Spradlin, et al v. AXA Equitable Life Insurance Company

Filing 77

MEMORANDUM OPINION AND ORDER: The Court ORDERS that the Plaintiffs' 49 Motion for Partial Summary Judgment be GRANTED as to Count I, and that the Defendant AXA Equitable Life Insurance Company's 51 Motion for Summary Judgment be DENIED as to Count I; the Court ORDERS that the Plaintiffs' Motion as to Count II and the Defendant's Motion as to Counts II and IV be DENIED AS MOOT, and that the Defendant's Motion as to Counts II, V, and VI be GRANTED; the Court ORDERS that any outstanding motions be TERMINATED AS MOOT. Signed by Judge Irene C. Berger on 10/22/2014. (cc: Magistrate Judge Eifert; attys; any unrepresented party) (slr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
BECKLEY DIVISION

MICHAEL SPRADLIN and
NANCY SPRADLIN,
Plaintiffs,
v.

CIVIL ACTION NO. 5:13-cv-23381

AXA EQUITABLE LIFE INSURANCE
COMPANY,
Defendant.

MEMORANDUM OPINION AND ORDER
The Court has reviewed the Plaintiffs’ Motion for Partial Summary Judgment (Document
49), the Plaintiffs’ Memorandum of Law in Support of Their Motion for Partial Summary
Judgment (Document 50) and attached exhibits,1 the Defendant AXA Equitable Life Insurance
Company’s Response in Opposition to Plaintiffs’ Motion for Partial Summary Judgment
(Document 57) and attached exhibits, and the Plaintiffs’ Reply to Defendant’s Response to Their
Motion for Partial Summary Judgment (Document 60) and attached exhibits. The Court has also
reviewed the Defendant AXA Equitable Life Insurance Company’s Motion for Summary Judgment
(Document 51) and attached exhibits,2 the Defendant AXA Equitable Life Insurance Company’s

1 Local Rule of Civil Procedure 7.1(a)(1) specifies that any exhibits “upon which the motion relies shall be attached to
the motion, not the supporting memorandum.” The Plaintiffs did submit courtesy copies in compliance with Local
Rule 7.1(a)(5), and the Court has reviewed all exhibits despite the Plaintiffs’ non-compliance with Local Rule
7.1(a)(1).
2 The Defendant filed an amended version of its Exhibit J on September 11, 2014, as document 68-1. The original
Exhibit J included documentation related to Mr. and Dr. Spradlin’s policies, including various changes made in the
late 1980s through their insurance agent, beneficiary changes, and their original insurance applications. The updated
Exhibit J includes the life insurance policies for both Mr. and Mrs. Spradlin.

Memorandum of Law in Support of Its Motion for Summary Judgment (Document 52), the
Plaintiffs’ Response in Opposition to Defendant’s Motion for Summary Judgment (Document 61)
and attached exhibits, and the Defendant AXA Equitable Life Insurance Company’s Reply in
Support of Its Motion for Summary Judgment (Document 62) and attached exhibits. For the
reasons stated herein, the Court finds that the Plaintiffs’ motion must be granted as to Count I,
denied as moot as to Count II, and the Defendant’s motion must be denied as to Count I, denied as
moot as to Count II and Count IV, and granted as to Count III, Count V and Count VI.

I.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY3

The Plaintiffs initiated this action with a Complaint for Declaratory Judgment and Other
Relief (Document 1) filed in this Court on September 21, 2013. In essence, they allege that their
life insurance policies are in danger of being foreclosed by the Defendant because the Defendant
misclassified partial cash withdrawals taken in 1989 as loans. They assert causes of action for (1)
declaratory judgment, (2) violation of the Truth in Lending Act, (3) Unfair and Deceptive Trade
Practices: Insurance Bad Faith, (4) violation of the West Virginia Consumer Credit and Protection
Act, (5) fraud, and (6) breach of fiduciary duty.
The Plaintiffs purchased the term life insurance policies in question in 1984. (Policies,
Def. Am. Ex. J, Document 68-1.) They purchased the policies through Equitable Agent Tom
Holbrook, who was also a personal friend. He assisted them in transactions related to their
policies, including adjusting the premium and coverage amounts and changing beneficiaries.

3 Because there are cross-motions for summary judgment, the Court must view the facts and inferences in the light
most favorable to the Defendant while considering the Plaintiffs’ motion, and in the light most favorable to the
Plaintiffs while considering the Defendant’s motion. For purposes of this portion of the opinion, the Court will note
the party promoting any disputed fact without drawing inferences for either party.

2

(See generally Def. Original Ex. J, Document 51-5.) The policies include terms regarding policy
loans, including the interest rate of 8%, and partial cash value withdrawals. (Policy at 10, 13.)
The policy language specifies that a partial cash withdrawal constitutes a “policy change,” which
must be requested “by completing an application for change, which you can get from our agent or
by writing to us.” (Id. at 10.) Further, “[t]he insurance amount, the cash value and the amount in
the Policy Account will all be reduced by an amount equal to the amount withdrawn, and the
period of coverage may be shortened,” but “you may ask for an alternative policy change” rather
than a decrease in the insurance amount, if desired. (Id.) The policy does not describe how to
take out a policy loan, but explains that the policy “will be the only security for the loan,” which
cannot be in an amount greater than the cash value. (Id. at 13.) It further explains that the policy
“will terminate when a loan with loan interest first equals or exceeds the cash value.” (Id.) It
specifies how to repay a loan “by paying us or by decreasing the cash and Policy Account values
with a resultant change in the policy.” (Id.)
In 1989, the Spradlins decided to purchase a condo at Myrtle Beach. Dr. Nancy Spradlin
managed the couple’s finances at the time, and she took money from the life insurance policies to
use for a down payment on that condo. (N. Spradlin Depo., at 19, att’d as Ex. C to Pl.’s Reply,
Document 60-1.) Central to the instant dispute, the Spradlins characterize the money taken from
the policies as withdrawals, while AXA Equitable characterizes it as policy loans.
Dr. Spradlin recalls taking $19,800.47 from the cash value of Mr. Spradlin’s policy and
$15,000 from her policy in May of 1989. (Id. at 17.) She reported that she had no recollection of
an additional transaction removing $1,511 from Mr. Spradlin’s policy in February of 1989, which
appears in the account history. (Id.) No written documentation of the transactions at the time

3

they were made exists. An annual report for the year ending May 31, 1989, for Nancy Spradlin
shows a face amount of $387,000, a cash value of $16,818.85, and a new loan of $15,000. (Def.
Ex. E, Document 51-3 at 52.) An annual report for the year ending May 31, 1989, for Michael
Spradlin shows a face amount of $300,000, a cash value of $ 23,830.60, and new loans of
$21,345.95. (Id., Document 51-2 at 54.)
Mr. Spradlin contends that he was not aware, in 1989, that money was taken out of his
policy and did not authorize either loan. (M. Spradlin Depo., at 20–21, att’d as Ex. B to Pl.’s
Reply, Document 60-1.) His wife handled the purchase of the condo and all financial matters.
(Id. at 29, 27.) He did not review annual statements for the policies he owned. They were sent to
Dr. Spradlin’s office, and he does not recall discussing them with her. (Id. at 25.) Both Dr.
Spradlin and Mr. Spradlin stated that they relied on Mr. Holbrook, or occasionally his partner, for
all advice and transactions related to their insurance policies until his retirement in 1995. (Id. at
16, 25; N. Spradlin Depo. at 18–19, 26.)
Mr. Holbrook stated that he recalled a conversation with Dr. Spradlin about the possibility
of using money from the policies to purchase a condo through a policy loan, but did not recall
having any involvement in the process. (Holbrook Depo. at 14–17; att’d as Ex. D. to Pl.’s Reply,
Document 60-2.) He believes the conversation focused on a loan rather than a withdrawal. (Id.
at 47–49.) Both Mr. Holbrook and Henry Lewer, a senior director at AXA Equitable, explained
that customers could request a policy loan through their agent or through a direct customer service
call. (Id. at 17; H. Lewer Depo. at 17, att’d as Ex. E to Pl.s’ Reply, Document 60-2.) Mr. Lewer
further stated that AXA Equitable’s procedures permit a policy owner to call with a third party, be
authenticated as the owner by the customer service representative, and authorize a third party to

4

make a request, after which no further input or confirmation by the owner would be required. (H.
Lewer Depo. at 14–16.) Based on these facts, AXA Equitable contends that Dr. Spradlin was
authorized by Mr. Spradlin to take money from his policy and that she did so through a direct call
to the AXA Equitable Service Center. (Def.’s Resp. at 3; Def.’s Mem. in Support of Def.’s Mot.
at 2.)
There is no written documentation of the transaction, nor are there statements or bills
specific to the loans. AXA Equitable mailed annual reports for each policy. These statements
changed format over the years, but always included the premium, the face amount or death benefit,
the cash value (increasing with interest each year), and the policy loans. The 1989 annual reports
show loan transactions on specific dates, but do not appear to list an interest rate for the loans.
(Ex. E to Def.’s Mot., Document 51-2 at 54–55; Document 51-3 at 52–53.) The 1990 annual
reports continue to list the loan balances, but do not show an increase in the total loan balance for
interest, nor do they reveal an interest payment. (Id. Document 51-2 at 56–57; Document 51-3 at
54–55.)

Beginning in 1991, new loans, in the amount of the accrued interest, are listed and

added to the loan balance each year—though the interest rate on loans still is not listed. (Id.
Document 51-2 at 58–59; Document 51-3 at 56–57.) Beginning around 2000,4 AXA Equitable
reformatted the annual statements, and those issued since that date do include the loan interest rate
of 8% and an explanation that “outstanding indebtedness (loan plus accrued loan interest) will be
deducted from the death benefit and cash surrender value proceeds.” (Id., e.g., Document 51-2 at
46–49.) Dr. Spradlin stated that she reviewed the annual reports, or at least the first page of them,
but did not pay attention to the loan section because “[i]t looks like something you get in one of

4 The Defendant included annual statements as Exhibit E to its motion for summary judgment, but they were not
entirely organized by date, and the Court was unable to locate annual reports for 1998 and 1999.

5

those credit card things that you would want to throw in the trash” and “I didn’t have a loan, so it
didn’t apply to me.” (N. Spradlin Depo. at p. 49–50.)
The Spradlins continued paying their monthly policy premiums. They took withdrawals
from Mr. Spradlin’s daughters’ policies in 1997, but otherwise had no contact with AXA Equitable
beyond automatically paying their premiums and automatically receiving annual statements until
2009. In 2009 or 2010,5 Mr. Spradlin met Justin Kerns, an agent based in Covington, Virginia,
and learned that one of his daughters’ policies had lapsed due to a loan taken out in 1994.6 (M.
Spradlin Depo. at 33–34.) Mr. Kerns brought the loans listed on Dr. and Mr. Spradlin’s policies
to their attention as well. (Id.; N. Spradlin Depo. at 33.)
Mr. Spradlin began investigating the alleged loans and seeking information from various
AXA Equitable agents and employees. He also wrote a letter to Operations Manager L. J. Smith
on March 25, 2010, explaining that “a modest amount of money that we withdrew in 1989…was
processed as a loan” and that they had been led to believe the withdrawals “were routine
transactions without any risk to our policies.” (3/25/2010 Letter, M. Spradlin to L. Smith, att’d as
Ex. H to Def.’s Mot., Document 51-5.) Lucretia Swain-Arnold, a Customer Relations employee
at AXA Equitable, responded that “[t]he decision to process a loan or a partial withdrawal and the
amount is solely that of the policyholder,” and “[i]f a loan is processed, interest will accrue daily at
a specified rate and be billed annually on the anniversary of the policy.” (5/11/2010 Letter, L.
Swain-Arnold to Spradlins, att’d as Ex. G to Pl.s’ Mot., Document 50-2.)

She provided

information about how loans are processed, how policies may lapse without interest payments, and
5 In his deposition, Mr. Spradlin stated that the conversation took place in 2009. In a letter written to L.J. Smith, an
Operations Manager at AXA Equitable, on March 25, 2010, he refers to a January 2010 conversation. (3/25/2010
Letter, M. Spradlin to L. Smith, att’d as Ex. H to Def.’s Mot., Document 51-5.)
6 That transaction is not at issue in this case. However, the Court notes that Dr. and Mr. Spradlin both stated that they
had no recollection of taking the $1,300 loan.

6

indicated that “an annual billed loan interest notice is mailed to the address of record
approximately 21 days prior to the anniversary” in addition to the annual reports, both of which
include information about the loans and accruing interest.7 (Id.) She further wrote that the
company had “determined that the loans…were in accordance with the terms and provisions of the
plans and pursuant to your requests as owners,” and indicated that AXA Equitable would not alter
its treatment of the transactions as loans. (Id.)
The Spradlins followed up with a letter dated June 14, 2010, reiterating that they had
requested withdrawals and that Mr. Holbrook had never informed them “that the withdrawals were
treated as loans and that the interest accruing on them was significantly reducing the value of
[their] policies.” (6/14/2010 Letter, Spradlins to L. J. Smith, att’d as Ex. I to Def.’s Mot.,
Document 51-5.) AXA Equitable responded with a letter from Lisa Eisenhart, again stating that
the records reflect loan dispersals and explaining that annual billed loan interest notices and annual
reports are mailed after loans are dispersed. (7/16/2010 Letter, L. Eisenhart to Spradlins, att’d as
Ex. H to Pl.s’ Mot., Document 50-2.)

“If you thought the disbursements were partial

withdrawals, we should have been contacted after you received the first billed loan interest notices
and Annual Reports reflecting the outstanding loans,” she wrote. (Id.) Mr. Spradlin continued
to investigate with assistance from attorney Lawrence Morhous, a personal acquaintance, who
wrote Mr. Lewer seeking all relevant documents on August 10, 2011. (08/10/2011 Letter, L.
Morhous to H. Lewer, att’d as Ex. C to Def.’s Reply, Document 62-1.) Continued informal
communications failed to resolve the dispute, and the Plaintiffs filed this suit.

7 Neither party has produced annual billed interest statements in this case. Counsel for the Plaintiffs presented the
following question to Mr. Lewer: “In this case, I see none of these billing notices until very late, I think after 2010. So
my question to you is, can a policyholder take out a loan and not be billed interest, principal, or anything ever?” Mr.
Lewer responded, “No.” (H. Lewer Depo. at 34.)

7

II.

STANDARD OF REVIEW

The well-established standard in consideration of a motion for summary judgment is that
“[t]he court shall grant summary judgment if the movant 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)–(c); see also Hunt v. Cromartie, 526 U.S. 541, 549 (1999); Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Hoschar v.
Appalachian Power Co., 739 F.3d 163, 169 (4th Cir. 2014). A “material fact” is a fact that could
affect the outcome of the case. Anderson, 477 U.S. at 248; News & Observer Publ’g Co. v.
Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010). A “genuine issue” concerning
a material fact exists when the evidence is sufficient to allow a reasonable jury to return a verdict in
the nonmoving party’s favor. FDIC v. Cashion, 720 F.3d 169, 180 (4th Cir. 2013); News &
Observer, 597 F.3d at 576.
The moving party bears the burden of showing that there is no genuine issue of material
fact, and that it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp.,
477 U.S. at 322–23. When determining whether summary judgment is appropriate, a court must
view all of the factual evidence, and any reasonable inferences to be drawn therefrom, in the light
most favorable to the nonmoving party. Hoschar, 739 F.3d at 169. However, the non-moving
party must offer some “concrete evidence from which a reasonable juror could return a verdict in
his favor.” Anderson, 477 U.S. at 256. “At the summary judgment stage, the non-moving party
must come forward with more than ‘mere speculation or the building of one inference upon
another’ to resist dismissal of the action.” Perry v. Kappos, No.11-1476, 2012 WL 2130908, at

8

*3 (4th Cir. June 13, 2012) (unpublished decision) (quoting Beale v. Hardy, 769 F.2d 213, 214 (4th
Cir. 1985)).
In considering a motion for summary judgment, the court will not “weigh the evidence and
determine the truth of the matter,” Anderson, 477 U.S. at 249, nor will it make determinations of
credibility. N. Am. Precast, Inc. v. Gen. Cas. Co. of Wis., 2008 WL 906334, *3 (S.D. W. Va. Mar.
31, 2008) (Copenhaver, J.) (citing Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir. 1986). If
disputes over a material fact exist that “can be resolved only by a finder of fact because they may
reasonably be resolved in favor of either party,” summary judgment is inappropriate. Anderson,
477 U.S. at 250. If, however, the nonmoving party “fails to make a showing sufficient to establish
the existence of an element essential to that party’s case,” then summary judgment should be
granted because “a complete failure of proof concerning an essential element . . . necessarily
renders all other facts immaterial.” Celotex, 477 U.S. at 322–23.
When presented with motions for summary judgment from both parties, courts apply the
same standard of review. Tastee Treats, Inc. v. U.S. Fid. & Guar. Co., 2008 WL 2836701 (S.D.
W. Va. July 21, 2008) (Johnston, J.) aff'd, 474 F. App'x 101 (4th Cir. 2012). Courts “must review
each motion separately on its own merits to determine whether either of the parties deserves
judgment as a matter of law,” resolving factual disputes and drawing inferences for the
non-moving party as to each motion. Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)
(internal quotation marks and citations omitted); see also Monumental Paving & Excavating, Inc.
v. Pennsylvania Manufacturers' Ass'n Ins. Co., 176 F.3d 794, 797 (4th Cir. 1999).

9

III.

DISCUSSION

The Plaintiffs request partial summary judgment as to Count I, seeking declaratory
judgment that no loan contract exists, and Count II, alleging violation of the Truth in Lending Act.
The Defendant seeks summary judgment as to all counts.
A. Declaratory Judgment
The Uniform Declaratory Judgments Act imbues courts with the “power to declare rights,
status and other legal relations whether or not further relief is or could be claimed.” W. Va. Code
Ann. § 55-13-1 (West). In this case, the parties agree that the Spradlins’ life insurance policies
are at risk of lapsing due to the accruing loan interest, and that AXA Equitable will foreclose the
policies if the loans exceed the account values. The dispute centers on whether the 1989
transactions were properly classified as loans or withdrawals. Accordingly, declaratory judgment
is an appropriate form of relief.
i.

Requirement of Written Contract

As an initial matter, the Plaintiffs claim that, as a matter of law, there can be no valid loan
contract without a writing. They argue that (1) the Statute of Frauds requires a writing for this
contract to be enforceable and (2) West Virginia Code §§ 33-13-8 and 33-13-8a, governing loans
on life insurance policies, require a writing and notification of the initial interest rate at the time of
the loan. AXA Equitable argues that the Plaintiffs are not entitled to declaratory judgment
because the “policy terms govern the policy loan and the interest rate,” and so no separate writing
is required. (Def.’s Mem. in Supp. of Mot. Summ. J. at 7–8.) Further, the annual statements
“fully disclos[ed] the policy loans.” (Def.’s Resp. at 5.) It responds to the Plaintiffs’ argument

10

that a separate writing is required by invoking the exception to the statute of frauds for contracts
that could be completed within one year.
The Court finds that the Defendant failed to comply with West Virginia law regarding
loans on insurance policies. West Virginia Code § 33-13-8a requires life insurance companies
making loans to “notify the policyholder at the time a cash loan is made of the initial rate of interest
on the loan” and to “include in the notices” certain other provisions regulating interest rates.
W.Va. Code § 33-13-8a(f). The language of the statute clearly contemplates a mailed notice.
There is no evidence that the Defendant mailed any such notice.8 Indeed, the Defendant contends
that no writing is required.
The Plaintiffs contend that an insurance policy loan, by law, must be in writing, and that
the alleged loans on their policies are, therefore, unenforceable. The Court finds that the Statute
of Frauds is not applicable here because the alleged loan contract could be performed within one
year, either by repayment of the loan or by the death of the insured. However, another provision
of the statute regulating life insurance, West Virginia Code § 33-13-8(a), provides:
There shall be a provision that after the policy has a cash surrender
value and while no premium is in default beyond the grace period
for payment, the insurer will advance, on proper assignment of
pledge of the policy and on the sole security thereof, at a specified
rate of interest not exceeding eight percent per annum, or seven and
four-tenths percent per annum if payable annually in advance, an
amount equal to or, at the option of the party entitled thereto, less
than the loan value of the policy.
Id. § 33-13-8(a). The statute does not explicitly require written loan contracts, but appears to
contemplate greater formality than a telephone call with no written documentation.

The

Plaintiffs’ interpretation that written contracts are required, based on case law defining the
8 The annual statements include the loans, but those issued prior to at least 1998 do not include the loan interest rate,
and so could not be read to fulfill the company’s obligations pursuant to § 33-13-8a.

11

terminology contained in the provision in other contexts, is reasonable. Like the provision
requiring notice of interest rates, it places duties on the insurer at the time the loan is made, not
merely at the time the policy is issued. The policy is to have provisions for loans, but the loan is to
be advanced “on proper assignment of pledge of the policy.”
West Virginia Code, Title 33, Chapter 13, does not contain an enforcement provision, and
there is no case law interpreting either relevant provision (though both were in place well before
the 1989 transactions at issue here). In this case, there is a great deal of dispute regarding whether
a policy loan exists under basic contract principles. If there is no evidence that a loan contract
was formed, then the statute regulating policy loans has no bearing on this case. The impact of
these provisions on an otherwise valid and enforceable policy loan is not clear. This Court need
not interpret and devise a remedy for violation of the statute absent a finding that the alleged policy
loans would otherwise be enforceable.
ii.

Contract Formation

Turning to the parties’ arguments regarding the existence of a policy loan contract, the
Plaintiffs assert that “the burden of proving the existence of a contract is generally on the party
asserting it.” (Pl.s’ Mem. in Supp. of Mot. Summ. J. at 14.) They claim that the Defendant
cannot meet that burden because it has no documentation of the alleged loan and no witnesses with
any knowledge or memory of the transaction. As to Mr. Spradlin in particular, they assert that the
evidence suggests no involvement or authorization from him as owner of the policy.
In the Plaintiffs’ version of the facts, “Nancy called the local AXA agent…and informed
him that she wanted to withdraw money from each of the Plaintiffs’ accounts.” (Id. at 5.) They
obtained the money and gave no further thought to the transactions until AXA Equitable Agent

12

Justin Kerns informed them that the transactions had been classified as loans and accrued interest
since 1989. Neither Plaintiff knew about or authorized the $1,511 loan from Mr. Spradlin’s
policy. Dr. Spradlin had requested withdrawals of $15,000 from her own policy and about
$19,800 from Mr. Spradlin’s policy, but knew nothing about loans or interest rates, and Mr.
Spradlin had not authorized the withdrawal or loan on the policy he owned. The only documents
they received at the time were the checks. Unaware of the loans, they paid no special attention to
the annual statements. Dr. Spradlin briefly reviewed them and Mr. Spradlin did not look at them.
They continued paying their premiums each month and had little contact with AXA Equitable after
their agent retired in 1995.
AXA Equitable argues that “the central issue in this dispute” is that the “Plaintiffs had
notice and knowledge of the policy loans, received the benefit of the money loaned to them, and
chose to ignore over twenty annual statements specifying the principal and interest accrued on
their loans.” (Def.’s Resp. at 1–2.) It asserts that any documentation generated at the time the
alleged loan was made would have been destroyed after seven years, but the documentation of the
loans “is preserved and maintained in the Annual Reports.” (Id. at 5.) In sum, it argues that
“there are valid life insurance policies; Plaintiffs do not dispute that they received money from the
life insurance policies…; and Plaintiffs received annual statements evidencing the policy loans for
more than twenty years.” (Id. at 7.)
The Defendant contends that Dr. Spradlin discussed taking out a policy loan with Mr.
Holbrook, their local agent, and learned that policy loan interest rates were favorable in
comparison to bank interest rates at the time. He recommended a loan rather than a withdrawal
because a withdrawal would have reduced the policy values. AXA Equitable speculates that she

13

then contacted AXA Equitable directly to obtain the loans, which were issued in accordance with
company policies and procedures. Also relying on company procedures, it argues that Mr.
Spradlin must have authorized Dr. Spradlin to take the money from his policy. The company
mailed the check, and the Spradlins received and used the money to purchase a condo at Myrtle
Beach. AXA Equitable mailed annual statements each year, showing the loans with increasing
balances, and the Spradlins failed to pay either the principal or accumulating interest. Though
agents were available locally, neither of the Plaintiffs contacted AXA Equitable to complain about
the characterization of the transactions until 2010.
The Defendant is correct that the policies themselves contain terms relevant to both policy
loans and cash withdrawals. However, this dispute is not primarily about the terms.9 It is about
which transaction took place. It is undisputed that the Spradlins obtained and used money from
their insurance policy accounts—but the policies permitted clients to obtain such funds via either a
policy loan or a partial cash withdrawal. AXA Equitable permits loans below a certain amount10
to be made by verbal request, and any documentation related to the Spradlins’ request no longer
exists. Thus, the Court must consider whether genuine issues of material fact exist as to whether
a valid contract for a loan was formed.
State law governs contract formation.

West Virginia law requires an offer and

acceptance, with a meeting of the minds as to what the contract entails. Nichols v. Springleaf
Home Equity Inc., 2012 WL 777289 at *3 (S. D. W. Va. Mar. 8, 2012) (Chambers, C.J.) (citing

9 The Plaintiffs do argue that the interest rate charged on loaned funds does not comply with West Virginia law
because it was not properly supported with evidence of advantages to consumers for approval by the insurance
commissioner. That argument is addressed in footnote 12. However, they seek a declaration simply that there was
no loan, and accordingly, no interest.
10 The dollar amount has changed over the years. AXA Equitable has not produced evidence of the dollar limit in
place in 1989.

14

Brown v. Woody, 127 S.E. 325, 326–27 (W.Va. 1925)); see also Charbonnages de France v.
Smith, 597 F.2d 406, 417 (4th Cir. 1979)(discussion methods of proof of manifestation of mutual
assent).

“West Virginia contract law requires mutual assent to form a valid contract.” New v.

GameStop, Inc., 753 S.E.2d 62, 70 (W. Va. 2013); Bailey v. Sewell Coal Co., 437 S.E.2d 448,
450-51 (W. Va. 1993). Though no directly on-point West Virginia law so states, it is a generally
accepted rule that “[t]he party asserting the existence of an enforceable contract bears the burden
of proof on the issue of contract formation.” Novecon Ltd. v. Bulgarian-Am. Enter. Fund, 190
F.3d 556, 564 (D.C. Cir. 1999); see also Doe v. United States, 95 Fed. Cl. 546, 582 (Fed. Cl. 2010);
TruePosition, Inc. v. LM Ericsson Tel. Co., 977 F. Supp. 2d 462, 467 (E.D. Pa. 2013); In re
Oakley, 397 B.R. 36, 44 (Bankr. S.D. Ohio 2008) aff'd sub nom. In re Oakely, 431 B.R. 307
(B.A.P. 6th Cir. 2009) (noting that authority is split as to whether the proponent of a contract must
prove its existence by a preponderance of the evidence or by clear and convincing evidence.)
A written contract signed by both parties would, of course, be strong evidence that a valid
contract was formed. The parties’ actions after the fact are relevant, and can sometimes be
sufficient to demonstrate that a valid contract was formed. Nichols, 2012 WL 777289 at *4
(detailing the plaintiff’s use of loan funds, loan payments, and affirmance of the loan to find a
contract, including arbitration clause, valid). However, an affirmative statement or action is
required to demonstrate acceptance of a contract; silence alone cannot prove either acceptance or
ratification of an offered contract. See, e.g., Harbert/Lummus Agrifuels Projects v. United States,
142 F.3d 1429, 1434 (Fed. Cir. 1998). One party’s failure to read or understand the terms of an
otherwise valid contract, in the absence of exceptional circumstances such as fraud or concealment

15

of the terms, does not invalidate the contract or excuse performance. See Sedlock v. Moyle, 668
S.E.2d 176, 180–81 (W. Va. 2008).
In the present case, there is no written contract evidencing either a loan or a cash
withdrawal. The Defendant contends that there was a meeting of the minds based on its factual
scenario in which Dr. Spradlin, duly authorized by Mr. Spradlin, called and expressly requested a
loan, thereby accepting the offer according to the terms built into the policies. However, little
evidence supports the Defendant’s version of the facts. Mr. Holbrook stated that he believes his
conversation with Dr. Spradlin centered on policy loans, but stressed that his recollection was
weak. Even fully crediting his statements, his recollection is only to a conversation prior to the
transactions. He indicated that he could not recall any involvement in processing the transactions,
and indeed became aware of them only when Mr. Spradlin contacted him in 2011 or 2012.
(Holbrook Depo. at 17.) Both Plaintiffs vigorously deny requesting or authorizing a loan.
Though they accepted and used the money, the Spradlins did nothing to affirm acceptance of a
loan, as opposed to a cash withdrawal.
The Defendant places a great deal of reliance on the annual statements’ reference to the
alleged loans and on the policy language setting forth the terms of loans. Simply failing to object
to a statement received in the mail is not enough to create a loan contract. Making interest
payments on the loan, for example, would be strong evidence of acceptance or affirmation of the
loan. There is no evidence here that AXA Equitable mailed annual billed loan interest statements
to the Spradlins, much less evidence of interest payments by the Spradlins. Given the statements
from Mr. Lewer and the customer service letters stating that annual billed loan interest notices
would be mailed to all clients with policy loans, the absence of such notices here casts doubt on

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both the existence of a loan and on the consistency of AXA Equitable’s procedures. AXA
Equitable contends that Mr. Spradlin must have authorized the loan because its procedures ensure
that such authority exists before a third party may take out a loan. Even if the Court were to
accept that the procedures in place are foolproof when followed, AXA Equitable provides no
evidence that its procedures were followed in this instance. AXA Equitable explains the lack of
documentation and evidence in part by suggesting that documentation was created, but destroyed
after seven (7) years pursuant to its document retention policy. (Def.’s Resp. at 5.) That
explanation does little to assist the Defendant in meeting its burden. AXA Equitable controlled
what documentation was created at the time of the transaction, and it controlled the decision to
destroy any such documentation despite claimed open, unpaid policy loans on the Spradlins’
accounts.
As the party asserting the existence of an enforceable loan contract, AXA Equitable has the
burden of proof as to contract formation. Viewing all facts and inferences in the light most
favorable to AXA Equitable, the Court finds that it has produced no evidence that would permit a
reasonable jury to conclude that a valid policy loan contract was formed. To defeat a motion for
summary judgment, the non-moving party must come forward with “concrete evidence from
which a reasonable juror could return a verdict in his favor.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 256 (1986). The non-moving party cannot meet that burden “through mere speculation
or the building of one inference upon another.” Beale v. Hardy, 769 F.2d 213, 214 (4th Cir.
1985).
AXA Equitable’s evidence with respect to the mutual assent or “meeting of the minds”
required to form a valid contract amounts to no more than a pyramid of speculation and inferences

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with no factual basis. It asks us to infer from Mr. Holbrook’s recollection of discussing policy
loans with Dr. Spradlin that she then sought out a loan, rather than a cash withdrawal. With no
evidence, no record, and no witness to the actual transaction, it asks us to speculate that the
Spradlins called AXA Equitable’s customer service center, that Mr. Spradlin authorized Dr.
Spradlin to take out a loan on his policy, and that Dr. Spradlin requested policy loans on the policy
she owned as well as on Mr. Spradlin’s policy. It asks us to speculate that the checks mailed to
the Spradlins resulted from a request for a loan, rather than a request for a cash withdrawal.
Finally, it asks that we infer from the Spradlins’ failure to object to their policy statements that they
had requested policy loans. If policy loans were the only method of obtaining money from an
insurance policy, the acceptance of the checks would constitute sufficient evidence to permit an
inference that a loan was taken. However, we are faced with the question of whether the
Spradlins requested a policy loan as opposed to a partial cash withdrawal. Given that either
transaction would result in distribution of money, no reasonable jury could draw any inference at
all from the Spradlins’ acceptance of the checks. AXA Equitable has produced no evidence of a
meeting of the minds, or of any affirmative statement or act by the Spradlins that would support a
finding that they accepted the policy loans offered in their policies. Thus, no reasonable jury
could find that a valid contract was formed, and summary judgment as to Count I must be granted
to the Plaintiffs.
B. Truth in Lending Act (TILA) and West Virginia Consumer Credit and Protection Act
(WVCCPA)
The Truth in Lending Act (TILA) regulates lenders extending credit to consumers. The
West Virginia Consumer Credit and Protection Act (WVCCPA) applies to West Virginia
consumers entering into loan or other credit agreements. W.Va. Code § 46-1-104. Both statutes
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are applicable only to extensions of credit. While the parties have presented extensive argument
regarding potential applicability to policy loans, neither party contends that these statutes have any
bearing on cash withdrawals. Given the Court’s finding that the Plaintiffs are entitled to summary
judgment on their declaratory judgment action, the transactions at issue were not loans. Counts II
and IV are therefore moot, as are the motions for summary judgment related to those counts.
C. Unfair Trade Practices11
The Defendant asserts that it is entitled to summary judgment as to the Plaintiffs’
allegations that the alleged policy loans violated West Virginia law and constitute unfair and
deceptive trade practices in violation of the West Virginia Unfair Trade Practices Act (WVUTPA).
The Plaintiffs allege that AXA Equitable charges an unlawful interest rate, mischaracterized
partial withdrawals as loans, and failed to send them required notices. The Defendant argues that
the terms, including interest rates, of the alleged loans were contained in the policies and approved
by the West Virginia Insurance Commissioner.

Any misunderstanding, according to the

Defendant, arose from the Plaintiffs’ own failure to read and understand their policies and annual
statements. Further, it asserts that the Plaintiffs’ WVUTPA claims are barred by a one-year
statute of limitations. It asserts that the statute began to run when the loans were taken in 1989.
If not then, the annual statements sent each year beginning in 1989 disclosed the loans. At the
latest, the Defendant argues that the Plaintiffs began discussing the loans with an insurance agent
in 2009 or 2010, starting the statute of limitations.

11 The Plaintiffs’ allegations and arguments with respect to the remaining counts are largely premised on the
treatment of the transactions as loans. However, at least portions of the allegations and asserted damages have some
basis in AXA Equitable’s conduct, rather than the status of the transactions, and are not fully resolved by the
declaratory judgment ruling.

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The Plaintiffs argue that the statute of limitations did not begin to run until “the confirmed
date of the first contact between Plaintiffs’ counsel and Defendant, which was October 16, 2012.”
(Pl.s’ Resp. at 11.) They assert that the doctrine of fraudulent concealment applies because the
loans were issued without verifying them with the policy owners. Though they learned of the
loans and their potential impact in 2009 or 2010, they assert that they initially believed that their
agent was at fault. They claim that they had no information that AXA Equitable had caused the
harm until fall of 2012, when they learned that the company permitted loans to be made based on
an unverified telephone call.
The WVUTPA is designed to “regulate trade practices in the business of insurance.” W.
Va. Code § 33-11-1. The West Virginia Supreme Court held that “claims involving unfair
settlement practices that arise under the Unfair Trade Practices Act…are governed by the one-year
statute of limitations set forth in West Virginia Code § 55-2-12(c) (1994).” Syl. Pt. 1, Wilt v. State
Auto. Mut. Ins. Co., 506 S.E.2d 608, 608 (W.Va. 1998).
As discussed in detail in Section III.A, there are factual disputes as to the initial transaction
and AXA Equitable’s subsequent behavior. While those factual disputes were not material as to
Count I, given the dearth of evidence that a valid contract for a policy loan was formed, they are
material with respect to the question of whether AXA Equitable engaged in unfair trade practices.
As discussed in Section III.A.i, the facts support the Spradlins’ contention that AXA Equitable did
not follow state law with respect to policy loans.12 Whether it deliberately mischaracterized the

12 The parties dedicate a considerable amount of argument to the question of whether W.Va. Code § 33-13-8(d)
permits interest rates of 8% on policy loans absent additional “assurances” from the insurer. That issue is not
dispositive as to any claim, but the Court finds that the provision that “the insurance commission shall require the
insurer to furnish such assurances as he deems necessary” does not impose an obligation on the insurance company
apart from complying with any requests for information by the insurance commissioner. The approval of rates is the
province of the insurance commissioner.

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transactions as loans and concealed the interest rate by failing to mail notices at the time of the loan
and interest billing statements thereafter is a question of fact.
However, the Court finds that the Plaintiffs’ case was filed outside the one-year statute of
limitations. Given the Plaintiffs’ allegations and the Court’s findings above, the statute of
limitations did not begin to run on the date of the transactions, as there is no evidence that the
Spradlins could have known AXA Equitable had treated the transactions as loans. The annual
statements up to at least 1998 provide scant information about the alleged loans, and a jury could
find that a reasonable person would not be aware of the loans based on those documents.
However, Mr. Spradlin learned that the policies were in danger of lapsing in 2009 or 2010, and
received a letter stating the Defendant’s position as to the asserted loans in May 2010. That
knowledge triggered the one-year statute of limitations. More investigation was undoubtedly
needed before he could initiate this suit, but statutes of limitations are designed to permit
investigation to take place between an event and the initiation of a lawsuit. The Spradlins may not
have understood the legal ramifications of the policy loans until they retained counsel, but they
knew that AXA Equitable classified the transactions as loans in 2010 at the latest. At that time,
they knew that they had not requested loans or received paperwork or documentation other than
the annual statements. Thus, they had the information necessary to start the running of the statute
of limitations no later than 2010. Therefore, the statute of limitations bars Count III and the
Defendant’s motion for summary judgment as to that count must be granted.
D. Fraud
The Plaintiffs allege that AXA Equitable misrepresented and concealed the nature of the
transactions and the accrual of interest on the alleged loans. The Defendant argues that the

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Plaintiffs have no evidence supporting the allegation of misrepresentation or concealment. It
further asserts that the two-year statute of limitations bars the fraud claim. The Plaintiffs respond
that the characterization of the transactions as loans, with no direct contact for many years,
constitutes fraud. They rest on the same arguments presented for the WVUTPA claim with
respect to the statute of limitations.
Although the Plaintiffs’ evidence of fraud is thin, a jury could draw the inference that AXA
Equitable deliberately misled them by processing a partial cash withdrawal request as a loan
request, then failing to send them required documentation. However, for the reasons stated in
Section III.C, the statute of limitations bars the Plaintiffs’ fraud claims. The Plaintiffs cannot
point to any specific evidence that was unavailable to them prior to October 2012, when they assert
the statute should begin to run. Even if the annual statements did not constitute sufficient notice,
Mr. Kerns’ 2009 or 2010 conversation with Mr. Spradlin, notifying him of the risk that the policies
would lapse due to the loans taken in 1989, provided knowledge of the basic facts supporting the
fraud allegations. Thus, the Defendant’s motion for summary judgment as to Count V must be
granted.
E. Breach of Fiduciary Duty
Finally, the Plaintiffs allege that the trust they placed in their insurance agent at the time of
the transaction, Mr. Holbrook, created a fiduciary relationship between AXA Equitable and the
Spradlins.

The Defendant asserts that West Virginia law does not recognize a fiduciary

relationship between insurers and insureds. Further, it again argues that the two-year statute of
limitations bars the Plaintiffs’ claim of breach of fiduciary duty. The Plaintiffs respond that their
close personal relationship with Mr. Holbrook created a fiduciary relationship, and incorporate
their arguments with respect to the statute of limitations on the previous counts.
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A fiduciary duty is “a duty to act for someone else’s benefit, while subordinating one’s
personal interests to that of the other person.” Manor Care, Inc. v. Douglas, 2014 WL 2835831,
at *16 (W. Va. June 18, 2014) (internal quotation marks, brackets, and citations omitted). Such a
relationship “is established only when it is shown that the confidence reposed by one person was
actually accepted by the other, and merely reposing confidence in another may not, of itself, create
the relationship.”

Id. (quoting 36A C.J.S. Fiduciary, p. 385 (1961)); see also Cather v.

Seneca-Upshur Petroleum, Inc., 2010 WL 3271965, at *5(N.D.W. Va. Aug. 18, 2010) (noting that
a fiduciary duty “is to be imposed only upon one who has agreed to support another’s interests
above his own”). The West Virginia Supreme Court “has never recognized the relationship
between an insurer and its insured” as a fiduciary relationship. Elmore v. State Farm Mut. Auto.
Ins. Co., 504 S.E.2d 893, 900 (W. Va. 1998) (emphasis omitted) (holding that an insurer and
third-party claimant did not have a fiduciary relationship).
The Spradlins assert that they placed a great deal of trust in Mr. Holbrook. He was their
friend as well as their insurance agent, and the policies were too complex for them to understand or
manage without his assistance. (Pl.s’ Resp. at 19–20.) There is no evidence, however, that Mr.
Holbrook or AXA Equitable accepted that trust or agreed to support the Spradlins’ interests above
the company’s interests. Thus, the Plaintiffs have not met their burden of producing evidence to
demonstrate a genuine question of material fact that would permit a jury to decide that there was a
fiduciary relationship.
Further, as discussed in detail in Section III.C, the statute of limitations began to run no
later than 2010, when the Spradlins learned from Mr. Kerns that their policies were in danger of

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lapsing due to the 1989 transactions classified by AXA Equitable as loans. Accordingly, the
Defendant is entitled to summary judgment as to Count VI of the complaint.
CONCLUSION
WHEREFORE, following careful consideration, for the reasons stated herein, the Court
hereby ORDERS that the Plaintiffs’ Motion for Partial Summary Judgment (Document 49) be
GRANTED as to Count I, and that the Defendant AXA Equitable Life Insurance Company’s
Motion for Summary Judgment (Document 51) be DENIED as to Count I. The Court further
ORDERS that the Plaintiffs’ Motion as to Count II and the Defendant’s Motion as to Counts II and
IV be DENIED AS MOOT, and that the Defendant’s Motion as to Counts III, V, and VI be
GRANTED. Finally, the Court ORDERS that any outstanding motions be TERMINATED AS
MOOT.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record, to any
unrepresented party, and to Magistrate Judge Cheryl Eifert.

ENTER:

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October 22, 2014