Interlocutory Appeal from the Allen Circuit Court. Honorable Thomas J. Felts, Judge. Case No. 02C01-0906-PL-73.
ATTORNEYS FOR APPELLANT: Elizabeth L. Deeley, Kirkland & Ellis LLP, San Francisco, California; Patrick F. Philbin, Kirkland & Ellis LLP, Washington, District of Columbia; D. Randall Brown, Jason T. Clagg, Barnes & Thornburg LLP, Fort Wayne, Indiana.
ATTORNEYS FOR APPELLEE: Patrick J. Stueve, Bradley T. Wilders, Stueve Siegel Hanson LLP, Kansas City, Missouri; John J. Schirger, Matthew W. Lytle, Miller Schirger LLC, Kansas City, Missouri; Matthew J. Connelly, Blume Connelly Jordan Stucky & Lauer LLP, Fort Wayne, Indiana.
Robb, Judge. Bailey, J., and Brown, J., concur.
Case Summary and Issues
[¶1] Peter Bezich filed a complaint against Lincoln National Life Insurance Company (" Lincoln" ), alleging three separate counts of breach of contract regarding his variable life insurance policy. Bezich then moved to certify a class of policyholders on all three breach of contract claims. The trial court issued an order denying class certification as to Count 1 and Count 2 of Bezich's complaint. However, the trial court concluded that a single-issue class may be certified as to Count 3 for the purpose of determining liability. Lincoln appeals, arguing that the trial court erred by certifying a single-issue class for Count 3. Bezich cross-appeals, arguing that the trial court erred by declining to certify a class for Count 1 and Count 2. We conclude the trial court acted within its discretion by certifying a single-issue class for Count 3. However, we conclude that Count 1 and Count 2 should have similarly been certified for class treatment. Therefore, we affirm in part, reverse in part, and remand.
Facts and Procedural History
[¶2] Between 1986 and 2008, Lincoln sold a standardized variable life insurance policy known as an Ensemble II. Bezich purchased an Ensemble II in 1996. The Ensemble II works as both a life insurance policy and an investment tool. Amounts paid by the policyholder as premiums are credited to the policy and are included in the " Accumulation Value" of the policy, which is comprised of premiums, investment earnings, and interest. The actual insurance existing under the policy is called the " Net Amount at Risk," which is the difference between the Accumulation Value and the policy's assigned death benefit.
[¶3] Lincoln is authorized under the contract to make monthly deductions from the Accumulation Value to keep the policy in force. Those monthly deductions are comprised of two charges: (1) a " cost of insurance" (" COI" ) charge and (2) an administrative charge. The COI charge is
calculated by multiplying the Net Amount at Risk by a COI rate. With respect to that COI rate, the Ensemble II states: " The monthly cost of insurance rate is based on the sex, issue age, policy year, and rating class of the Insured. Monthly cost of insurance rates will be determined by the Company based upon expectations as to future mortality experience." Appellee's Appendix at 19 (" COI rate provision" ). Regarding administrative charges, the Ensemble II states the monthly deduction includes " a monthly administrative charge. This charge is equal to $6.00 per month in each policy year." Id. (" administrative charge provision" ).
[¶4] In 2009, Bezich surrendered his Ensemble II policy and forfeited the $200,000 death benefit the policy provided. On July 25, 2012, Bezich filed his amended complaint alleging that Lincoln breached three separate provisions of the Ensemble II.
[¶5] In Count 1, Bezich claims Lincoln breached the terms of the Ensemble II by including non-mortality factors in determining the COI rate charged under the policy. He argues that the terms " based on" and " based upon" in the COI rate provision limit the calculation of the COI rate to consideration of mortality factors only, and because Lincoln imposed COI charges that included expenses undisclosed in the Ensemble II, Lincoln breached the agreement.
[¶6] In Count 2, Bezich claims Lincoln breached the policy by loading administrative fees and expenses into the COI rate. Bezich argues that the administrative charge provision acts as a cap on administrative expenses, and that the recovery of administrative expenses in excess of $6.00 per month is a breach of the Ensemble II.
[¶7] In Count 3, Bezich claims Lincoln breached the agreement by failing to reduce the COI rate in response to improving mortality rates. Count 3 relies on contract language saying that " [m]onthly cost of insurance rates will be determined by the Company based upon expectations as to future mortality experience." Id.
[¶8] On August 27, 2012, Lincoln filed a motion to dismiss Bezich's claims, arguing that unambiguous language in the Ensemble II required that Bezich's claims be dismissed as a matter of law. However, the trial court denied Lincoln's motion as to all three Counts, and in doing so, the court interpreted the relevant provisions corresponding to each Count of Bezich's complaint:
o As to Count 1, the trial court found that the COI rate provision was ambiguous insofar as the terms " based on" / " based upon" could lead a reasonable person to believe the COI rate was restricted to mortality factors only, but that the provision could also be read to say that mortality factors were the primary--but not exclusive--factors to be considered in setting rates.
o As to Count 2, the trial court concluded that the administrative charge provision was an unambiguous cap on administrative expenses and that " an ordinary policyholder of average intelligence would not interpret this provision to mean that administrative fees can exceed $6.00/month or that these administrative fees can be tacked on to the COI rate." Appellant's Appendix at 43-44.
o As to Count 3, the trial court concluded dismissal was inappropriate because " [g]iving [the COI rate provision] its plain and ordinary meaning, an ordinary policyholder of average intelligence could reasonably interpret this provision to mean that the COI rate would be adjusted based on future mortality expectations, whether those
mortality experiences are improving or declining." Id. at 44.
[¶9] On September 16, 2013, pursuant to Indiana Trial Rule 23, Bezich sought to certify a class of Ensemble II policyholders from thirty states on all three Counts. Following an evidentiary hearing, the trial court issued its Findings of Fact, Conclusions, and Order, denying class certification on Count 1 and Count 2 but granting class certification on Count 3 solely on the issue of liability.
[¶10] As to Count 1 and Count 2, the trial court concluded that issues concerning extrinsic evidence and choice of law prohibited a finding that common questions of law and fact predominated over questions affecting individual class members. Specifically, the trial court reiterated its finding that the COI rate provision is ambiguous as it applies to Count 1 and thus extrinsic evidence may be necessary to aid the court in interpreting that provision. This would involve an individualized inquiry for each class member to determine whether the policyholders were given information from a salesperson regarding how the COI rate was calculated. After concluding that extrinsic evidence would be important in resolving Count 1 claims, the trial court stated that resolution of Count 2 was " inevitably . . . intertwined" with Count 1 and " [b]ecause Count II will be influenced by extrinsic evidence bearing on the ambiguity in the COI rate provision, there is no way to avoid inquiries into extrinsic evidence for Count I but not Count II." Id. at 31.
[¶11] As to Count 3, the trial court found that because the COI rate provision is unambiguous as it pertains to Count 3, the concern of extrinsic evidence that applied to Count 1 and Count 2 did not apply to Count 3. However, individualized statute of limitations issues prevented the court from finding Count 3 met the predominance and commonality requirements of Trial Rule 23. Nevertheless, the trial court utilized Trial Rule 23(C)(4) to certify a class on Count 3 solely on the issue of liability.
[¶12] Lincoln now brings this interlocutory appeal, challenging the trial court's certification of a single-issue class on Count 3. Bezich cross-appeals the trial court's denial of class certification on Count 1 and Count 2. Additional facts will be provided as necessary.
Discussion and Decision
I. Class Action Requirements
[¶13] Indiana Trial Rule 23 governs class actions. Subsection (A) sets out four prerequisites that must be met for a party to pursue a class action:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or ...