoln Nat’l Life Ins. Co., No. 14-CV-4944, 2016
WL 4991533, at *4 (E.D.N.Y. Sept. 15, 2016) (denying insurer’s motion for judgment on the
pleadings where “the terms of the [policy] . . . plainly required the Grace Notice to state the
amount due”).
Similarly, the DBP Rider modifies the Grace Period provision “to require Allianz
to consider a third test—the ‘Guaranteed Death Benefit Test’—when determining (1) when a
policyholder needs to make additional premium payment and (2) the amount of that additional
premium payment.” (Pl.’s First 56.1 ¶ 37.) Plaintiff would be entitled to summary judgment for
breach of this provision if it were true, as Plaintiff contends, that Allianz “refus[ed] to accept”
amounts in compliance with the DBP Rider to prevent lapse. (Pl.’s Opp. at 8.) However, there
is no evidence that any policy owner tendered payment in any amount or attempted to pay any
premium under the Three-Months Provision.

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Instead, Plaintiff points to transcripts of recorded phone calls in which Allianz
representatives confirmed that the overstated amounts in the Grace Notices were the amounts
that were required to prevent lapse. (See Pl.’s Opp. at 10.) Incorrect as these statements may
have been, however, they are not relevant to the issue of actual breach because the terms of the
DBP Rider and Three-Months Provision were clear and unambiguous. Indeed, Plaintiff explains
the steps required to satisfy the Three-Months Provision in a brief paragraph (see Pl.’s Opp. at
11) and provides a graphical breakdown of the discrepancies between the Grace Notice demands
and the amounts actually due under the DBP Rider. (See Pl.’s First 56.1 ¶ 54.) Further, Plaintiff
and the predecessor policy owners were sophisticated investors who were able to perform
complex financial valuations of these policies and the capital required to hold and service them.
(See Def.’s First 56.1 ¶¶ 27–28.)
This Court declines to grant summary judgment on actual breach because Plaintiff
noticed the overstated Grace Notices, taped phone calls in which the policy owner’s
representative stopped short of offering contractually sufficient payment, and then filed suit
without ever attempting to tender a premium. See McMillan v. Farm Bureau Mut. Auto. Ins.
Co., 282 A.D. 1091, 1092 (3d Dep’t 1953) (“If the plaintiff desired to stand upon his claim [that
he had to pay less than the stated amount] . . . he should have advised the company of that claim
and should have tendered payment accordingly.”). If Plaintiff had tendered the amounts
demanded by the contracts (rather than the Grace Notices, which did not have to contain any
premium request) and Allianz had nonetheless refused to reinstate the policies, this would be an
easy case for summary judgment. But that did not happen here.

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2. Good Faith and Fair Dealing
Plaintiff’s alternative theory—that Allianz breached by issuing (and subsequently
reasserting) substantially overstated premium amounts—relies on the implied covenant of good
faith and fair dealing. “Implicit in all contracts is a covenant of good faith and fair dealing in the
course of contract performance.” Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (N.Y.
1995). This doctrine prohibits parties from doing “anything which will have the effect of
destroying or injuring the right of the other party to receive the fruits of the contract.” Kirke La
Shelle Co. v. Paul Armstrong Co., 263 N.Y. 79, 87 (N.Y. 1933). A plaintiff relying on this
theory “bears a heavy burden” of showing “that the particular unexpressed promise . . . is in fact
implicit in the agreement viewed as a whole,” Rowe v. Great Atl. & Pac. Tea Co., 46 N.Y.2d 62,
69 (N.Y. 1978), and that the defendant acted “intentionally and purposely.” Kader v. Paper
Software, Inc., 111 F.3d 337, 342 (2d Cir. 1997). On a motion for summary judgment, the “only
issue” is whether there is a genuine question as to whether the defendant “acted honestly and
reasonably with respect to its contractual obligations.” O’Shanter Resources Inc. v. Niagara
Mohawk Power Corp., 915 F. Supp. 560, 569 (W.D.N.Y. 1996).
A triable issue of material fact exists concerning whether Allianz intentionally
demanded excessive premiums in an effort to force these policies into lapse. For example,
Plaintiff offers deposition testimony, telephone call transcripts, and internal Allianz documents
suggesting that these policies were placed on a “watch list” targeted for lapse, and that
representatives were instructed to insist on the minimum payments demanded in the Grace
Notices even after Allianz realized the amounts were overstated. (See Pl.’s Mot. at 5–10.) A
jury could reasonably conclude that this conduct constituted breach because Allianz
“advance[ed] an untenable interpretation of the contract.” Fonda v. First Pioneer Farm Credit,

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86 A.D.3d 693, 695 (3d Dep’t 2011) (denying summary judgment where insurer’s extracontractual payment demands could be construed as breach of the implied covenant).
The record also raises issues of fact that cut against Plaintiff’s position—namely,
the question of whether Allianz’s alleged breach caused the policy owners to stop paying
premiums. The factfinder could infer from the record that the investors knew they were entitled
to pay less than Allianz demanded, but instead chose to let the policies lapse and preserve their
lawsuit. Allianz also contends that it targeted Plaintiff’s policies as part of a statutory
compliance effort aimed at suspected STOLI transactions (which became illegal in the years
following the origination of these policies), and that the overstatements in the Grace Notices
were honest mistakes by Allianz employees. (See Def.’s Opp. at 3–6.)
Considering the robust factual disputes and the absence of any literal breach of
the policy terms, the question of whether Allianz “acted honestly and reasonably with respect to
its contractual obligations” is a factual determination within the province of a jury. O’Shanter
Resources, 915 F. Supp. at 569.
II.

Declaratory Judgment
In deciding whether to exercise its discretion to entertain a declaratory judgment

action, a district court must inquire, inter alia, “[1] whether the judgment will serve a useful
purpose in clarifying or settling the legal issues involved; . . . [and] [2] whether a judgment
would finalize the controversy and offer relief from uncertainty.” Dow Jones & Co., Inc. v.
Harrods Ltd., 346 F.3d 357, 359 (2d Cir. 2003). Plaintiff seeks a declaration of wrongful lapse, a
clarification of its rights under the policies, and an order reinstating coverage for each policy.
Plaintiff contends that declaratory judgment is necessary to prevent future
overstatements of premiums due under the policies, if they are in fact reinstated in this action.

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Such a declaration would serve no useful purpose, however, because resolution of Plaintiff’s
breach of contract claims based on that same conduct will necessarily decide the propriety of
those practices. See Fleisher v. Phoenix Life Ins. Co., 858 F. Supp. 2d 290, 302 (S.D.N.Y. 2012)
(finding declaratory judgment unnecessary with respect to future conduct where “the Court will
need to determine whether [the conduct at issue] is improper in order to evaluate” whether it
constitutes present breach). Similarly, a declaration that Allianz breached by demanding inflated
premiums would offer no incremental relief from uncertainty. “[A]ny uncertainty regarding the
legality of such actions will” be ameliorated by a final determination on the breach of contract
claims. Fleisher, 858 F. Supp. 2d at 303.
Because Plaintiff’s declaratory judgment claims are duplicative and seek no
distinct relief relative to the breach of contract count, Defendant’s motion for summary judgment
dismissing Count II is granted.
III.

Statute of Limitations
Finally, Allianz seeks summary judgment pursuant to the two-year statute of

limitations in New York Insurance Law § 3211(d). This argument is misplaced as Plaintiff does
not bring statutory claims under § 3211(d), which imposes technical requirements upon insurers
and can prevent lapse if the insurer does not comply. Rather, Plaintiff brings contractual claims
within the six-year statute of limitations provided by New York law. See C.P.L.R. § 213.
Further, § 3211(d) only applies to claims based on policies that insurers have
rightfully lapsed—i.e. terminated due to failure to pay premiums. See Thompson v. Postal Life
Ins. Co., 226 N.Y. 363, 363 (N.Y. 1919). Because there is a material dispute as to Allianz’s
breach of the implied covenant of good faith and fair dealing, the question of whether Allianz

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rightfully lapsed these policies is an open one. Accordingly, Allianz is not entitled to summary
judgment under § 3211(d).
CONCLUSION
For the reasons stated above, Plaintiff’s motion for summary judgment is denied
and Defendant’s motion for summary judgment is granted in part and denied in part. Plaintiff
lacks standing to bring claims on the Stern and Rosenberg policies. Defendant’s motion is
denied as to the Oberlander policies because a jury question remains as to whether Defendant
breached the implied covenant of good faith and fair dealing. Defendant’s motion is denied in
all other respects. The Clerk of Court is directed to terminate the motions pending at ECF Nos.
46 and 52.

Dated: July 18, 2017
New York, New York
SO ORDERED:

_______________________________
WILLIAM H. PAULEY III
U.S.D.J.

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