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Fairlie v. Transamerica Life Insurance Co.

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

July 11, 2018



          Leonard T. Strand, Chief Judge.


         This case is before me on a motion (Doc. No. 12) to dismiss by defendants Transamerica Life Insurance Company (Transamerica Life) and Transamerica Premier Life Insurance Company (Transamerica Premier) (together, Transamerica or defendants). Plaintiffs Suzanne Fairlie and Odis Wright have filed a resistance (Doc. No. 13) and Transamerica has replied (Doc. No. 18). I find that oral argument is not necessary. See N.D. Iowa L.R. 7(c).


         On March 29, 2018, plaintiffs filed a purported class action complaint (Doc. No. 1) asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of California's unfair competition law, violation of Pennsylvania's unfair trade practice and consumer protection law, and elder abuse under California law. Plaintiffs seek declaratory and injunctive relief in addition to monetary damages. Defendants responded on June 11, 2018, by filing a pre-answer motion (Doc. No. 12) to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).


         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).


         Plaintiffs contend that they represent three classes of persons who purchased Transamerica's universal life insurance policies in the late 1980s and early 1990s. Doc. No. 1 at ¶¶ 2-3, 78-83 (describing the purported subclasses of plaintiffs). They allege that in August 2015, “Transamerica suddenly, unilaterally, and massively began increasing monthly deductions withdrawn from the Policies accumulation accounts, falsely stating the increases were permitted by the terms of the Policies, ” when in fact, the purpose for the increases was “(a) to subsidize Transamerica's cost of meeting its interest rate guarantees under the Policies; (b) to recoup past losses in violation of the terms of the Policies; and (c) induce Policy terminations by policyholders.” Id. at ¶ 3.

         A. The Parties

         Fairlie is a resident of Pennsylvania and the owner of a Transamerica universal life insurance policy with a face amount of $250, 000 (Policy No. 92309935). Id. at ¶ 9. Wright is a California resident and the owner of a Transamerica universal life insurance policy with a face amount of $50, 000 (Policy No. MM3356068). Id. at ¶ 10. In August 2015, each of plaintiffs' policies were subject to the cost increases that form the basis of the complaint. Id. at ¶ 14.

         Transamerica Life and Transamerica Premier are corporations organized under Iowa law, with their principal places of business located in Cedar Rapids, Iowa. Id. at ¶¶ 11-13.

         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 ¶ 19 & 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 ¶¶ 19, 24. For Fairlie, the monthly deduction amount is equal to “the monthly [deduction] rate [(MDR)] times .001 times the difference between the death benefit and the accumulation value at the beginning of the policy year [and] [a] policy fee.” Doc. No. 12-2 at 10. For Wright, the monthly deduction amount is equal to “the sum of the following: (a) The Cost of Insurance for the policy; and (b)

         The cost of additional benefits provided by riders; and (c) The Per Thousand Expense Charges multiplied by the number of thousands of Initial Face Amount or increase in Face Amount; and (d) The Per Policy Expense Charge.” Doc. No. 12-3 at 11. The “Cost of Insurance” (COI) variable is further defined as the COI Rate multiplied by the results of the Death Benefit minus the Cash Value at the beginning of the Policy Month, divided by 1, 000. Id. Although the Policies use different terms and slightly different calculations, the MDR in Fairlie's Policy and the COI rate in Wright's policy serve comparable functions and are essentially interchangeable. For purposes of the present motion I will refer to the terms collectively as the MDR.[3]

         Plaintiffs allege that the MDR is the most important component of their Policies' monthly deductions. While the other variables are predictable and not subject to change, the MDR may be adjusted at Transamerica's discretion. Doc. No. 1 at ¶ 24. In Fairlie's Policy, the MDR is set as follows:

Monthly Deduction Rates - At the beginning of each policy year, we will use the Insured's age as of that policy year to determine the rate for the monthly deduction. A breakdown of guaranteed maximum [MDRs] into cost of insurance and expense components for standard lives appears on pages 12, 13, 14 and 15.
A Table of Guaranteed [MDRs] is in the policy data and is guaranteed. However, we may use lower rates than these guaranteed [MDRs]. We will never exceed the guaranteed [MDRs].
A reduction in the guaranteed [MDR] for this policy will also apply uniformly to all other policies we issue on the same plan and on an Insured with the same issue age, issue date, sex, face amount and class of risk as the insured under this policy. The reduced rates will not be affected by any change in health or occupation of the Insured.

Doc. No. 12-2 at 9. The “breakdown of guaranteed maximum [MDRs]” describes which portion of the MDR represents COI factors and which portion represents “expense” factors for males and females, whether smoking or non-smoking. Id. at 16-19. The MDR increases incrementally for each group as the policyholder ages, with the rapidest increases occurring later in life. Male smokers have the fastest-growing MDR of all four groups. Id.

         In Wright's Policy, the MDR is defined as follows:

The [MDR] for a policy month is determined based on our projections of future mortality experience. We determine these rates uniformly based on the Insured's Attained Age, sex, policy duration and Premium Class.
The rate for the Initial Face Amount is based on the Premium Class on the Policy Date. The rate for any increases in the Face amount is based on the Premium Class on the effective date of the increase.
The [MDR] for a policy month is never greater than the Guaranteed [MDRs] shown in the Table of Monthly Guaranteed [MDRs]. The Guaranteed [MDRs] are based on the Commissioners 1980 Standard Mortality Tables, adjusted for age last birthday.

Doc. No. 12-3 at 11. The referenced table of Monthly Guaranteed MDRs lists different guaranteed rates, differentiated by the policyholder's age, sex, and smoking status, all of which are tied to the ...

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