Opinion
DKT NO. 5:96-MD-1122.
July 5, 2000.
Stephen L. Hubbard, HUBBARD BIEDERMAN, LLP, Dallas, TX, for Plaintiff.
Joel Feldman SACHNOFF WEAVER, LTD. Chicago, IL, for Defendant.
This opinion relates to claims asserted in the consolidated amended complaint in W.D. Mich.
OPINION OF THE COURT ON DEFENDANT JACKSON NATIONAL'S MOTION FOR SUMMARY JUDGMENT ON ALL COUNTS ASSERTED IN THE CONSOLIDATED AMENDED COMPLAINT
In this multi-district litigation, plaintiffs are purchasers of, or persons beneficially interested in, life insurance policies underwritten and sold by defendant Jackson National Life Insurance Company ("Jackson National"). Plaintiffs allege they suffered loss due to Jackson National's misrepresentations. The consolidated amended complaint expressly asserts the claims of individual plaintiffs from Texas, Ohio, Arizona, Oklahoma, California and Illinois. Named defendants are Jackson National; its wholly owned subsidiary, Jackson National Life Insurance Company of Michigan; and their holding company, Brooke Life Insurance Company. Michigan is the principal place of business for all three defendants, collectively referred to herein as "Jackson National." Plaintiffs seek compensatory and injunctive relief, asserting claims for fraud, breach of fiduciary duty, negligent misrepresentation, negligent supervision of sales agents, breach of contract, unjust enrichment, violation of Michigan's Consumer Protection Act, and violation of Michigan's Pricing and Advertising Act.
On September 30, 1997, the Court dismissed plaintiffs' claims under the Michigan Consumer Protection Act. On October 22, 1998, the Court denied plaintiffs' motion for certification of a nationwide class. Now before the Court is Jackson National's motion for summary judgment on all remaining claims. For the following reasons, the Court concludes the motion must be granted in part and denied in part.
I. FACTUAL BACKGROUND
Plaintiffs allege they were induced to purchase interest sensitive whole-life insurance policies by false, incomplete and misleading sales representations and information disseminated by Jackson National. More specifically, they allege they paid large lump sum premiums or large fixed premiums for a number of years in reliance upon representations that future premiums would "vanish" as interest and other values accumulated in the policy and became sufficient to pay remaining premiums. In the 1990s, when interest rates declined and the amounts paid into the policies failed to produce sufficient income to pay remaining premiums, plaintiffs were advised that additional out-of-pocket premium payments were required to maintain the policies. Consequently, plaintiffs allege they have been faced with the choice of either incurring the unexpected expense of continuing premium payments or surrendering the policies at substantial loss. They pray for compensatory and punitive or exemplary damages, injunctive relief enjoining Jackson National's deceptive practices and requiring Jackson National to pay for the costs of obtaining life insurance conforming to the sales representations, and an order imposing a constructive trust upon monies wrongfully acquired by Jackson National.
A. Paul Christiansen
Plaintiff Paul Christiansen is a resident of California. In 1984, he converted a Jackson National term policy insuring the life of his brother to a $100,000 Ultimate II life insurance policy. Christiansen purportedly relied on Jackson National brochures, a vanishing premium illustration, and oral representations of the sales broker, Robert Greenup, in deciding to purchase the Ultimate II policy. Based on these communications, plaintiff Christiansen allegedly understood that, irrespective of the interest crediting rate approved by Jackson National, his obligation to make continuing annual premium payments of $838 — either out-of-pocket or out of the policy's accumulated cash value — would vanish after four to nine years. It appears Christiansen paid premiums out-of-pocket until 1992. Thereafter, and continuing to the present, he has elected to have the annual premium withdrawn from the policy's accumulated cash value. It has been more than nine years since he purchased the policy and the premiums have still not "vanished" in the way Christiansen understood they would.
Christiansen commenced his action against Jackson National in the Southern District of California. The Court has ruled his claims are governed by California law. See Opinion on Jackson National's Motion to Dismiss, September 30, 1997, docket #36, pp. 6-7.
B. The Everetts
Plaintiffs Patricia Everett and Charles J. Everett, M.D., individually, and Ralph P. Higgins, Trustee of the Everett Family Irrevocable Trust, are residents of Ohio. In March 1990, the Everett Trust purchased a $1,000,000 Jackson National Last Survivor Ultimate policy insuring the lives of Dr. and Mrs. Everett. Relying on illustrations and representations of sales agent Jack Stitt, the Everetts believed that after six annual premium payments of $8,870, the premium would vanish. After having made seven annual premium payments out-of-pocket, they have since elected to have premiums paid from the policy's accumulated cash value. They allege the continuing obligation to pay premiums beyond six years is contrary to the agent's explanation of the policy; who, although he made no guarantee, led them to believe the likelihood of the need for a seventh payment was remote.
Though "the Everetts" commenced their action in the Northern District of Texas, the Court has ruled their claims are governed by the law of Ohio, where the alleged misrepresentations were made, the policy purchased, and the wrongs occurred. Opinion on Jackson National's Motion to Dismiss, docket #36, p. 7.
C. The Fleischers
Jerome Fleischer and his wife Harriet Fleischer, as well as Stuart Morse and George Williams, Trustees of the Fleischer Liquidity Trust II, are residents of Texas. The Fleischers purchased a $500,000 Last Survivor Ultimate policy in 1990, in reliance upon representations made by sales broker Gary Gray, who showed them several illustrations. They understood that if they made premium payments (in the quarterly amount of $2,423.30) for seven or eight years, the premium would vanish. The Fleischers made the quarterly payments until 1995, when they surrendered the policy for its cash value. The decision to surrender the policy appears to have been precipitated by two circumstances: first, miscommunication concerning premium payments; and second, the Fleischers' concern that the premium would not actually vanish after seven or eight years as expected.
The Fleischers' claims are governed by the law of Texas, where the subject policy was purchased. Opinion on Motion to Dismiss, docket #36, p. 7.
D. The Blisses
Plaintiff Roy E. Bliss and his wife Nellie A. Bliss are residents of Arizona. Their son Roy Lee Bliss is Trustee of the Bliss Irrevocable Trust, which holds the beneficial interest in a Jackson National Last Survivor Ultimate policy purchased by the Blisses in 1990. In reliance upon policy illustrations and other documents, as well as representations of sales agent John Fattig, the Blisses allegedly understood that a single premium payment of $94,887 would buy them a death benefit of $500,000 and that no further premium payment would ever be required. In 1995, the Blisses were shocked to receive notice that additional premium payments were required to maintain their policy. Since 1997, premiums have been paid from the policy's accumulated cash value. The Blisses allege they did not receive the policy they were promised.
The Blisses' claims are governed by the law of Arizona, where the subject policy was purchased. Opinion on Motion to Dismiss, docket #36, p. 7.
E. Gerald Zaidman
Plaintiff Gerald Zaidman is the Trustee of the Harry A. Young, Jr. Irrevocable Trust and a resident of Illinois. The Young Trust is the owner of two $150,000 Ultimate II whole life policies purchased by Harry A. Young, Jr. in 1990 and 1993. Young purchased the policies in reliance upon representations contained in Jackson National illustrations which were explained by sales broker Robert Szarvas. Young understood that he would make annual premium payments (of $5,968 on the first policy and $5,669 on the second) for seven years before the premiums would vanish. Young made seven annual premium payments out-of-pocket on the 1990 policy before electing in 1997 to have the premium paid from the policy's accumulated cash value. On the 1993 policy, he has made six annual premium payments out-of-pocket. The obligation to pay continuing premiums beyond seven years, Zaidman maintains, is contrary to Jackson National's representations.
Zaidman commenced his action in this Court, but the claims are governed by the law of Illinois, where the subject policies were purchased. Opinion on Motion to Dismiss, docket #36, pp. 5-6.
II. ANALYSIS A. Summary Judgment Standard
Jackson National has moved for summary judgment on all of plaintiffs' claims. The motion requires the Court to look beyond the pleadings and evaluate the facts to determine whether there is a genuine issue of material fact that warrants a trial. Fed.R.Civ.P. 56(c). See generally Barnhart v. Pickre1, Schaefffer Ebeling Co., 12 F.3d 1382, 1388-89 (6th Cir. 1993). That is, the Court must determine "whether the evidence presents sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). The Court must consider all pleadings, depositions, affidavits, and admissions on file, and draw all justifiable inferences in favor of the party opposing the motion. Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)
An issue of fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmovant. Anderson, 477 U.S. at 248. Once the moving party identifies elements of a claim or defense which it believes are not supported by evidence, the nonmovant must present affirmative evidence tending to show a genuine dispute of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25 (1986). Production of a "mere scintilla of evidence" in support of an essential element will not forestall summary judgment. Anderson, 477 U.S. at 252. The nonmovant must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586.
The substantive law identifies which facts are "material." Facts are "material" only if establishment thereof might affect the outcome of the lawsuit under governing substantive law. Anderson, 477 U.S. at 248. A complete failure of proof concerning an essential element necessarily renders all other facts immaterial. Celotex, 477 U.S. at 322-23.
B. Breach of Contract
1. Parol Evidence Rule
Jackson National first challenges plaintiffs' breach of contract claims. Jackson National contends the vanishing premium promises alleged by the plaintiffs are at odds with the express terms of each of the plaintiffs' policies. The cover page of each policy clearly indicates the stated annual premium is payable for the life of the insured. Each policy also includes an option, exercised by many of the plaintiffs, allowing the policyholder to use the policy's accumulated cash value to pay the annual premium as follows:
OPTION WITH RESPECT TO PREMIUM PAYMENT On any policy anniversary, if the Actual Cash Value is in excess of the Guaranteed Cash Values as shown, and provided there is no indebtedness, the Owner may elect not to pay the annual premium and instead to use all or part of such excess in lieu of paying the total annual premium then due by so notifying the Company by written notice prior to the end of of the grace period. In such event, the benefits will be continued in force until the next anniversary without the payment of premiums by deducting the premium from the Value Accumulation. This premium will then be applied according to the Value Accumulation section. Should the excess not be sufficient to pay the total annual premium then due, the Owner may pay in cash the difference between such excess and the total annual premium then due within the grace period provided. The excess will be deducted from the Value Accumulation. Such excess together with the cash payment will be applied according to the Value Accumulation section.
This option is referred to as the "ORPP Provision" or the "vanish option." It may be exercised only if and to the extent that the policy's actual accumulated cash value exceeds the guaranteed cash value. To the extent that any such excess is insufficient to cover the annual premium, the remainder must be paid in cash to maintain the policy.
Insofar as plaintiffs' claims are based on alleged representations that their obligation to make annual cash premium payments would "vanish" after a certain period of time, irrespective of the policy's actual accumulated cash value, such representations are thus said to be contrary to the express terms of the policies. Moreover, Jackson National argues, each subject policy represents the only written agreement between the parties and by its very terms represents the entirety of the agreement. Each policy includes the following provision:
CONSIDERATION: ENTIRE CONTRACT The consideration for issuing this Policy is the application and the payment of the first premium. This Policy and the application, a copy of which is attached and made a part of this policy, constitute the entire contract between the parties
The inclusion of this integration clause in each policy is said to demonstrate the parties' intention that the policy and related application embody the entire agreement between them.
In the face of such an integration clause, Jackson National, argues, parol evidence — that is, evidence of pre-purchase representations and sales illustrations — is not admissible to contradict or vary the terms of the written policy. Absent such parol evidence, Jackson National contends, plaintiffs cannot demonstrate the existence of a genuine issue of material fact on their breach of contract claims.
In response, plaintiffs argue first that, despite appearances, their policies should not be deemed fully integrated. They argue the policy terms are embodied in non-negotiable pre-printed forms furnished to them only after they had agreed to purchase the policies and had paid the first premium. Under these circumstances, plaintiffs contend, the integration clause contained in each policy should not be deemed to preclude evidence of agreements earlier reached by the parties at the time of purchase. Yet, the law in most of the relevant jurisdictions provides that determining whether a contract is integrated depends on examination of the contract. See Airs Int'l., Inc. v. Perfect Seats Distributions, Ltd., 902 F. Supp. 1141, 1145-46 (N.D. Cal. 1995) (under California law, express integration clause precludes evidence of prior or contemporaneous oral agreement to contradict terms of subsequent written agreement); Trinova Corp. v. Pilkington Bros., P.L.C., 638 N.E.2d 572, 576 (Ohio 1994) (under Ohio law, integration questions must be determined from the four corners of the document itself); R. Ready Productions, Inc. v. Cantrell, 85 F. Supp.2d 672, 694 (S.D. Tex. 2000) (under Texas law, effect of integration clause is determined by intent of parties as expressed in their contract and self-serving parol evidence cannot be used to vary or contradict clear integration clause); J B Steel Contractors, Inc. v. Iber Sons, Inc., 642 N.E.2d 1215, 1218-19 (Ill. 1994) (under Illinois law, "only the subject writing may be considered to determine the integration question") Where the integration clause is as clear and unambiguous as it is in the subject policies, it is controlling; extrinsic evidence plays no role. The Court concludes, therefore, applying the law of California, Ohio, Texas and Illinois, that the policies placed at issue by Zaidman, the Everetts, Christiansen and the Fleischers are fully integrated. It follows that parol evidence is not admissible to vary or contradict the terms of the subject policies.
These plaintiffs insist, however, that the parol evidence they proffer does not contradict the policy terms, but explains them, a purpose for which parol evidence is admissible. Plaintiffs do not dispute their obligation to make annual premium payments for the life of the insured. They would present evidence of Jackson National's representations, however, to the effect that after a defined number of premium payments, the annual premiums would no longer be paid out-of-pocket, but out of the policy's accumulated cash value. In support, they cite Parkhill v. Minnesota Mutual Life Ins. Co., 995 F. Supp. 983, 990 (D. Minn. 1998), where the court allowed similar parol evidence to create a genuine fact issue concerning a breach of contract claim in a vanishing premium case.
Parkhill is distinguishable. In Parkhill, the policy did not indicate the source of premium payments, thereby creating an ambiguity which rendered parol evidence admissible to clarify the parties' intent. Id. at 990. Here, the ORPP provision specifically identifies the policyholder's options regarding the source of premium payments and expressly conditions exercise of the option upon the sufficiency of the actual cash value accumulation. Evidence that the vanish option was not conditioned upon accumulated cash value, but rather upon prior payment of a stated number of annual premiums, would directly conflict with the express terms of the policy. It would not merely clarify or explain the policy language, but would evidence an agreement materially different from that embodied in the policy. The parol evidence rule precludes admission of such evidence.
The Court acknowledges that the parol evidence rule may not bar extrinsic evidence of fraud in the inducement. Plaintiffs' fraud claims are distinct from the breach of contract claims and are addressed below.
A different result obtains, however, with respect to the Blisses. Construction of their policy and integration clause is governed by Arizona law. Under Arizona law, "evidence on surrounding circumstances, including negotiation, prior understandings, subsequent conduct and the like, is taken to determine the parties' intent with regard to integration of the agreement," notwithstanding an express integration clause. Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388, 398 (Ariz. 1984) (in banc). See also Anderson v. Preferred Stock Markets, Inc., 854 P.2d 1194, 1197 (Ariz.App. 1993)
The Blisses contend, therefore, that the Court must consider evidence of representations made by or attributable to Jackson National to the effect that theirs was a "single premium policy," and that, after an initial lump sum payment of $94,887, no additional payments would be required to maintain the policy. Such representations were allegedly made directly by the sales broker John Fattig and are said to have been corroborated by Jackson National's approval of the Blisses' "single payment" application and Jackson National's acceptance of their "Single Premium Life Insurance Rider" request form, both of which became parts of the contract. Fattig's representations were also corroborated, the Blisses contend, by a Jackson National brochure entitled "Jackson National Life's Single and Annual Life Insurance (Drop-in) Riders." The brochure describes the single premium rider as "vanishing the premium immediately," such that "the policy owner pays no more direct premiums." (Emphasis in original.)
The Court agrees with the Blisses. Despite their policy's integration clause, the extrinsic evidence submitted is properly considered under Arizona law in determining the meaning of the ORPP provision in what purports to be, by virtue of the incorporated application and single premium rider, a single premium policy. In light of the latent ambiguities in the terms of their policy, the extrinsic evidence creates genuine issues of material fact that preclude award of summary judgment to Jackson National on the Blisses' breach of contract claim.
2. Reasonable Expectation Doctrine
The remaining plaintiffs urge the Court to reach the same conclusion with respect to their breach of contract claims, despite the parol evidence rule's preclusion of extrinsic evidence. They ask the Court to apply the "reasonable expectation doctrine" to enforce the policies in accordance with their understandings and expectations.
The reasonable expectation doctrine has grown out of recognition of the disparity in bargaining power between insurance companies and those who seek insurance. Atwater Creamery Co. v. Western Nat'l Mutual Ins. Co., 366 N.W.2d 271, 277 (Minn. 1985). Because the ordinary lay person may lack the skill to read and understand insurance policies and may rely on the advice of others to meet his or her needs, some courts have decided to honor the objectively reasonable expectations of the insured regarding the terms of the insurance contract even though painstaking study of the policy provisions would have negated those expectations. Id.
The reasonable expectation doctrine has not, however, been adopted in Ohio, Texas or Illinois. See Longaberger Co. v. U.S. Fidelity Guar. Co., 31 F. Supp.2d 595, 602-03 (S.D. Ohio 1998), aff'd, 201 F.3d 441 (6th Cir. 1999); Constitution State Ins. Co. v. Iso-Tex, Inc., 61 F.3d 405, 409-10 n. 4 (5th Cir. 1995); Federal Deposit Ins. Corp. v. Zabovac, 773 F. Supp. 137, 148 (C.D. Ill. 1991). In California, the doctrine applies only where there is an ambiguity in the policy language. Hallmark Ins. Co., Inc. v. Superior Court of Los Angeles County, 201 Cal.App.3d 1014, 1019 (1988). Because plaintiff Christiansen has not identified such an ambiguity in the express terms of his policy, the reasonable expectation doctrine may not be invoked to vary or contradict those terms.
Accordingly, the Court concludes the reasonable expectation doctrine is not available to any of the remaining plaintiffs, the Everetts, the Fleischers, Zaidman, or Christiansen. The Court has also concluded that the parol evidence rule bars introduction of extrinsic evidence by them in support of their breach of contract claims. These four sets of plaintiffs having thus failed to adduce evidence tending to show that Jackson National breached the express terms of their fully integrated insurance policies, it is apparent that Jackson National is entitled to summary judgment on their breach of contract claims. For the reasons stated above, however, Jackson National's motion for summary judgment on the Blisses' breach of contract claim will be denied.
C. Limitations Defense
Jackson National challenges all of plaintiffs' tort claims as untimely. Jackson National contends the alleged misrepresentations occurred at the time the subject policies were purchased. Further, Jackson National contends, to the extent plaintiffs were influenced by representations inconsistent with the actual terms of their policies, they were invariably put on notice of any discrepancy when they received their policies. Plaintiffs' causes of action are therefore said to have accrued upon their receipt of the policies, between five and eleven years prior to the filing of their respective suits.
The Court has previously ruled that the statutes of limitations of the states in which these consolidated actions were commenced, i.e., California, Texas, and Michigan, apply. Opinion on Jackson National's motion to dismiss, September 30, 1997, docket #36, p. 19. Plaintiffs rely on the discovery rule in arguing their claims were timely filed.
In its present briefing, Jackson National questions this ruling, arguing the post-transfer consolidation of plaintiffs' claims in the consolidated amended complaint had the effect of superseding plaintiff's original complaints and rendering Michigan the forum state. Jackson National therefore contends Michigan's statutes of limitations should be applied to all claims.
Jackson National has not moved the Court for relief from the prior ruling. In fact, Jackson National concedes it is of little practical consequence to the timeliness question if the Court applies the Texas and California statutes of limitations to some of the claims. Under these circumstances, and considering that the impact of the consolidation of plaintiffs' claims in one complaint is far from clear, the Court remains unpersuaded to revisit sua sponte a ruling that has been the law of the case for over two years.
1. Paul Christiansen
Plaintiff Christiansen's tort claims are governed by the California statute of limitations. The relevant periods of limitation, the parties agree, are as follows:
fraud — 3 years; negligent misrepresentation — 2 years; negligent supervision — 1 year; breach of fiduciary duty — 4 years.
See Cal. Civ. Proc. Code §§ 338(d), 339(1), 340(3), 343, respectively.
Christiansen contends all his claims accrued within the applicable time periods before his complaint was filed, on March 14, 1996, because it was only during the preceding year that he actually discovered Jackson National's wrongdoing.
Under California law, a cause of action is deemed to have accrued when a plaintiff has actual knowledge of wrongdoing or reason to suspect wrongdoing based on notice of circumstances that would put a reasonable person "on inquiry." O'Connor v. Boeing North American, Inc., 92 F. Supp.2d 1026, 1036 (C.D. Cal. 2000). If cause for suspicion exists, the plaintiff cannot simply wait for facts supporting the claim to develop, but must go find the facts and file suit if he finds them. Id.; Norgart v. Upjohn Co., 21 Cal.4th 383, 398 (1999).
Jackson National disputes Christiansen's contention regarding the date of his actual knowledge of alleged wrongdoing. Yet, even assuming a fact issue is presented on this point, Jackson National maintains Christiansen clearly had cause for suspicion when he received his policy in September 1984. That is when, Jackson National contends, the relevant periods of limitation began running.
Indeed, an insured has the duty under California law to read his policy and is charged with knowledge of its terms. State Farm Mutual Auto. Ins. Co. v. Khoe, 884 F.2d 401. 408 (9th Cir. 1989); National Automobile and Casualty Ins. Co. v. Stewart, 223 Cal.App.3d 452, 458 (1990); Cal-Farm Ins. Co. v. TAC Exterminators, 172 Cal.App.3d 564, 579 (1985). This duty may be relaxed in the insurance context and may be insufficient to bind an insured to unusual or unfair language. State Farm, 884 F.2d at 408.
Here, while a layperson might not be expected to understand the precise meaning of the ORPP provision in all respects, the provision clearly indicates that exercise of the vanish option is conditioned upon the sufficiency of the actual cash value accumulation. In the event there is insufficient cash value accumulation, the provision clearly provides that additional cash premium payments will be required. Nothing in the express terms of the ORPP provision or any other provision of the policy even arguably supports an understanding that the obligation to make premium payments would automatically and finally vanish after a certain number of premium payments.
Nothing in the terms is so unusual or unfair in its relevant import as to warrant excusing Christiansen from the duty to read the terms reasonably and find in them cause for inquiry; that is, cause for suspicion that they are inconsistent with oral representations allegedly made by sales broker Robert Greenup. Although Christiansen did not feel the sting of unexpected premium payments until some years later, with receipt of his policy, he was put on notice that the policy received was different from that for which he had bargained. Having thus received notice of circumstances giving rise to cause for suspicion of wrongdoing, the respective periods of limitation are deemed to have begun running upon Christiansen's receipt of the policy in September 1984. It was then incumbent upon Christiansen to make a reasonable and timely investigation and satisfy himself as to whether the nature of the policy and his premium obligations had been misrepresented. O'Connor, 92 F. Supp. 2d at 1036. This he appears not to have done. Christiansen has presented no evidence to suggest he inquired about the true nature of the policy and was somehow thwarted in the attempt by Jackson National. It is thus apparent that his tort claims, filed some eleven years after receipt of the policy, are untimely.
Christiansen maintains that whether and when he may be deemed to have had actual or constructive knowledge of the wrongdoing presents a question of fact that precludes summary judgment. Yet, while determination of a statute of limitations defense may typically present a question of fact, summary judgment is proper if the Court can draw only one legitimate inference from uncontradicted evidence about the issue. San Francisco Unified School Dist. v. W.R. Grace Co., 37 Cal.App.4th 1318, 1325-26 (1995). Here, plaintiff Christiansen, who bears the burden of showing the discovery rule applies to his claims, see O'Connor, 92 F. Supp. 2d at 1037, has failed to adduce evidence upon which a reasonable jury could conclude that he was not put on inquiry notice of wrongdoing upon receipt of his policy, which he is presumed to have read, in September 1984.
On this record, therefore, there is no genuine issue of material fact. Christiansen's tort claims are time-barred.
2. The "Texas Plaintiffs"
The Everetts, the Fleischers and the Blisses all commenced their action against Jackson National in Texas. The Texas statutes of limitations therefore apply to their claims and provide the following periods of limitations:
fraud — 4 years; negligent misrepresentation — 2 years; negligent supervision — 2 years; breach of fiduciary duty — 2 years.
Tex. Civ. Prac. Rev. Code Ann. §§ 16.003, 16.004(a)(3).
Under Texas law, a defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish the defense. Velsicol Chemical Corp. v. Winograd, 956 S.W.2d 529, 530 (Tex. 1997). If, as here, the discovery rule is asserted as an exception, the defendant must negate the exception as well. Id. Specifically, the defendant must (1) prove when the cause of action accrued and (2) negate the discovery rule by proving there is no genuine issue of fact concerning when the plaintiff discovered or should have discovered the nature of the injury. Hendricks v. Thornton, 973 S.W.2d 348, 365-66 (Tex.App.-Beaumont 1998). If the defendant meets these requirements, plaintiff must then adduce evidence raising a fact issue in avoidance of the defense. KPMG Peat Marwick v. Harrison County Housing Finance Corp., 988 S.W.2d 746, 748 (Tex. 1999).
The discovery rule applies if "(1) the injury is inherently undiscoverable; and (2) the evidence of the injury is objectively verifiable." Id. An injury is "inherently undiscoverable if it is by nature unlikely to be discovered within the prescribed limitations period despite due diligence." S.V. v. R.V., 933 S.W.2d 1, 7 (Tex. 1996). An injury is "objectively verifiable if the presence of injury and the producing wrongful act cannot be disputed, and the facts upon which liability is asserted are demonstrated by direct physical evidence." Hay v. Shell Oil Co., 986 S.W.2d 772, 777 (Tex.App.-Corpus Christi 1999).
Review of Texas case law persuades the Court that the tortious injuries here alleged are properly deemed "inherently undiscoverable" and "objectively verifiable." Where plaintiffs allegedly purchased policies based on illustrations of projected performance and on sales broker representations to the effect that the policies would be "paid-up" after a stated number of premium payments; and where the policies were not made available to them until some weeks or months after they had purchased the policies and paid the initial premium; and where the failure of the policies to perform as represented would not become apparent until several years later when unexpected additional premium payments were required, the alleged misrepresentations can fairly be characterized as "unlikely to be discovered within the prescribed period despite due diligence" — especially where, as seen below, Texas law imposes no duty on the insured to read his policy. See Murphy v. Campbell, 964 S.W.2d 265, 270-71 (Tex. 1997) (injury resulting from reliance on expert advice is inherently undiscoverable); Hendricks, 973 at 364-65 (same). Further, the alleged injury is "objectively verifiable" in that Jackson National undisputedly issued notice of additional premium requirements beyond those allegedly represented to be required. See Murphy, 964 S.W.2d at 271 (injury in the form of tax liability flowing from faulty advice is objectively verifiable). Hence the discovery rule may apply to these tort claims of the "Texas plaintiffs."
(a) The Everetts
Jackson National contends the Everetts should have discovered the nature of the alleged wrongdoing and injury when their policy issued, on March 21, 1990. Because they did not file suit until March 21, 1996, Jackson National contends all their tort claims are untimely.
Although the record is not absolutely clear, it appears the Everetts did not actually receive a copy of the policy until some unidentified time in 1994. C. Everett Dep. at pp. 58-59. The policy was provided to them by Ralph Higgins, Trustee of the Everett Family Irrevocable Trust, after they had first been advised, sometime during the period January to May 1994, that more than six annual premium payments would be required to maintain their policy. There is no evidence they had read the ORPP provision or any other provision of the policy prior to that time.
Under Texas law, an insured is presumed to know the contents of his or her policy. Colonial Savings Ass'n v. Taylor, 544 S.W.2d 116, 119 (Tex. 1976); Fort Worth Mortgage Corp. v. Abercrombie, 835 S.W.2d 262, 265 (Tex.App.-Houston 1992). The presumption can be overcome, however, by proof that the insured did not know the contents. Colonial Savings, 544 S.W.2d at 119; Fort Worth, 835 S.W.2d at 265.
Here, the deposition testimony of both Charles Everett and Patricia Everett demonstrates they had no actual knowledge of the contents of their policy until sometime in 1994. Not until then can they be charged even with constructive knowledge, based on the policy contents, of grounds to suspect misrepresentation.
Sometime after January 1994, but before they received the policy, the Everetts had been advised of the need to make continuing payments beyond the six annual payments. This information put them on notice of possible wrongdoing and their causes of action may then be deemed to have accrued. If this notice was received prior to March 21, 1994, the Everetts' negligence and breach of fiduciary duty claims would be barred by the applicable statute of limitations. On the present record, however, this fact has not been established. Jackson National has failed to carry its burden of negating the discovery rule by demonstrating there is no question but that the Everetts discovered or should have discovered the alleged wrongdoing more than two years prior to filing suit. There being a genuine issue of material fact, Jackson National's motion for summary judgment on the Everetts' tort claims based on the limitations defense must be denied.
(b) The Fleischers
The Fleischers' policy was issued on December 28, 1990. They filed suit on March 21, 1996. They had received notice in early 1995 that their policy had been converted, due to nonpayment of premiums, from the $500,000 Ultimate policy they had purchased to an $85,000 paid-up policy. Jerome Fleischer asked a family friend who was an insurance agent, Dale Greenblatt, for help in identifying and resolving the problem. In the course of determining that the Fleischers had failed to pay a number of past due premiums because they had not received the premium notices, Greenblatt also advised them that their vanishing premium policy probably would not have performed as well as they had expected. Following several communications between the parties over the next several months, the Fleischers decided to surrender the policy. They made this decision despite Jackson National's offer in December 1995 to restore their $500,000 Ultimate policy under the terms which the Fleischers believed they had originally agreed to when they purchased the policy. That is, Jackson National offered them a policy consistent with sales agent Gary Gray's alleged representation that after seven annual premium payments, the premium would "vanish," i.e., be paid from the policy's cash value accumulation and, if this were insufficient, by Jackson National. Jerome Fleischer rejected the offer essentially because he felt he had been treated unfairly and he "no longer wanted to do business" with Jackson National. J. Fleischer Dep. p. 100.
The record adequately demonstrates that the Fleischers had not read their policy and were not familiar with its contents. They cannot therefore be deemed to have been put on notice of the discrepancy between any alleged representations and the actual terms of the policy by their receipt of the policy. Still, the discovery rule is properly invoked only if the alleged injury is both inherently undiscoverable and objectively verifiable.
For the reasons stated above, in connection with the Everetts' claims, the Court is satisfied that the Fleischers' injury was inherently undiscoverable. There appears to be no evidence, however, that their injury is objectively verifiable, no direct physical evidence of injury resulting from the alleged misrepresentations. Jackson National has not only not given notice of additional premium requirements, but has offered the Fleischers a policy conforming to the alleged misrepresentations. The Fleischers' anticipation, based on Greenblatt's opinion, that their