U.S. Bank National Association v. Sun Life Assurance Company of Canada
Filing
103
ORDER denying 65 Motion for Judgment on the Pleadings by Defendant Sun Life Assurance Company of Canada. Signed by District Judge William M. Conley on 10/28/2015. (voc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
U.S. BANK NATIONAL ASSOCIATION,
Plaintiff,
OPINION AND ORDER
v.
SUN LIFE ASSURANCE COMPANY OF
CANADA,
14-cv-562-wmc
Defendant.
In this civil action, plaintiff U.S. Bank National Association alleged that defendant
Sun Life Assurance Company of Canada breached the terms of a life insurance policy by
failing to pay a $6,000,000 death benefit. The court previously granted U.S. Bank’s
motion for partial judgment on its breach of contract claim and on Sun Life’s
counterclaims. (Dkt. #55.) As such, the only issues remaining in this case are U.S.
Bank’s claims for bad faith and 12% statutory interest. On those claims, Sun Life has
now moved for judgment on the pleadings, principally arguing that: (1) at the time U.S.
Bank filed suit, Sun Life was still investigating in good faith U.S. Bank’s claim; and (2)
Sun Life’s legal position -- in other words, the reason why it was investigating the claim
in the first instance -- was not objectively unreasonable. For the reasons that follow, the
court will deny Sun Life’s motion with respect to both arguments.
Indeed, finding
instead that Sun Life’s denial of coverage was not objectively reasonable under Wisconsin
law, the court will grant partial judgment to U.S. Bank on (1) the objective prong of its
bad faith claim and (2) its statutory interest claim.
BACKGROUND1
On May 30, 2014, U.S. Bank submitted claim forms to Sun Life. Subsequent to
that submission, U.S Bank repeatedly requested that Sun Life honor its policy and
provide payment. Sun Life continued to refuse to pay, although it never formally denied
coverage.
On July 21, 2014, Sun Life sent U.S. Bank a letter stating: “We are currently in
the
process
of
determination.”
obtaining
additional
information
(Compl. (dkt. #1) ¶ 27.)
needed
to
make
the
claim
When U.S. Bank followed up, Sun Life,
through its counsel, demanded information from U.S. Bank regarding the original
procurement of the Policy, some seven years earlier. (Id. at ¶ 28.)
On August 13, 2014, over a month after the payment under the Policy became
overdue, U.S. Bank filed the present lawsuit, alleging that Sun Life’s supposed need for
further inquiry is premised on a defense to coverage that is untimely on its face both
under the terms of its own Policy and Wisconsin law. (Id. at ¶¶ 28-30.) To the extent
Sun Life’s demand for additional information was intended to investigate a potential lack
of insurable interest, U.S. Bank also alleges that the demands were unreasonable under
Wis. Stat. § 631.07(4). (Id. at ¶¶ 32-33.)
1
In its prior opinion granting judgment on U.S. Bank’s breach of contract claim, the
court set forth facts relevant to U.S. Bank’s breach of contract claim. Rather than repeat
those facts here, the court will simply set forth additional allegations of fact most
pertinent to U.S. Bank’s bad faith and statutory interest claims.
2
OPINION
A motion for judgment on the pleadings under Rule 12(c) is reviewed under the
same standard as Rule 12(b)(6), except that the court considers not only the complaint
and referenced documents, but all pleadings, as well as documents that are incorporated
into any pleading by reference. Buchanan-Moore v. City of Milwaukee, 570 F.3d 824, 827
(7th Cir. 2009); United States v. Wood, 925 F.2d 1580, 1582 (7th Cir. 1991).
To
succeed, “the moving party must demonstrate that there are no material issues of fact to
be resolved,” even with the court viewing all facts in the light most favorable to the
nonmoving party. N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 452
(7th Cir. 1998). While the non-moving party’s factual allegations are generally accepted
as true in response to a 12(c) motion, “allegations in the form of legal conclusions are
insufficient to survive.” Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014)
(citing McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012)).
Under Wisconsin law, a bad faith claim in the insurance context “is a tort separate
and apart from a breach of contract per se,” giving rise to a separate claim for damages.
Anderson v. Cont’l Ins. Co., 85 Wis. 2d 675, 686, 271 N.W.2d 368, 374 (1978). “A
plaintiff bringing such a claim must show two things: the absence of a reasonable basis
for denying benefits of the policy and the defendant’s knowledge or reckless disregard of
the lack of a reasonable basis for denying the claim.” Advance Cable Co., LLC v. Cincinnati
Ins. Co., 788 F.3d 743, 748 (7th Cir. 2015) (quoting Brethorst v. Allstate Prop. & Cas. Ins.
Co., 334 Wis. 2d 23, 798 N.W.2d 467, 474 (2011); Anderson v. Cont'l Ins. Co., 271
N.W.2d at 376 (1978) (quotation marks omitted)). The first element is objective; the
3
second is subjective. See Advance Cable, 788 F.3d at 748 (citing Weiss v. United Fire &
Cas. Co., 197 Wis. 2d 365, 541 N.W.2d 753, 757 (1995)).
The focus of Sun Life’s motion for judgment on the pleadings is on the objective
element, which tests “whether the insurer properly investigated the claim and whether
the results of the investigation were subject to a reasonable evaluation and review.” Id.
(citing Brown v. Labor & Indus. Review Comm’n, 267 Wis. 2d 31, 671 N.W.2d 279, 287-88
(2003)). Since Sun Life delayed processing U.S. Bank’s claim forms, rather than outright
denying it, U.S. Bank’s assertion of bad faith turns on whether Sun Life had a
“reasonable basis” for failing to pay timely. See, e.g., Poling v. Wis. Physicians Serv., 120
Wis. 2d 603, 608, 357 N.W.2d 293, 297 (Ct. App. 1984); A.W. Huss Co. v. Cont’l Cas.
Co., 560 F. Supp. 513, 514 (E.D. Wis. 1983) aff’d, 735 F.2d 246 (7th Cir. 1984); see also
Trinity Evangelical Lutheran Church & Sch.-Freistadt v. Tower Ins. Co., 2003 WI 46, ¶ 33,
261 Wis. 2d 333, 347, 661 N.W.2d 789, 795 (“Absence of a reasonable basis for
denying a claim exists when the claim is not ‘fairly debatable.’”).
Plaintiff’s statutory interest claim turns on a very similar standard. Wisconsin
Statute § 628.46 provides in pertinent part:
Unless otherwise provided by law, an insurer shall promptly
pay every insurance claim. A claim shall be overdue if not
paid within 30 days after the insurer is furnished written
notice of the fact of a covered loss and of the amount of the
loss. . . . Any part or all of the remainder of the claim that is
subsequently supported by written notice is overdue if not
paid within 30 days after written notice is furnished to the
insurer. Any payment shall not be deemed overdue when the
insurer has reasonable proof to establish that the insurer is
not responsible for the payment, notwithstanding that
written notice has been furnished to the insurer. . . . All
4
overdue payments shall bear simple interest at the rate of
12% per year.
The statute provides an exception where an insurer has “reasonable proof to establish
that [it] is not responsible for the payment,” which courts have interpreted to mean that
the insurer had a “fairly debatable” basis for failing to pay the claim in question. See, e.g.,
Miller v. Safeco Ins. Co. of Am., 761 F. Supp. 2d 813, 835 (E.D. Wis. 2010), amended (Mar.
11, 2011), aff’d, 683 F.3d 805 (7th Cir. 2012).
Here, Sun Life posits two basic reasons for delaying payment of the insurance
proceeds.
First, Sun Life contends that its delay was not because of ill will or
vindictiveness, but rather was due to an obligation to complete its investigation of U.S.
Bank’s claim.
In constructing this argument, Sun Life implies that it was actually
required to conduct an investigation in order to act in good faith.
Wisconsin law,
however, does not mandate an investigation in order to issue a payment under a policy.
Rather, it is the denial of coverage that
must be based on a knowledge of the facts and circumstances
upon which liability is predicated. The lack of reasonable
diligence and the insurer’s refusal to determine the nature
and extent of the liability evidenced bad faith.
Anderson, 85 Wis. 2d at 688, 271 N.W.2d at 375.2 Even if this were not so, the fact that
Sun Life has still not paid out on its Policy, even after an adjudication by this court,
2
Sun Life also argues that its investigation was warranted for purposes of complying with the
insurable interest statute. Sun Life’s argument is based on a strained reading of Wis. Stat.
§ 631.07(4), which provides in pertinent part that “a court with appropriate jurisdiction may
order the proceeds to be paid to someone other than the person to whom the policy is designated
to be payable.” This statute does not, however, open the door to a fishing expedition on the part
of an insurer; rather, it simply provides the option for a court to direct payment elsewhere if a
third-party comes forward with a claim. Even absent this statutory provision, the availability of
interpleader under Federal Rule of Civil Procedure 22 provides the same protection for insurers
5
renders its general excuse as to the need for a period of investigation objectively
unreasonable.
In its reply brief, Sun Life concedes as much by focusing instead on its claimed
second reason for delaying payment past the thirty days required by statute -- that
additional discovery was warranted before Sun Life could decide whether to recommend
honoring U.S. Bank’s application for payment given the interplay between Wis. Stat.
§ 899.055 and § 631.07(4). Indeed, counsel for Sun Life emphasizes that this was an
issue of first impression in Wisconsin. In further support, Sun Life directs the court to
cases from other jurisdictions.3
In response, U.S. Bank argues that whether this issue was one of first impression is
of no import where the statute foreclosing the insurer’s defense of coverage is
unambiguous, as is the case here. See Bosco v. Labor & Indus. Review Comm’n, 2004 WI 77,
¶ 62, 272 Wis. 2d 586, 681 N.W.2d 157 (“We conclude that § 102.23(5)
unambiguously requires an employer to make payment . . . . Therefore, we hold that
Shelby’s interpretation of § 102.23(5) is not reasonable or fairly debatable as a matter of
law[.]”). Relying on this court’s prior opinion, U.S. Bank also points out that Wis. Stat.
§ 631.07(4) states “the disavowal of a lack of ‘insurable interest’ as a basis for invalidity
is certainly broad enough to encompass the wagering policy defense.” And to the extent
presented with competing claims. See also Wis. Stat. § 632.48(2) (protecting insurer from risk of
double liability where it “discharges its obligation under the insurance policy or certificate of
insurance if it pays a properly designated beneficiary”).
3
Any discussion of these cases was notably absent from its briefing on the prior motion for
judgment on the pleadings, perhaps out of recognition that the coverage determination here turns
on Wisconsin statutory provisions, making the relevance of caselaw from other jurisdictions of
questionable relevance at best, at least absent some ambiguity in the language of the applicable
statutes. (See Pl.’s Opp’n (dkt. #74) 20.)
6
this language left open any room for debate, U.S. Bank contends, the legislative comment
to the statute removes all doubt. (Pl.’s Opp’n (dkt. #74) 15.) Finally, U.S. Bank argues,
“the fact that no life insurer has raised Sun Life’s ‘wagering contract’ defense in the 40
years since Section 631.07(4) was enacted (thus making it a ‘matter of first impression’)
demonstrates that the position advanced by Sun Life was not ‘fairly debatable.” (Pl.’s
Opp’n (dkt. #74) 18.) For all these reasons, the court agrees with U.S. Bank.
To the extent Sun Life seeks to challenge the validity of the policy at issue based
on possible misrepresentations made in the application -- the basis Sun Life posited in its
initial, pre-suit request for documentation from U.S. Bank -- its position fares no better.
Indeed, as U.S. Bank persuasively argues, this theory is objectively unreasonable because
it is time-barred by Wisconsin law. Wisconsin Statute § 632.46 provides in pertinent
part: “no individual life insurance policy may be contested after it has been in force from
the date of issue for 2 years during the lifetime of the person whose life is at risk.” Sun
Life fails to address this argument, instead resting on its assertion that the Policy was a
wagering contract or otherwise lacking of an insurable interest was not objectively
unreasonable.4
4
For the first time in its reply brief, Sun Life also posits a statutory construction for Wis. Stat. §
631.07, premised on a theory that an insurer must “knowingly” issue a policy lacking insurable
interest in order to barred from claiming it as void. (Def.’s Reply (dkt. #76) 7-8.) The court
disregards arguments raised for the first time in its reply. Gold v. Wolpert, 876 F.2d 1327, 1331
n.6 (7th Cir. 1989) (“It is well-settled that new arguments cannot be made for the first time in
reply.”). Even if the court were to consider Sun Life’s argument, subsection (4) does not provide
an opening for an insurer to challenge the validity of a policy for lack of an insurable interest;
rather, it simply allows for the court to shift the policy proceeds to a person who is “equitably
entitled” to those proceeds.
7
Of course, Sun Life also persists that U.S. Bank’s allegations do not support a
finding that Sun Life acted with “dishonest purpose, moral obliquity, furtive design or ill
will.” (Def.’s Br. (dkt. #66) 8 (quoting Malone v. Reliastar Life Ins. Co., 558 F.3d 683,
695 (7th Cir. 2009)); see also Rabach v. Life Ins. Co. of North Am., No. 08-C-188, 2010 WL
2900375, at *2 (E.D. Wis. July 20, 2010). This argument goes to the subjective prong of
U.S. Bank’s bad faith claim, which Sun Life acknowledges in its reply is not ripe for
decision on a motion for judgment on the pleadings. (Def.’s Reply. (dkt. #76) 12.)
Even if it were material to the motion, U.S. Bank adequately alleges that Sun Life
knew or recklessly disregarded that it did not have an objectively reasonable basis for
failing to pay U.S. Bank’s claim. As U.S Bank describes in its opposition brief, Sun Life
collected close to $2.5 million in premium, including over $1 million after U.S. Bank
became the sole, named owner of the policy.
Despite this, Sun Life:
chose not to
challenge the validity of the Policy; continued to accept large premium payments; refused
to pay the claim even after receiving all documentation required under the policy; sought
additional documents to investigate potential application misrepresentations, even
though Sun Life’s time for challenging the Policy on that basis had expired five years
earlier; and pursued an investigation into a lack of insurable interested not supported by
Wisconsin law. (Pl.’s Opp’n (dkt. #74) 28-29.) This is sufficient for U.S. Bank to get by
the pleading stage under the subjective element of its bad faith claim.
Because Sun Life lacked any objectively reasonable basis for paying U.S. Bank’s
claim timely, the court will deny its motion for judgment on the pleadings. For reasons
set forth above, the court’s findings and conclusions also compels entry of judgment in
8
U.S. Bank’s favor on (1) the objective prong of its bad faith claim and (2) its statutory
interest claim. See Flora v. Home Federal Sav. & Loan Ass’n, 685 F.2d 209, 211-12 (7th
Cir. 1982) (affirming the granting of judgment on the pleadings sua sponte). In light of
this decision and the court’s prior ruling on U.S. Bank’s breach of contract claim, the
only issue remaining for trial is whether Sun Life knew or acted recklessly in relying on
an unreasonable basis in failing to pay timely U.S. Bank’s claim.
ORDER
IT IS ORDERED that:
1) defendant Sun Life Assurance Company of Canada’s motion for judgment on
the pleadings (dkt. #65) is DENIED; and
2) judgment is granted in favor of plaintiff U.S. Bank National Association on the
objective prong of its bad faith claim and on its statutory interest claim.
Entered this 28th day of October, 2015.
BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge
9
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