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Toulon v. Continental Casualty Co.

United States Court of Appeals, Seventh Circuit

December 14, 2017

Sophie P. Toulon, Plaintiff-Appellant,
v.
Continental Casualty Company, Defendant-Appellee.

          Argued February 14, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:15-cv-138 - Manish S. Shah, Judge.

          Before Rovner, Williams, and Hamilton, Circuit Judges.

          Williams, Circuit Judge.

         In September 2002, Sophie Toulon applied for a Preferred Solution long-term care insurance policy (the Policy) issued by Continental Casualty Company. Continental provided Toulon with a "Long Term Care Insurance Personal Worksheet, " along with the application, to help her determine whether the Policy would work for her, given her financial circumstances. The Worksheet discussed Continental's right to increase premiums and how such increases had been applied in the past. Toulon decided not to fill out the Worksheet but she signed it and submitted it with her application.

         Toulon's Policy became effective on July 15, 2002 and it stated that although Continental could not cancel the Policy as long as each premium was paid on time, Continental could make changes to the premium rates. But there was a "10-Year Rate Guarantee Rider" which stated that premiums would not be increased during the first ten years after the effective coverage date. In September 2013, more than eleven years after the 2002 coverage date, Continental raised Toulon's premiums by 76.5%.

         In January 2015, Toulon sued Continental, on behalf of herself and all others who had purchased the Policy, claiming that Continental had engaged in a scheme to lure elderly people into purchasing the Policy by offering artificially low premiums for the first ten years and by not disclosing that Continental would raise its rates substantially just at the time when elderly insureds would likely need to make claims. Toulon amended her complaint twice, ultimately asserting claims for fraudulent misrepresentation, fraudulent omissions, unjust enrichment, and violation of the consumer fraud and deceptive trade practices acts of all fifty states and the District of Columbia. Continental moved to dismiss the Second Amended Complaint (the Complaint) under Fed.R.Civ.P. 12(b)(6) for failure to state a claim, and the district court granted the motion.

         Toulon now appeals from the district court's dismissal of the Complaint. We agree with the district court that Toulon failed to state claims for fraudulent misrepresentation, because she did not identify a false statement made by Continental, or for fraudulent omission, because Continental did not owe Toulon a duty to disclose. The district court also properly dismissed Toulon's claim for violation of the Illinois Consumer Fraud and Deceptive Practices Act (ICFA), which as an Illinois resident was the only consumer fraud statute applicable to Toulon, since she did not identify (1) a deceptive practice engaged in by Continental, (2) a material omission of Continental, or (3) an unfair practice. Finally, the district court was correct to dismiss the count alleging unjust enrichment because Toulon's claims of fraud and statutory violation, upon which her unjust enrichment claim was based, were legally insufficient and an express contract governed the parties' relationship.

         I. BACKGROUND

         Continental began selling the Policy in 1998. Four years later, Toulon applied for and ultimately bought the Policy in 2002, which was sold to her by her husband, Gregory Toulon, an insurance agent. In addition to the application, Continental asked applicants to fill out a Worksheet which provided,

[L]ong term care insurance can be expensive, and is not appropriate for everyone. State law requires the insurance company to ask you to complete this worksheet to help you and the insurance company determine whether you should buy this policy. ...
Premium
... The company has a right to increase premiums in the future. The company has sold long term care insurance since 1965 and has sold this policy since 1998. The company has not raised its rates for this policy. However, the company did raise rates by 15% in 1995 on long term care policies sold seven to 12 years ago that provided essentially similar coverage.
Have you considered whether you could afford to keep this policy if premiums were raised, for example, by 20%?

         Instead of completing the Worksheet, Toulon checked off and signed a statement at the bottom of the Worksheet, which said, "I choose not to complete this information." Immediately below this, her husband and insurance agent, Gregory Toulon, indicated that he "explained to the applicant the importance of completing this information."

         Continental issued the Policy to Toulon, with an effective date of coverage of July 15, 2002 and it stated in large bold letters on the first page, "GUARANTEED RENEWABLE FOR LIFE/PREMIUMS SUBJECT TO CHANGE." Under this heading, the Policy stated that Continental cannot cancel or refuse to renew the Policy and cannot change the Policy without the policyholder's consent. It then provided, "However, We may change the premium rates. Any change will apply to all policies in the same class as Yours in the state where the policy was issued. We will notify You in writing 31 days before Your premium changes." The policy had a "10-Year Rate Guarantee Amendment Rider" attached, which amended the "Premiums Subject to Change" provision by stating: "In no event will the premium rate increase during the initial 10 years after your Effective Date of Coverage." In 2013, eleven years after her policy was issued and after her ten-year rate guarantee rider had expired, Continental increased premiums for the Policy by 76.5% to $3, 140.18 annually.

         A. District Court Proceedings

         On January 8, 2015, Toulon filed a complaint in the Northern District of Illinois, alleging that Continental falsely represented the likelihood and magnitude of premium increases on the Policy. The complaint stated that she was bringing the action "on behalf of herself, and all others similarly situated." Toulon asserted that the district court had jurisdiction over the action pursuant to 28 U.S.C. § 1332(d)(2)(A), as modified by the Class Action Fairness Act of 2005 (CAFA), "because at least one member of the [c]lass is a citizen of a different state than the defendant, there are more than 100 members of the [c]lass, and upon information and belief the aggregate amount in controversy exceeds $5, 000, 000.00, exclusive of interest and costs."

         Toulon filed her First Amended Complaint, which the district court dismissed for failure to state a claim. Toulon then filed a Second Amended Complaint on September 11, 2015, alleging four causes of action: (1) fraudulent misrepresentation, (2) fraudulent omissions, (3) unjust enrichment, and (4) violations of the consumer fraud and deceptive trade practices acts of all fifty states and the District of Columbia. The Complaint alleged that Toulon was 68 years old at the time that she applied for the Policy and her highest level of education was high school. Toulon also stated that she had no knowledge related to long-term care insurance at the time she purchased the Policy and did not know what factors, variables and assumptions determined the initial premiums.

         According to Toulon, Continental "knew that it would have to drastically increase premiums in the future and that disclosing the need to do so would scare away customers." So, Toulon maintains, Continental devised a scheme to offer the Policy with artificially lowered premiums and rate-stabilizing riders, without disclosing that it would implement significant premium rate increases once the rate-stabilization period ended.

         Continental filed a motion to dismiss the Complaint for failure to state a claim. The district court granted the motion and dismissed the Complaint with prejudice. On appeal, Toulon challenges the district court's dismissal and maintains that the Complaint adequately states claims for fraudulent misrepresentation, fraudulent omissions, unjust enrichment, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA).[1]

         II. ANALYSIS

         A. Subject Matter Jurisdiction Exists Pursuant to the Class Action Fairness Act of 2005 (CAFA)

         Before we address the merits of the district court's decision granting Continental's motion to dismiss, we must first address whether the district court properly asserted jurisdiction over Toulon's Complaint. As noted above, Toulon alleged in her Complaint that the district court had jurisdiction under CAFA which provides, so long as other requirements are met that ...


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