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McMahon v. Transamerica Life Insurance Co.

United States District Court, N.D. Iowa, Cedar Rapids Division

July 11, 2018

KAREN McMAHON, HEATHER McMAHON, and RONALD PERKINS, Plaintiffs,
v.
TRANSAMERICA LIFE INSURANCE COMPANY, Defendant.

          ORDER

          Leonard T. Strand, Chief Judge.

         I. INTRODUCTION

         This case is before me on a motion (Doc. No. 16) to dismiss by defendant Transamerica Life Insurance Company (Transamerica). Plaintiffs Karen McMahon (Karen), Heather McMahon (Heather) and Ronald Perkins (Perkins) have filed a resistance (Doc. No. 17) and Transamerica has replied (Doc. No. 23). I find that oral argument is not necessary. See N.D. Iowa L.R. 7(c).

         II. PROCEDURAL HISTORY

         On December 11, 2017, plaintiffs filed a purported class action complaint (Doc. No. 1) asserting claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Plaintiffs seek declaratory and injunctive relief in addition to monetary damages. Defendants responded on May 7, 2018, by filing a pre-answer motion (Doc. No. 16) to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).

         III. APPLICABLE STANDARDS

         The Federal Rules of Civil Procedure authorize a pre-answer motion to dismiss for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). The Supreme Court has provided the following guidance in considering whether a pleading properly states a claim:

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” As the Court held in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the pleading standard Rule 8 announces but does not require detailed factual allegations, but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. Id. at 555. A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Id. Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement. Id. at 557.
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id. at 570. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief. Id. at 557.

Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (cleaned up)[1].

         Courts assess “plausibility” by “‘draw[ing] on [our own] judicial experience and common sense.'” Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir. 2012) (quoting Iqbal, 556 U.S. at 679). Courts “review the plausibility of the plaintiff's claim as a whole, not the plausibility of each individual allegation.” Id. (citation omitted). While factual plausibility is typically the focus of a Rule 12(b)(6) motion to dismiss, federal courts may dismiss a claim that lacks a cognizable legal theory. See, e.g., Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013); Commonwealth Prop. Advocates, L.L.C. v. Mortg. Elec. Reg. Sys., Inc., 680 F.3d 1194, 1202 (10th Cir. 2011); accord Target Training Int'l, Ltd. v. Lee, 1 F.Supp.3d 927, 937 (N.D. Iowa 2014).

         IV. PLAINTIFFS' ALLEGATIONS

         Plaintiffs contend that they represent a class of persons who purchased Transamerica's universal life insurance policies in the late 1980s and early 1990s. Doc. No. 1 at ¶¶ 2, 23. They contend that in August 2015, “Transamerica suddenly, unilaterally, and massively began increasing monthly deductions withdrawn from the Policies' accounts, falsely stating the increases were permitted by the terms of the Policies, ” when in fact the “reasons for imposing the dramatic increases were to: (a) subsidize Transamerica's cost of meeting its interest rate guarantees under the Policies; (b) recoup past losses in violation of the terms of the Policies; and (c) induce Policy terminations by policyholders.” Id. at ¶ 3.

         A. The Parties

         Karen and Heather are residents of Virginia while Perkins is a resident of Wisconsin. Id. at ¶¶ 8-10. Transamerica is an Iowa corporation with its principal place of business in Cedar Rapids, Iowa. Id. at ¶ 11.

         Karen and Heather are owners of life insurance policies issued by Transamerica. Doc. No. 1 at ¶¶ 8-9. Karen's policy was issued in the 1970s, and on October 15, 1990, was converted to a Transamerica Preferred Policy Owner universal life insurance policy with a face amount of $100, 000 (Policy No. 92343459). Id. at ¶ 8. Heather's policy - an Assured Life universal life insurance policy with a face value of $100, 000 (Policy No. 92996275) - was issued to her father, Edward McMahon, in January 1989. Id. at ¶ 9. Edward transferred the policy to Heather prior to August 2015. Id. Perkins owns a TransMax universal life insurance policy with a face amount of $300, 000 (Policy No. 92252099). Id. In August 2015, each of plaintiffs' policies were subject to the cost increases that form the basis for the complaint. Id. at ¶¶ 8-10.

         B. The Policies[2]

         As noted above, each plaintiff claims to be the owner of a Transamerica universal life insurance policy (the Policy or Policies). Universal life insurance is more flexible than term or whole life insurance, as policyholders are free to adjust their premium payments:

Premium payments, which are variable, are deposited in an accumulation account from which monthly cost of insurance and expense charges are deducted. The accumulation account is credited with monthly interest at a nonguaranteed declared rate, but not less than the guaranteed interest rate specified in the policy contract. Universal life insurance policies allow policyholders to change the amount and frequency of premium payments as long as their policies contain sufficient cash value to cover monthly deductions taken.

Id. at ¶ 18 & n.2. Importantly, an increase in the “monthly deductions” will correspond with a higher premium payment obligation.

         The “monthly deduction” is meant to recover the costs associated with maintaining the Policy. The monthly deduction is withdrawn from the Policy's accumulation account at the end of each month. Id. at ¶ 25. The monthly deduction is equal to “(a) the application of a ‘Monthly Deduction Rate' [(MDR)] to the difference between the death benefit and the accumulation value at the beginning of the year; (b) the monthly deduction for any Policy riders; and (c) a Policy fee.” Id., see also Doc. No. 1-2 at 8 (“The Monthly Deduction is equal to: (a) the [MDR], times .001, times the difference between the death benefit and the accumulation value at the beginning of the year . . .”).[3] The MDR is the most important component of the monthly deduction. While the other two variables are predictable and not subject to change, the MDR may be adjusted at Transamerica's discretion. Doc. No. 1 at ¶ 26.

         The Policy describes Transamerica's discretion related to the MDR as follows:

Monthly Deduction Rates - We will determine the monthly deduction rate for each policy year at the beginning of that year. We will use the insured's age as of that policy year.
A Table of Guaranteed Monthly Deduction Rates is in the policy data. We may use rates lower than these guaranteed monthly deduction ...

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