Opinion
CIVIL ACTION NO. 16-6605
2022-08-09
IN RE: LINCOLN NATIONAL COI LITIGATION
MEMORANDUM
PAPPERT, District Judge
In 2016 and 2017, Lincoln National Life Insurance Company increased the cost of insurance rates on certain universal life insurance policies issued by its predecessor Jefferson-Pilot. In this case, a group of individuals and entities whose policies were subject to the 2016 increase allege Lincoln breached its contracts with policyholders and move to certify a class to pursue claims for damages and injunctive relief on their behalf. They also seek to enjoin Lincoln from denying policy illustrations to policyholders during their policies' grace periods. Lincoln opposes the motion and moves to exclude the opinions of plaintiffs' actuarial and damages experts. The Court excludes the opinions of plaintiffs' actuarial expert, denies Lincoln's motion with respect to plaintiffs' damages expert, and denies plaintiffs' motion for class certification.
I
A
This litigation involves universal life insurance policies issued by Jefferson-Pilot between 1999 and 2007. (Desmonds Decl. ¶¶ 2-3, ECF 59-1.) Each policy is one of four "Legend" products: Legend 100, 200, 300 and 400.
Universal life insurance policies have two components, a policy account and a death benefit. (Pfeifer Report ¶¶ 14-16, ECF 194-7.) Premiums are flexible; the policyholder can choose how much and how often to pay. (Id. ¶ 18.) They are deposited into the policy account, where they earn interest. (Id.) Charges are then deducted from the account each month. (Id. ¶ 14.)
Typically, universal life policyholders can choose between two types of death benefits. The first provides policyholders with the "face amount" of the policy, minus any withdrawals or indebtedness. (Id. ¶ 15.) Any remaining funds in the account are used to pay the death benefit and the insurer covers the rest. Under the second option, owners receive the face amount and any remaining funds in the policy account. (Id.)
Universal life insurance accounts include guaranteed and non-guaranteed elements. (Id. ¶ 16.) Guaranteed elements, like the minimum interest rate credited to the policy account, do not change. By contrast, the insurer can adjust non-guaranteed elements, though its discretion is often limited. (Id.)
One of the non-guaranteed elements of the Legend products is the "cost of insurance" rate. Each month, Lincoln deducts a cost of insurance charge from the policy account. That charge is calculated by multiplying the net amount at risk—the value of the policy's death benefit minus the value of its policy account—by the cost of insurance rate. (Id. ¶¶ 21-22.) Each policy uses the same language to describe cost of insurance rates:
Both Lincoln National Corporation and Lincoln National Life Insurance Corporation are defendants in this case. (Second Am. Consolidated Compl. ("SAC") ¶¶ 19-20, ECF 72.) The Court uses "Lincoln" to refer to both.
Cost of Insurance Rates - The monthly cost of insurance rates are determined by us. Rates will be based on our expectation of future mortality, interest, expenses, and lapses. Any change in the monthly cost of insurance rates used will be on a uniform basis for Insureds of the same rate class.(Milliman Report at 3, ECF 118-1.) The products also guarantee a minimum annual interest rate of four percent. (Id. at 24); (Pfeifer Report ¶ 14). Each product was divided into four or five rate classes—Smoker, Preferred Smoker, Non-Smoker, Preferred and Preferred Plus. (Milliman Report at 8.)
Only the Legend 400 product had a preferred smoker rate class. (Milliman Report at 10.)
In 2016, Lincoln redetermined the cost of insurance rates for each of the Legend products. (Pfeifer Report ¶¶ 46-49.) It hired Willis Towers Watson, an actuarial consulting firm, to develop updated mortality assumptions. (Id. ¶ 47.) Willis Towers Watson developed a number of factors Lincoln could apply to an updated mortality table to better reflect Lincoln's own mortality experience. This included factors to account for things like rate class and gender, but also factors that reflected the unique mortality experience associated with Jefferson's Exchange program—which allowed policyholders to obtain a new policy without additional underwriting—and its Automatic Reduction to Standard (or table-shave) program. (Willis Towers Watson Mortality Study §§ 3.2, 3.3, 5.2, 5.3, ECF 118-1.) Lincoln instructed Willis Towers Watson not to group policies by face amount when evaluating their mortality experience. (Id. § 3.5); (Desmonds Dep. Vol. II at 367:18-25, ECF 118-1).
It then hired Milliman, Inc., another actuarial firm, to recommend adjustments to the policies' cost of insurance rates. (Pfeifer Report ¶ 48.) Using Lincoln's asset-liability management program, Milliman set up a model that allowed it to project the future profitability of each rate class under two sets of assumptions, those used at pricing and Lincoln's updated assumptions. (Milliman Report at 5).
The redetermination proceeded in several stages. First, Milliman used the pricing assumptions to "establish a baseline . . . of future expected profitability." (Milliman at 5.) Then it updated the assumptions in steps, "in order to see the impact of each set of changes on the present value of . . . profits." (Id. at 5.) This included updated assumptions about mortality, reinsurance utilization, reinsurance premiums, lapses and investment earnings. (Id. at 6.)
The goal was to produce a series of multipliers—what Milliman called "a vector of scalars"—for each rate class that Lincoln could apply to its cost of insurance rate schedule so that the present-value of profits using current assumptions would be "similar to, but not in excess of" expected profits at pricing. (Id. at 8.) Ultimately, Milliman recommended a mix of increases and decreases to cost of insurance rates. (Id. at 8-10.) Some rate classes received only increases, others only decreases, and some a mix of both.
While Milliman calculated for each rate classes' scalars separately, Lincoln directed it to make a number of across-the-board assumptions. For example, while reinsurance was not specifically included in the list of factors Lincoln could consider when setting cost of insurance rates, it treated reinsurance utilization as part of expected future mortality and changes to reinsurance premiums as part of expected future expenses. (Id. at 3.) Lincoln also assumed reinsurers would raise premiums in response to adverse changes in mortality expectations, that policies would lapse in response to increased cost of insurance rates ("shock lapses"), and that policyholders would continue to fund their policies at the same levels they had in the year before the redetermination. (Id. at 5-6); (Desmonds Dep. Vol. II at 360:10-25).
In September 2016, Lincoln notified policyholders it would increase the cost of insurance rates applicable to their policies beginning the following month. It explained that "while the majority of the rate changes are increases, some adjustments will be decreases, depending on future expectations of policy cost factors." (Friedman Decl., Ex. 23, ECF 113-23.) In the letter, Lincoln pointed to "low interest rates . . . and volatile financial markets" as factors that led to cost of insurance increases. (Id.) It told brokers that lower investment income, updated mortality assumptions, and higher reinsurance rates were "key cost factors" that drove the adjustments. (Rappaport Decl., Ex. 4, 40-6.)
B
Unsurprisingly, policyholders sued. The Court consolidated four putative class actions and appointed Barrack, Rodos & Bacine, Bonnett, Fairbourn, Friedman & Balint, P.C., the Moskowitz Law Firm, PLLC, and Susman Godfrey L.L.P. as interim class counsel. (ECF 29 & 75.) Plaintiffs now move to certify a class of "all owners of JP Lifewriter Legend 100, 200, 300 and 400 series life insurance policies subjected to an increase in the cost of insurance rates implemented by Lincoln beginning on October 9, 2016" to pursue a breach of contract claim under Federal Rule of Civil Procedure 23(b)(3) and to seek injunctive relief under Rule 23(b)(2). (Mem Supp. Class Certification at 3, ECF 112.)
The plaintiffs seeking to represent the class are Robert Rombro and Harriet Kanter, trustees of the Alan Norman Kanter Trust, Ivan Mindlin, trustee of the Mindlin Irrevocable Trust, Alan Mindlin, the insured who funded the Mindlin Trust's policy, Richard Weinstein, Lowell and Carol Anne Rauch, Bharti Bharwani, Robert A. Zirinsky, Barry Mukamal, trustee of the Mutual Benefits Keep Policy Trust; US Life 1 Renditefonds GmbH & Co. Kg ("US Life 1") and US Life 2 Renditefonds GmbH & Co. Kg ("US Life 2"); Milgrim Investments, LP, and Barbara Valentine. (Mot. Class Certification, ECF 111); (SAC ¶¶ 9-18).
Three other cases contesting the 2016 cost of insurance increases are also proceeding in this Court. See Fourth Amended Complaint ¶ 4, EFG Bank AG, Cayman Branch, et al. v. The Lincoln National Life Insurance Company, No. 17-2592 (E.D. Pa. June 25. 2020), ECF 133; Complaint ¶¶ 1-2, Conestoga Trust, et al. v. Lincoln National Corp., et al., No. 18-2379 (E.D. Pa. June 6, 2018), ECF 1; Complaint ¶ 1, LSH Co. and Wells Fargo Bank, N.A. as securities intermediary for LSH Co. v. Lincoln National Corp. et al., No. 18-5529 (E.D. Pa. Dec. 21, 2018), ECF 1.
Initially, plaintiffs also sought to bring a claim under North Carolina's Deceptive and Unfair Trade Practices Act (NCDPTA) on behalf of the nationwide class and to certify seven state sub-classes alleging Lincoln violated the implied covenant of good faith and, to the extent the NCDTPA claim was not certified as a nationwide class, state consumer protection laws. (Mem. Supp. Class Certification at 3, 6.) Plaintiffs withdrew their request to pursue an NCDTPA claim on behalf of the nationwide class in its reply, (Reply at 4 n.1, ECF 209), and withdrew its request to certify state subclasses after oral argument. (Order Granting Unopposed Motion to Stay Individual Claims ¶ 2, ECF 235.) It also withdrew its request for "injunctive relief allowing class members to restore their Policies to the status quo prior to the COI increases." (Id. ¶ 3.)
Plaintiffs offer the declarations of Larry Stern, an actuarial expert, and Robert Mills, a damages expert, in support of their motion. See (Decl. Larry N. Stern Supp. Class Certification, ECF 120); (Decl. Robert Mills Supp. Class Certification, ECF 119). Lincoln moves to exclude both opinions under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). (Mot. Exclude, ECF 192.)
II
When expert testimony relevant to class certification is challenged, the Court may rely on it only if it satisfies the requirements set forth in Daubert and Federal Rule of Evidence 702. In re Blood Reagents Antitrust Litig., 783 F.3d 183, 187 (3d Cir. 2015). If the testimony may be "important to an issue decisive for the motion for class certification," the Court should resolve the challenge before considering the certification motion. Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 812 (7th Cir. 2012).
Daubert and Federal Rule of Evidence 702 impose a "trilogy of restrictions on expert testimony: qualification, reliability and fit." Schneider ex rel. Est. of Schneider v. Fried, 320 F.3d 396, 404 (3d Cir. 2003). To satisfy these requirements, an expert must "possess specialized expertise," have "good grounds" for his opinions, and offer opinions that are relevant and helpful to the trier of fact. Id. Daubert applies not just to scientific opinions, but to all testimony based on technical or specialized knowledge. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). The party seeking to introduce the testimony bears the burden of proving these requirements have been met. In re Niaspan Antitrust Litig., 464 F. Supp. 3d 678, 692 (E.D. Pa. 2020). Lincoln does not challenge Stern's or Mills' qualifications. Instead, it contends their opinions lack reliability and fit.
The Third Circuit has not determined whether courts may apply a more "relaxed" version of Daubert when the judge is the trier of fact. See UGI Sunbury LLC v. A Permanent Easement for 1.7575 Acres, 949 F.3d 825, 833 n.4 (3d Cir. 2020). There is no reason to do so, however, because even admissible expert opinions offered at class certification must be rigorously analyzed. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 323 (3d Cir. 2008), as amended (Jan. 16, 2009).
Daubert's "reliability analysis . . . applies to all aspects of an expert's testimony: the methodology, the facts underlying the expert's opinion, and the link between the facts and the conclusion." ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 291 (3d Cir. 2012) (citation and alteration omitted). The focus of the inquiry is on the soundness of the expert's "methods and reasoning," not the persuasiveness of his opinions. Kannankeril v. Terminix Int'l, Inc., 128 F.3d 802, 806 (3d Cir. 1997). An expert's opinions need not be "supported by the best methodology or unassailable research," but "haphazard, intuitive inquiry" is unacceptable. UGI Sunbury LLC v. A Permanent Easement for 1.7575 Acres, 949 F.3d 825, 834 (3d Cir. 2020). If an expert's opinion "rests upon good grounds, based on what is known," it should not be excluded out of concern the trier of fact "will not grasp its complexities or satisfactorily weigh its inadequacies." United States v. Mitchell, 365 F.3d 215, 244 (3d Cir. 2004) (citations and internal quotation omitted). "Rule 702 and Daubert put their faith in an adversary system designed to expose flawed expertise." Id. at 244-45.
When evaluating an expert's methodology, the Court should consider:
(1) whether a method consists of a testable hypothesis;Id. at 235 (citation omitted). These factors "are neither exhaustive nor applicable in every case." Pineda v. Ford Motor Co., 520 F.3d 237, 248 (3d Cir. 2008) (quoting Kannankeril, 128 F.3d at 806-07). Instead, the inquiry is a "flexible one" that should be tailored to the type of knowledge at issue. Id. (quoting Daubert, 509 U.S. at 594, 113 S.Ct. 2786.)
(2) whether the method has been subject to peer review;
(3) the known or potential rate of error;
(4) the existence and maintenance of standards controlling the technique's operation;
(5) whether the method is generally accepted;
(6) the relationship of the technique to methods which have been established to be reliable;
(7) the qualifications of the expert witness testifying based on the methodology; and
(8) the non-judicial uses to which the method has been put.
When an expert relies "solely or primarily on experience," he must explain "how that experience leads to the conclusion reached, why that experience is a sufficient basis for the opinion, and how that experience is reliably applied to the facts." Fed. R. Evid. 702 advisory committee's notes to 2000 amendment. An expert's experience and conclusions cannot "meet only by assumption." UGI Sunbury, 949 F.3d at 834.
The "fit" requirement means "the expert's testimony must be relevant for the purposes of the case and must assist the trier of fact." Schneider, 320 F.3d at 404. Fit "goes primarily to relevance. Expert testimony which does not relate to any issue in the case is not relevant and, ergo, non-helpful." Daubert, 509 U.S. at 591, 113 S.Ct. 2786 (citations and internal quotations omitted). " 'Fit' is not always obvious, and scientific validity for one purpose is not necessarily scientific validity for other, unrelated purposes." Id. Testimony that is speculative and based on assumptions does not "fit" because, unmoored from the evidence in the case, it cannot assist the trier of fact. UGI Sunbury, 949 F.3d at 835 (citing In re TMI Litig., 193 F.3d 613, 670 (3d Cir. 1999)).
III
Plaintiffs' actuarial expert Larry Stern offers eight opinions in his declaration supporting class certification:
(1) the class policies and their owners are objectively identifiable from Lincoln's business records;(Stern Decl. ¶ 12, ECF 120.) Lincoln challenges all but the third.
(2) the class policies all share the same contract provisions governing the determination of COI rates;
(3) the COI increases were subject to the same actuarial constraints;
(4) the COI increases for all class policies were developed using the same methodology and the same actuarial cash flow projection model;
(5) the COI increases had a common impact on all class polices in that the increases raised the COI rates applicable to all class policies;
(6) the same factual determinations will establish for all class policies whether the COI increases were based on permissible adjustment factors;
(7) the same factual determinations will establish for all class policies whether the COI Increases were based on improper, biased, or unwarranted assumptions regarding Lincoln's expected future experience; and
(8) the same factual determinations will establish for all class policies whether the COI increases improperly seek to recoup past losses.
The Court need not consider Lincoln's challenge to "Stern's opinions on Lincoln's state of mind and intent" because they are not "critical" to class certification. Blood Reagents, 783 F.3d at 187 & n.8. Assuming he offered opinions on those points, they are not relevant to plaintiffs' breach of contract claim, much less class certification.
A
First, Lincoln asks the Court to exclude Stern's first and second opinions because they require no actuarial expertise. The Court agrees. An expert opinion is only admissible under Daubert and Rule 702 if "the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue." Fed. R. Evid. 702(a). If the expert "simply reads and interprets evidence . . . as any juror might," their opinion is not necessary or proper. In re Processed Egg Prod. Antitrust Litig., 81 F. Supp. 3d 412, 421 (E.D. Pa. 2015).
Stern's opinion that the owners of class policies are objectively identifiable from Lincoln's business records is based primarily on the testimony of Lincoln's corporate designee, actuary Beth Desmonds. See (Stern Decl. ¶¶ 30-32). But the significance of Desmonds' testimony is "readily understandable without [expert] testimony." Dalgic v. Misericordia Univ., No. 16-443, 2019 WL 2867236, at *11 (M.D. Pa. July 3, 2019). The same is true for Stern's opinion regarding the relevant contract language. The Milliman Report and the policy forms "speak for themselves." Ctr. City Periodontists, P.C. v. Dentsply Int'l, Inc., 321 F.R.D. 193, 203 (E.D. Pa. 2017). It is not clear what, if anything, Stern's actuarial expertise adds to the record evidence. His opinions will be excluded because they are unhelpful.
She explains that Lincoln maintains a database that (1) identifies the owners of in-force policies and (2) was used to notify policyholders of the 2016 cost of insurance adjustments. (Desmonds Dep. Vol. I at 136:2-22, 137:3-13, ECF 118.)
B
The Court will also exclude Stern's fourth and fifth opinions. They veer from mundane observations to unsupported assertions. The former are unhelpful because they do not depend on actuarial expertise; the latter because they are unreliable.
1
In subsection V.G. of his declaration, Stern opines that Lincoln used a common methodology and "single actuarial class flow projection model" to calculate the 2016 cost of insurance adjustments for all class policies. But beyond a passing reference to the actuarial practice of grouping policies for the purpose of determining those policies' non-guaranteed elements, see (Stern Decl. ¶ 44 (citing Actuarial Standard of Practice 2, §§ 2.6, 3.4)), there is no indication his actuarial knowledge is necessary to understand this undisputed fact. Lincoln's corporate designee confirmed in her deposition that Lincoln used the same methodology and computer program to determine the cost of insurance adjustments for all class policies. See (Desmonds Dep. Vol. I at 134:4-24, ECF 118).
The parties disagree about whether, by using the same software and methodology, Lincoln used the same "model" for all class policies, or whether the fact that Milliman separately calculated the vectors for each rate class meant it actually used seventeen different models. This dispute is semantic. It is clear Milliman calculated the projected future profitability of each rate class separately, even if they shared some common assumptions and were developed using the same methodology and software. (Milliman Report at 11.)
From this unremarkable observation, Stern concludes that "any" correction to the model inputs that reduces rates or eliminates an impermissible factor will establish the cost of insurance increases applied to all class policies were impermissible. (Stern Decl. ¶ 49); see also (id. ¶ 50). But this conclusion flows from a premise for which Stern lacks good grounds: that the model "uses common assumptions . . . for each product and underwriting class." (Id.)
There are two ways to interpret this portion of Stern's declaration. Read narrowly, he says only that the assumptions for all policies within a product and underwriting class were the same. See (id. ¶ 49 ("any assumption found to be improper or impermissible will impact all Class Policies within the same product series and rating class")). If so, his assessment is accurate—the Milliman Report confirms as much—but does not support his conclusion. A change to the assumptions used for the Legend 100 smoker rate class would necessarily impact all policies in that product and rate class, but not necessarily every policy in a different product or rate class.
Read broadly, Stern suggests the assumptions used in the redetermination process were the same across all products and underwriting classes. If this were true, it could support his ultimate conclusion that a successful challenge to one assumption would prove that all of the challenged cost of insurance adjustments were impermissible. But Stern has no reason to believe it is true. For one thing, the graphs of scalars for each product and rate class illustrate that at least some of the assumptions varied by product and rate class. (Milliman Report at 8-10, ECF 118-1.) If all of the assumptions—pricing and current—were the same for each product and rate class, one would expect the redetermination process to produce a single set of scalars applicable to every policy, regardless of product and rate class. They did not. (Id.) Stern gave no coherent explanation for how his conclusion could be reconciled with the varied results of the redetermination process. See, e.g., (Stern Dep. at 207:11-21, ECF 194-4). An expert's conclusions cannot be based on "subjective beliefs and unsupported assertions." Whyte v. Stanley Black & Decker, Inc., 514 F. Supp. 3d 684, 695 (W.D. Pa. 2021).
When asked whether it was probable that the factual inputs for the Legend 100 policies were identical to the inputs for the Legend 200 policies despite the divergent outcomes of the determination, Stern was stumped. (Id. at 207:18-19 ("I guess I would have to think about that. I can't answer that one.").) Earlier in the deposition, he admitted mortality assumptions "would be different depending upon what underwriting risk classification was being considered" and that "there may be some assumptions that might be different based upon the products [themselves]." (Id. at 194:11-20.)
More fundamentally, Stern has no basis for saying all products and rate classes shared common assumptions, since he admitted he did not "look[ ] at the inputs or the assumptions that went into the model." (Id. at 201:2-4.) He "assum[ed] . . . these Legend policies [were] are similar in characteristics and their design," (id. at 201:11-14), but he has not "analyzed or reviewed the assumptions or the experience that [were] the basis for the inputs into the model, (id. at 203:19-22). He did not know "one way or the other" whether the assumptions for each product and rate class were the same. (Id. at 201:6-8); see also (id. at 204:18-24). At the end of the day, his conclusion was "pure conjuncture." (Id. at 209:13); see also (id. at 209:6-12).
Instead, Stern relies on a portion of Desmonds' testimony concerning the assumptions used for the Legend 300 policies. See (Stern Decl. ¶ 49 n.42); (Stern Dep. at 203:5-9). That may establish that the Legend 300 policies shared common assumptions, but it does not provide a basis for concluding that the same assumptions were used for the other Legend products at issue. Without reviewing all the inputs into the redetermination model for every product and rate class, Stern could not say that all of the inputs were the same. He could only assume that they were. But expert opinions based on "leaps of logic" and speculation are not reliable. UGI Sunbury, 949 F.3d at 835. Those unsupported assumptions also deprive Stern of the capacity to assist the finder of fact. Id.
2
For similar reasons, the Court will exclude Stern's fifth opinion—that "the COI increases had a common impact on all Class Policies in that the increases raised the COI rates applicable to all Class Policies." (Stern Decl. at ¶¶ 12(e), 51.) This opinion is tautological, because the proposed class is limited to policyowners "subjected to an increase in the cost of insurance rates" as a result of the 2016 redetermination. (Mot. Class Cert. at 5, ECF 117.)
Based on his understanding of the class definition, Stern claims the cost of insurance adjustments "increased the slope . . . of the pre-existing cost of insurance rate schedule for all Class Policies . . . so as to magnify the increases occurring in each policy year" and "increased the COI rates on an overall basis for all Class Policies." (Stern Decl. ¶ 51.) But these conclusions are based on a faulty and unsupported understanding of the class.
Not every member of the class received cost of insurance rate increases in each policy year. Some products and rate classes experienced increases in some years and decreases in others. See, e.g., (Pfeifer Report ¶¶ 72-73); (Milliman Report at 8-9). Stern did not consider whether individuals who received a mix of increases and decreases were part of the proposed class, (Stern Dep. 25:19-26; 27:3-22), so his opinions that all class members experienced increases in "each policy year" and "on an overall basis" are unreliable.
Stern's "off-the-cuff understanding" was that the class included only policies that were projected to experience a net increase in cost of insurance rates. (Id. at 25:25); see also (id. at 34:19-25). That is incorrect. Plaintiffs' counsel confirmed the proposed class includes any policy that experienced a cost of insurance rate increase in any year, regardless of the net effect of the redetermination. (Class Certification Hr'g Tr. at 131:13-132:15, ECF 132 ("[W]e're not actually netting out damages . . . we don't think that they should be netted.")); see also (Mills Decl. ¶ 26 n.52, EC 119). Without "data supporting the application of [his] theory" to the facts of this case, Stern's opinion is unreliable and unhelpful. UGI Sunbury, 949 F.3d at 835.
C
Stern offers three other challenged opinions. He contends that whether Lincoln (1) considered impermissible factors in adjusting the cost of insurance rates, (2) used improper assumptions when redetermining cost of insurance rates or (3) impermissibly recouped past losses can be determined on a classwide basis. (Stern Decl. ¶ 12(f)-(h)). Each of these opinions contains subsidiary conclusions about proving the permissibility or propriety of specific elements of Lincoln's redetermination process and supplemental conclusions about proving the impact those elements had on the class. None are admissible.
1
According to Stern, whether Lincoln was permitted to consider reinsurance utilization, investment earnings, policy funding levels, and policy loan utilization can be determined on a classwide basis. (Stern Decl. ¶¶ 54, 81.) Similarly, common proof will show whether Lincoln was permitted to "reslope" the cost of insurance rate schedule. (Id. ¶ 81.)
Stern's conclusions on these points follow from three straightforward and largely uncontested premises. First, the pertinent contract provisions—which were the same for all class policies—contained a list of factors Lincoln was permitted to consider. Compare (Stern Decl. ¶¶ 33-37) with (Milliman Report at 3) and (Desmonds Dep. Vol. I at 132:11-133:9). Second, the policies are subject to the same actuarial constraints. (Stern Decl. ¶¶ 12(c), 38-43.) And third, Lincoln and Milliman used the same methodology to determine the COI rate adjustments applicable to all class policies. Compare (id. ¶¶ 46-48) with (Milliman Report at 1, 4-6); (Desmonds Dep. Vol. I at 134:4-24). If a factor or assumption was employed in a common way as part of the redetermination process, the permissibility of that factor can be adjudicated on a classwide basis.
Still, these opinions are inadmissible. Experts may not offer legal opinions, and contract interpretation is a legal question for the Court to decide. In re Downey Fin. Corp., 593 F. App'x 123, 126 (3d Cir. 2015). While "the line between admissible . . . expert testimony" and inadmissible legal conclusions "often becomes blurred . . . when the testimony concerns a party's compliance with customs and practices," Berckeley Inv. Grp., Ltd. v. Colkitt, 455 F.3d 195, 218 (3d Cir. 2006), Stern's opinions fall on the wrong side of the line. Stern's testimony is not "limited to an explanation of business custom" or the meaning of a particular term in the life insurance industry. Id. at 218. Instead, he asserts that any decision the Court makes about what is permissible under the terms of the policies will apply to all class policies. (Stern Decl. ¶ 71.) In doing so, he assumes terms should be given the same meaning across all policies. Expert testimony about industry standards may be relevant to that determination, but it is ultimately a decision for the Court to make. Cf. Gillis v. Respond Power, LLC, 677 F. App'x 752, 756 (3d Cir. 2017).
2
Stern also concludes the propriety of Lincoln's future experience assumptions can be assessed on a classwide basis. But he does not provide a reliable basis for this opinion.
He explains that the actuarial analysis used to determine non-guaranteed elements of life insurance policies must be based on reasonable assumptions. (Stern Decl. ¶¶ 89-93 (citing Actuarial Standards of Practice 2, 24 and 41)); see also (Pfeifer Report ¶¶ 29-32). He then identifies various assumptions that were the same across all class policies. For instance, Lincoln assumed (1) reinsurance rates would rise for all class policies, (2) investment earnings would be the same for all class polices, and (3) policyowners would not adjust their premium payments in response to the redetermination. (Stern Decl. ¶¶ 60, 63-64, 76, 102.) He also notes that Lincoln did not developed separate mortality factors based on policy face amount. (Id. ¶ 96). In each case, either the Milliman report, the Willis Towers Watson mortality study, or other documentation associated with the redetermination model confirmed that Lincoln used the same assumptions for all class policies.
The problem is that Stern does not explain why he believes each assumption will either be reasonable for all products and rate classes or for none of them, the pertinent question for class certification. While he emphasizes the need to base assumptions on "credible historical experience," (Stern Decl. ¶¶ 89-93), he does not explain why he believes the historical experience of all Legend products was the same, or why the experience of each Legend product and rate class would be relevant to all others. If the historical experience of the class policies varied by product, then the same assumption might be reasonable as applied to one product and unreasonable as applied to another.
Stern cites only Lincoln's representation in its 2015 NAIC Annual Statement that "[a]nticipated experience is allocated to each product based on credible, historical experience with policies of similar type." (Stern Decl. ¶ 93.) Read in isolation, this statement is hopelessly ambiguous. "Type" could mean policies in the same rate class, policies of the same general kind (universal life, for example), or anything in between. Nowhere does Stern explain what "type" means in this context, and the bare assertion that experience is "allocated to each product" seems to cut against his claim. See also (Milliman Report at 4 (noting that "[e]xperience will be allocated to each product")).
Moreover, Stern had no reason to believe the experience for each product would be the same. Whether two products share similar experience depends in part "on the design of the product." (Stern Dep. at 204:17.) But Stern did not "look at the pricing assumptions or the documentation write-up for what market the [products were] designed to attract," so he had no idea whether the Legend products were likely to have similar experience. (Id. at 201:12-15.)
Plaintiffs compare Stern's opinions to those of experts who were permitted to testify about industry standards based on their training and experience. But the comparison is superficial. In the typical case, an expert might rely on their experience to "compare and contrast industry practices [with] the facts before them." Ke v. Liberty Mut. Ins. Co., No. 20-1591, 2021 WL 5203150, at *3 (E.D. Pa. Nov. 9, 2021). But Stern is not opining that Lincoln's conduct violated industry standards. See (Stern Decl. ¶ 10); (Stern Dep. at 157:13-20). He is arguing that a violation of standards can be proven on a classwide basis. That would only be true if the relevant facts were the same for all products.
The mere fact that Stern considered industry standards and reviewed internal company documents does not automatically render his opinion reliable. They must logically support the conclusion he offers. Whyte, 514 F. Supp. 3d at 695-96. That Lincoln used the same assumptions for all class policies, and that those assumptions should have been based on credible historical experience, does not demonstrate the same historical experience was relevant to all class policies. Stern did not discuss the standards or analyze the documents necessary to answer that question.
The economic analysis admitted in In re Processed Egg Products Antitrust Litigation provides a better analogy for the type of analysis Stern should have performed. There, in offering an opinion about whether the defendants' behavior was consistent with collusion, the expert identified conditions that make a market conducive to collusion, examined whether those conditions existed in the egg market, then considered whether activity in the egg market during the relevant period suggested collusion. In re Processed Egg Prod., 81 F. Supp. 3d at 422-23. His expertise, the court explained, was "in knowing what evidence to look for." Id. If Stern had explained what process actuaries use to determine the universe of historical experience they rely on when setting an assumption and why, applying those principles, he believed that the same or similar experience would be relevant to all class policies, his opinion may have been helpful and reliable. But he did not.
In the absence of "any sort of standard or methodology that the Court can assess," Whyte, 514 F. Supp. 3d at 695, the Court is left with an opinion "connected to existing data only by the ipse dixit of the expert," Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997). That is not enough.
3
Stern also says these allegedly impermissible and improper assumptions had a common impact on the class policies. See, e.g., (Stern Decl. ¶¶ 79, 83, 84, 101, 103). Again, he stumbles. As previously discussed, Stern improperly assumed that all class policies experienced mostly increases in their cost of insurance rates and that all of the inputs into the redetermination model were the same or similar. See supra, subsections III.B.1-2. Those failings undercut his conclusions here as well.
Other faulty assumptions abound. For example, Stern asserts that Lincoln's funding assumptions "adversely impacted the owners of Class Policies." (Id. ¶ 103.) But that conclusion follows from the unsupported assumption that Milliman measured projected profits on an aggregate basis, rather than per thousand dollars of death benefit. (Stern Dep. at 104:23-106:2.) Stern, however, "[did not] know how the model handled" profit. (Id. at 105:3-12.) More damning still, he admitted that if the policies were "priced on a lapse supported basis . . . more lapses would be beneficial." (Id. at 111:7-11.) But Stern did not "know how the Legend policies were priced." (Id. at 111:13-14.)
Stern also admitted he did not know whether Lincoln's decision not to group its mortality data by face-amount had an adverse impact on the class. Compare (Stern Decl. ¶¶ 96) with (Stern Dep. at 157:13-18 ("[T]he whole discussion about mortality . . . [is] to demonstrate possibilities, but I'm not opining that these are in fact what actually happened because I don't know.")).
4
Stern's opinion about recouping past losses must also be excluded because it too is tainted by improper assumptions concerning the similarity of the class policies. Whether a cost of insurance adjustment operates to recoup past losses depends on whether the new rate "produce[s] profits higher than the profit levels projected when the policies were issued, based on appropriate pricing assumptions." (Stern Decl. ¶ 106.) Put another way, an insurer can recoup past losses by understating future expected profitability, overstating profitability at pricing, or both. (Id. ¶ 110.)
To assess whether an adjustment recoups past losses, one must know (1) what the pricing assumptions were for a given policy and (2) what impact new assumptions have on the policy's projected profitability. But Stern does not know what the class policies' pricing assumptions were. Nor does he know whether the challenged assumptions improperly decreased expected future profitability for all class policies. Accordingly, he has no basis for his belief that whether the increases recoup past losses "is an issue to be determined . . . based on data and facts applicable to all Class Policies." (Id. ¶ 111.)
The recoupment analysis is further complicated by the presence of class policies that received both rate increases and decreases in different years. While Stern suggested a rate increase recoups past losses if expected earnings are greater in any policy year than they were at pricing, (Stern Dep. at 42:18-43:8), he acknowledged that this was a "personal opinion," (id. at 55:20). The "accepted technical meaning" focuses on whether the expected present value of profits is higher after redetermination than it was at pricing. (Id. at 55:16-18); see also (id. at 43:1-44:15). But if the determination had divergent impacts on class rates, Stern cannot say that a successful classwide challenge to one element of the redetermination process will demonstrate that it recouped past losses on a classwide basis. Indeed, he acknowledges that his logic depends on "all other things being equal." (Stern Decl. ¶ 109.) They were not, so his conclusion is unreliable.
IV
Lincoln also moves to exclude the opinion of plaintiffs' damages expert, Robert Mills. In his declaration, Mills calculates the "overcharge damages" for the named plaintiffs and the nationwide class. (Mills Decl. ¶¶ 30, 39, tbls. 3, 8, ECF 119.) In doing so, he "assume[d] . . . the 2016 COI Increases imposed by Lincoln were unlawful and that the pre-increase COI rates that were in effect prior to the 2016 COI Increases would have remained in effect but for the breach of contract." (Id. ¶ 26.)
This was an appropriate assumption for a damages expert to make. It is not plaintiffs' burden to prove that no increase in the cost of insurance rates was permissible, only that Lincoln's breach caused their insurance rates to rise. Once plaintiffs prove Lincoln's actions caused damage in the form of increased rates, "[t]he burden of uncertainty as to the amount of damage is upon a wrongdoer." 24 Williston on Contracts § 64:13 (4th ed.); see also In re AXA Equitable Life Ins. Co. COI Litig., No. 16-740, 595 F.Supp.3d 196, 228-29 (S.D.N.Y. Mar. 31, 2022) ("[I]f Plaintiffs are able to prove liability on their breach-of-contract claim at trial, the burden will shift to AXA to establish whether any damages offset may be appropriate. If AXA fails to do so, Plaintiffs will be entitled to a refund of the full value of increased COI that they have paid.").
Damages are unduly speculative "only if the uncertainty concerns the fact of damages rather than the amount." Rizzo v. Haines, 520 Pa. 484, 555 A.2d 58, 68 (1989) (quotation omitted); also UPMC v. CBIZ, Inc., 436 F. Supp. 3d 822, 835 (W.D. Pa. 2020). Here, it is undisputed that several of the challenged factors—including reinsurance utilization, reinsurance premiums, and lower investment earnings—contributed to higher cost of insurance rates. (Desmonds Dep. Vol. II at 306:21-24); (Stern Decl. ¶ 56). Accordingly, Mills' calculations establish an appropriate upper bound for plaintiffs' damages. Indeed, several courts have upheld jury verdicts awarding damages in cost of insurance cases on similar theories. See DCD Partners, LLC v. Transamerica Life Ins. Co., 817 F. App'x 307, 309 (9th Cir. 2020); Vogt v. State Farm Life Ins. Co., No. 2:16-CV-04170-NKL, 2018 WL 4937330, at *4 (W.D. Mo. Oct. 11, 2018), aff'd, 963 F.3d 753 (8th Cir. 2020). Lincoln is free to argue Mills' methodology overstates plaintiffs' damages, but that argument goes to the weight of his testimony, not its admissibility.
While the Court excludes most of Stern's expert opinions, it will still consider relevant and otherwise admissible factual matter in his declaration. See Allen v. Ollie's Bargain Outlet, Inc., 37 F.4th 890, 897 n.2 (3d Cir. 2022) (citing Fed. R. Civ. P. 43(c) and 28 U.S.C. § 1746); Fed. R. Evid. 801(d)(2)(D).
To the extent Lincoln's challenge to Mills' damages model simply foreshadows its standing argument, it is unconvincing. As Mills explains, a "wrongfully diminished" account value is an economic injury. (Mills Dep. at 166:3-7.) A depleted account value has "a cascading effect with respect to net amount at risk, credited interested, [and] surrender value." (Id. at 166:14-19.) It also limits the owner's ability to take out loans or withdraw funds. (Id. at 171:4-7.)
V
Federal Rule of Civil Procedure 23 permits parties to sue on behalf of a class if they satisfy the requirements of Rule 23(a) and one of the subdivisions of Rule 23(b). Shelton v. Bledsoe, 775 F.3d 554, 559 (3d Cir. 2015). The party seeking class certification must "affirmatively demonstrate" his or her compliance with Rule 23, Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), proving by a preponderance of the evidence that each requirement has been satisfied, In re Lamictal Direct Purchaser Antitrust Litig., 957 F.3d 184, 191 (3d Cir. 2020). In making its ruling, the Court must consider all relevant evidence, and may not "decline to resolve relevant disputes" simply because they overlap with the merits of the plaintiffs' claims. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 318 (3d Cir. 2008), as amended (Jan. 16, 2009). Merits questions must be considered "to the extent—but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied." Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 466, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013).
VI
A
First, the proposed class must be "so numerous that joinder of all members is impracticable." Fed. R. Civ. P. 23(a)(1). Joinder is presumptively impracticable if the number of potential class members is greater than forty, though that number is "neither necessary or always sufficient." Allen v. Ollie's Bargain Outlet, Inc., 37 F.4th 890, 896 (3d Cir. 2022). The Court's numerosity determination must be based on evidence, not mere speculation. Mielo v. Steak 'n Shake Operations, Inc., 897 F.3d 467, 484 (3d Cir. 2018). Plaintiffs easily satisfy this requirement. In 2017, Beth Desmonds, an actuary and assistant vice president at Lincoln, estimated that there were 24,000 in force policies that were subject to the 2016 redetermination. (Desmonds Decl. ¶ 2, ECF 59-1.) Of those, 85% were Legend 300 policies. (Id. ¶ 9.) Mills calculated that 427 Legend 100 policies, 88 Legend 200 policies, 21,957 Legend 300 policies and 1,425 Legend 400 were charged higher rates as a result of the redetermination, for a total of 23,897 class policies. (Mills Decl. tbl. 8, ECF 119.)
B
Second, there must be "questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2). To satisfy the commonality requirement, the class claims must "depend upon a common contention" capable of classwide resolution. Allen., 37 F.4th at 900 (quoting Dukes, 564 U.S. at 350, 131 S.Ct. 2541). Here, plaintiffs allege Lincoln breached its contracts with class members by considering unenumerated factors, using unreasonable assumptions about enumerated factors, and by recouping past losses. The proper interpretation of their contracts is a question common to all class members. Whether the list of factors in the policies' cost of insurance provision is exhaustive, whether reinsurance utilization and investment earnings are permitted factors, and whether the policy prohibits Lincoln from recouping past losses will be answered the same way for each policy. Answering these questions is "apt to drive the resolution of the litigation." Dukes, 564 U.S. at 350, 131 S.Ct. 2541.
C
Third, the claims of the representatives must be "typical of the claims or defenses of the class." Fed. R. Civ. Pro. 23(a)(3). The purpose of the typicality requirement is to "screen out class actions in which the legal or factual position of the representatives is markedly different from that of other members." Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 598 (3d Cir. 2012) (quoting 7A Charles Alan Wright et al., Federal Practice & Procedure, § 1764 (3d ed. 2005)). "If a plaintiff's claim arises from the same event, practice or course of conduct that gives rises to the claims of the class members, factual differences will not render that claim atypical if it is based on the same legal theory as the claims of the class." Id. at 598. "What matters" is that the representatives "seek recovery under the same legal theories for the same wrongful conduct" as the class they represent. In re Nat'l Football League Players Concussion Inj. Litig., 821 F.3d 410, 428 (3d Cir. 2016).
Here, the proposed representatives allege Lincoln breached its contract with the class members by considering impermissible factors, using unreasonable assumptions, and recouping past losses as part of its redetermination of the policies' cost of insurance rates. Lincoln used the same methodology to redetermine the cost of insurance rates for all class products, and the relevant policy language is the same for all class members. Plaintiffs' legal theories and claims do not differ from those of the class.
That plaintiffs do not own policies from every rate class and product in the proposed class does not render their claims atypical. "Typicality does not require the class representatives' claims be coterminous with those of the class." Boley v. Universal Health Servs., Inc., 36 F.4th 124, 134 (3d Cir. 2022). Plaintiffs' interests are "sufficiently aligned with those of the class" even if additional product or rate-class specific proof is necessary to prove some of plaintiffs' theories of breach. Id. at 135. Where the challenged conduct is uniform, a plaintiff is not atypical simply because he purchased only one of a number of products subject to the same challenge. Marcus, 687 F.3d at 599.
D
Fourth, class representatives must be able to "fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). The adequacy requirement serves two purposes. It "tests the qualifications of the counsel to represent the class" and "uncover[s] conflicts of interest between named parties and the class they seek to represent." In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 602 (3d Cir. 2009) (quoting In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 532 (3d Cir. 2004)).
Plaintiffs' counsel have extensive experience litigating class actions, and they have successfully certified classes challenging cost of insurance increases. (Friedman Decl. ¶ 12, Exs. 40, 41, 43); see also Hanks v. Lincoln Life & Annuity Co. of New York, 330 F.R.D. 374 (S.D.N.Y. 2019); Feller v. Transamerica Life Ins. Co., No. 16-1378, 2017 WL 6496803, at *1 (C.D. Cal. Dec. 11, 2017). They have performed ably in this case, and the Court has no reason to doubt their adequacy.
The resume of the Moskowitz Law Firm was not attached as an exhibit to Friedman's declaration, but it was included with his declaration in the 2017 cost of insurance litigation. Friedman Decl., Ex. 38, In re: Lincoln National 2017 COI Rate Litigation, No. 17-4150 (E.D. Pa. Nov. 23, 2020), ECF 58-38.
"A class representative must be part of the class and possess the same interest and suffer the same injury as the class members." In re Comcast Corp. Set-Top Cable Television Box Antitrust Litig., 333 F.R.D. 364, 376 (E.D. Pa. 2019) (quoting Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 625, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997)). He or she must possess " '[a] minimal degree of knowledge' about the case" and have no fundamental conflict of interest with the class. In re Suboxone (Buprenorphine Hydrochlorine & Naloxone) Antitrust Litig., 967 F.3d 264, 272 (3d Cir. 2020) (quoting In re Nat'l Football League Players Concussion Inj. Litig., 821 F.3d 410, 430 (3d Cir. 2016)).
"It is axiomatic that the lead plaintiff must fit the class definition." Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349, 360 (3d Cir. 2013). That is a problem for Allen Mindlin; he is not part of the proposed class. Plaintiffs seek to represent all "owners" of Legend 100-400 policies whose cost of insurance rates increased as a result of the 2016 redetermination. (Mem. Supp. Class Cert. at 1.) But Allen Mindlin does not own a class policy. Instead, he is the beneficiary of a policy owned by the Mindlin Irrevocable Trust. See (Allen Mindlin Decl. ¶ 2., ECF 113-33); (Reneger Decl., Ex. 12, Policy Review Checklist, ECF 295-3); (Allen Mindlin Dep. at 94:12-22, ECF 195-2.) Accordingly, he may not serve as a class representative.
The proposed class representatives satisfy Rule 23(a)(4)'s knowledge requirement. They are aware of their responsibilities to the class, understand the general nature of the case, meet with counsel, and have participated in discovery, including sitting for depositions and producing documents. Friedman Decl. ¶ 10, Exs. 27-32, 34-39 (declarations of class representatives); see also, e.g., (Carol Rauch Dep. 154:2-6; 164:6-10, ECF 195-3). This is enough. See In re Suboxone, 967 F.3d at 273; In re Processed Egg Prod. Antitrust Litig., 312 F.R.D. 171, 181 (E.D. Pa. 2015).
The Court is aware of only one potential conflict, which it will address after analyzing whether the proposed class comports with Rule 23(b)(3). See infra, subsection VIII.D.
VII
To certify a class under Rule 23(b)(3), "the class must be currently and readily ascertainable." Marcus, 687 F.3d at 593. The class must be "defined with reference to objective criteria" and there must be "a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition." Byrd v. Aaron's Inc., 784 F.3d 154, 163 (3d Cir. 2015) (citation omitted). Here, there is no doubt members of the nationwide class can be ascertained from Lincoln's records. As Lincoln's corporate designee explained, Lincoln maintains a database of policy-level records. That system was used to notify policyowners of the cost of insurance adjustment and can be used to determine who owned in-force Legend policies at the time of the adjustment. (Desmonds Dep. Vol. I at 136:2-22, 137:3-13.) From there, determining which policies experienced an increased COI rate as a result of the adjustment is relatively straightforward. Mills has already performed this calculation for more than ninety-nine percent of the policies subject to the 2016 COI adjustment. (Mills Decl. at ¶¶ 27, 34, 39 & n. 53).
VIII
In any class certified under Rule 23(b)(3), common questions of law or fact must predominate over individual ones. The predominance inquiry "tests whether the proposed class[ ] [is] sufficiently cohesive to warrant adjudication by representation." Amchem, 521 U.S. at 623, 117 S.Ct. 2231. Plaintiffs must prove "the essential elements of [their] claims . . . are 'capable of proof at trial through evidence that is common to the class rather than individual to its members.' " Gonzalez v. Corning, 885 F.3d 186, 195 (3d Cir. 2018) (quoting In re Hydrogen Peroxide, 552 F.3d at 311-12).
A class action must also be "superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). Given the Court's resolution of the predominance inquiry, it is not necessary to assess this factor.
Plaintiffs seek to represent a nationwide breach of contract class. To prove their claim, they must show "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages." Udodi v. Stern, 438 F. Supp. 3d 293, 299 (E.D. Pa. 2020) (quotation and alteration omitted). The existence of a contract and its terms are undisputed—every member of the class owns a Legend policy with the same relevant language. And individualized damages issues are usually no bar to certification. In re Suboxone, 967 F.3d 264 (3d Cir. 2020). Accordingly, whether common issues predominate turns largely on whether breach is capable of proof on a classwide basis.
Courts considering breach of contract class actions have repeatedly emphasized that "[a] breach is a breach is a breach, whether you are on the sunny shores of California or enjoying a sweet autumn breeze in New Jersey." In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 127 (2d Cir. 2013) (quoting Klay v. Humana, Inc., 382 F.3d 1241, 1263 (11th Cir. 2004)). Because nothing indicates the application of each state's law would result in divergent outcomes, the Court can apply Pennsylvania law to the class without conducting a choice of law analysis. See Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230 (3d Cir. 2007) ("If two jurisdictions' laws are the same, then there is no conflict at all, and a choice of law analysis is unnecessary.").
A
Plaintiffs advance four overarching theories of breach in their motion for class certification. They argue Lincoln (1) based its cost of insurance adjustments on impermissible factors, (2) used unreasonable assumptions to "engineer enormous COI increases," (3) impermissibly recouped past losses by understating expected future profitability and overstating anticipated profitability at timing and (4) violated the contracts' uniformity provision by including dissimilar policies in the same rate class. (Mem. L. Supp. Class Certification at 1-2, ECF 112.)
These theories of breach differ from those advanced in the Second Amended Complaint, both in quantity and substance. To begin, the Second Amended Complaint organizes its challenges to the cost of insurance adjustments into three, rather four theories of breach. (SAC ¶¶ 41-64, ECF 72.) As a result, it is not entirely clear whether Plaintiffs' consider their challenge to the reasonableness of Lincoln's assumptions an independent theory of breach or simply the first step in in proving that Lincoln recouped past losses.
More significantly, the nature of their challenges has changed. For example, the Second Amended Complaint argues that updated mortality expectations could not have justified rate increases because mortality experience was improving at Lincoln and nationwide. (Id. ¶¶ 48-49.) There is no mention of this theory in the class certification briefing or in Stern's expert report. Instead, plaintiffs challenge Lincoln's failure to implement some of the findings of the Willis Towers Watson mortality study. (Stern Decl. ¶¶ 96-101.) Similarly, there is no mention of funding assumptions in the Second Amended Complaint, yet plaintiffs now appear to challenge Lincoln's assumptions about how policyholders would respond to the rate changes. (Id. ¶¶ 102-104.)
This is a problem because plaintiffs' class certification motion makes no attempt to mark the outer bounds of their claims. They assert common evidence will establish whether the cost of insurance adjustments were based on "impermissible factors" or "unreasonable assumptions" without any limitation on the factors and assumptions they intend to challenge. (Mem. Supp. Class Cert. at 1.) They rely on Stern's excluded opinions to suggest that any challenge of these nature can be proven on a classwide basis. (Id. at 4-5.) And Stern is clear that the examples he provides are "not intended as an exhaustive list of all potentially improper assumptions." (Stern Decl. ¶ 95.)
As the Court's ruling on the Daubert challenge to Stern's opinions illustrates, plaintiffs have not proven every conceivable challenge to "potentially improper assumptions" is provable on a classwide basis. But even if the Court treats plaintiffs' challenges as limited to the examples Stern offers in his declaration, they fall short. Plaintiffs' first theory of breach is provable on a classwide basis because it turns only on the interpretation of contract language common to all policies. But plaintiffs have not shown the same is true for their other theories.
1
Plaintiffs contend Lincoln considered impermissible factors, including reinsurance costs and investment earnings, when redetermining their cost of insurance rates. (SAC ¶¶ 41-46.) Whether these and other assumptions were permissible can be determined on a classwide basis.
Each Legend policy contains the same relevant language, which states that cost of insurance rates "will be based on [Lincoln's] expectation of future mortality, interest, expenses, and lapses." (Milliman Report at 3). The policy forms were standardized and not subject to individual negotiations. (Desmonds Dep. Vol. I at 133:4-12); (Pfeifer Dep. at 57:8-18, ECF 210-1). The proper interpretation of these terms is a question of law for the Court to decide. Greenwood Racing Inc. v. Am. Guarantee & Liab. Ins. Co., 569 F. Supp. 3d 243, 248 (E.D. Pa. 2021). It will be guided by the principle that standard form contracts should be given the same meaning for all similarly situated parties. Gillis, 677 F. App'x at 756 (citing Restatement (Second) of Contracts § 211(2) & cmt. e (Am. Law. Inst. 1981)). And to the extent actuarial standards and industry practices are relevant to the meaning of these terms, both experts agree identical terms in similar policy forms should be given the same meaning. (Stern Decl. ¶ 12(c)); see also (Pfeifer Dep. at 64:16-19, ECF 210-1). Questions about what this policy language permits will be answered the same way for all class policies.
Similarly, whether Lincoln actually considered the challenged factors can be (and has been) established on a classwide basis. The Milliman report describes the process that was used to redetermine cost of insurance rates for all of the policies at issue. See (Desmonds Dep. Vol. I at 133:17-23; 134:4-8); (Milliman Report at 1, ECF 118-1.) At "step c" of that process, Milliman updated the model to "[r]eflect current use of reinsurance." (Milliman Report at 6.) The model was also updated to reflect Lincoln's "[u]pdated earned rate." (Id.); see also (Desmonds Dep. Vol. I at 293:15-23 (explaining that model incorporated "a spread assumption [representing] the difference between the earned rate and the credited rate.")). If these considerations were prohibited by the contract, there is no dispute Lincoln violated that prohibition.
The same is true for other elements of the redetermination process plaintiffs argue were impermissible, including Lincoln's assumption that the cost of insurance adjustment would cause a spike in lapses and its decision to alter the slope of the cost of insurance rate schedules. See (Pfeifer Dep. at 139:7-140:6, 149:3-25); (Milliman Report at 5, 7).
2
Next, plaintiffs allege that even if the factors Lincoln considered were permissible in the abstract, Lincoln's assumptions regarding mortality, lapses, and reinsurance were unreasonable. (SAC ¶¶ 34, 46, 48, 51); see also (Stern Decl. ¶¶ 87-104.) Here, their problems begin. While the challenged assumptions were the same for all policies, it is not clear common evidence can prove they were unreasonably applied to every product and rate class.
It is not clear whether plaintiffs still intend to challenge the reasonableness (in addition to the permissibility) of Lincoln's investment earnings assumptions. See (SAC ¶ 45). In any event, the class certification motion and Stern's declaration are silent on how they intend to prove that assumption was unreasonable.
To determine whether common issues predominate with respect to a particular element of the plaintiffs' case, the Court must examine "the method or methods by which plaintiffs propose . . . to prove [that element] at trial." In re Hydrogen Peroxide, 552 F.3d at 312. Plaintiffs' basic argument seems to be that Lincoln's assumptions were improper because they were not based on "credible historical experience." See (Stern Decl. ¶¶ 87-85). But plaintiffs fail to define the relevant historical experience or show each alleged error affected every policy.
a
Consider plaintiffs' challenges to Lincoln's mortality assumptions. Through their actuarial expert, plaintiffs suggest Lincoln should have (1) grouped mortality data by face amount to reflect the more favorable mortality associated with policies with a face amount greater than $2.5 million and (2) reflected more favorable data associated with certain Exchange policies. (Stern Decl. ¶¶ 96-101.) Whether true or not, there is no evidence Lincoln's failure to incorporate this data affected the calculation of each class member's cost of insurance rate.
To show breach can be proven on a classwide basis, plaintiffs must show the allegedly improper assumption was actually used in redetermining each policies' cost of insurance rates. If an assumption only impacted a subset of the class policies, its reasonableness is only relevant to the set of policies it actually affected. Conduct that affects only a subset of a larger class cannot "drive the resolution of the litigation on a classwide basis." Ferreras v. Am. Airlines, Inc., 946 F.3d 178, 186 (3d Cir. 2019).
Here, Plaintiffs are missing proof of an important predicate fact: that each product and rate class contained Exchange policies and policies with face amounts greater than $ 2.5 million. Stern's declaration and the Willis Towers Watson study discuss face amount banding and Exchange policies in the aggregate, see (Stern Decl. ¶¶ 96, 100); (Willis Towers Watson Report § 3.1), but nothing in the record demonstrates these issues were germane to every product and rate class.
As the Eleventh Circuit recognized in Klay v. Humana, Inc., 382 F.3d 1241, (11th Cir. 2004) abrogated on other grounds by Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008), the fact that a common standard applies to a particular set of contracts does not necessarily mean breach can be proven through common evidence. Id. at 1263-64. While all of the agreements at issue in Klay required plaintiffs to be reimbursed at a "reasonable rate," proving that "any individual doctor was underpaid on any particular occasion" would require individualized inquiries. Id.
The Court cannot assume that the alleged issues with Exchange mortality and face-amount banding affected every policy and rate class without resorting to "hazardous speculation." Allen, 37 F.4th at 896. If there were no policies that fit those descriptions in a particular combination of product and rate class, Lincoln's alleged errors would not have impacted the cost of insurance calculations applicable to those policies and Lincoln would not have breached its contract with those class members.
The problem is similar to the one in Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349 (3d Cir. 2013). There, the Court of Appeals explained that "where a putative class is some subset of a larger pool, the trial court may not infer numerosity from the number in the larger pool alone." Id. at 358. Instead, there must be evidence that would allow the Court to reasonably infer the size of the subset. Id. at 357 (citing Marcus, 687 F.3d at 596). While Hayes dealt with Rule 23(a)'s numerosity requirement, the rule it articulated is grounded in the more general proposition that courts must "make a definitive determination that the requirements of Rule 23 have been met before certifying a class." Id. at 538 (quoting In re Hydrogen Peroxide, 552 F.3d at 320). Nothing beyond the sheer number of policies at issue suggests each product and rate class included Exchange policies (let alone the type of Exchange policies with supposedly more favorable mortality) and policies with high face amounts.
b
Plaintiffs also take issue with Lincoln's assumption that policy holders would continue funding their policies at the same rate they had before the adjustment. They suggest Lincoln should have accounted for the fact that some policies may have been funded at the minimum level necessary to keep the policy in force, and thus would have increased their premiums in response to the rate increase. (Stern Decl. ¶ 102.) But once again, plaintiffs have produced no evidence policyholders in every rate class actually pursued this funding strategy. See (Desmonds Dep. Vol. II at 362:3-7).
Their challenge to Lincoln's lapse assumptions suffers from an additional flaw. Plaintiffs have not explained how they intend to prove Lincoln's funding assumptions were unreasonable, much less that they can do so on a classwide basis. Of course, the fact that Lincoln applied the same funding assumption to all class policies makes it plausible that the same evidence could prove it was unreasonable as to all class policies. But plausibility is not enough. "[T]he question at class certification" is not whether plaintiffs' claims of classwide breach are "plausible in theory," but whether they are "susceptible to proof at trial through available evidence common to the class." In re Hydrogen Peroxide, 552 F.3d at 325.
Plaintiffs hang their hat on the fact that Lincoln did not investigate whether its historical experience was consistent with the funding assumption it employed. (Desmonds Dep. Vol. II at 361:20-362:16.) But Lincoln's reinsurance assumption is not presumptively unreasonable, just as plaintiffs' claims are not presumptively appropriate for classwide treatment. As Lincoln's actuarial expert Timothy Pfeifer explained, actuarial standards do not "mandate any particular methodology" for redetermining the non-guaranteed elements of an insurance policy. (Pfeifer Report ¶ 40 & n.16.) And when setting assumptions, "actuaries have used various approaches," including "[relying] on their own professional judgment." (Id. ¶ 32 (citation omitted).) How Lincoln set its assumptions matters less than how plaintiffs plan to prove them unreasonable.
Plaintiffs have not pointed to the evidence they intend to use to prove Lincoln's lapse assumptions were improper. They merely assert it can be done on a classwide basis. But a party's assurance it will satisfy the requirements of Rule 23 is insufficient. In re Blood Reagents, 783 F.3d at 187. There must be some proof the relevant evidence will generate the same answers for all class members. Allen, 37 F.4th at 901 ("[A] hypothetical common question is not enough . . . [t]here must be evidence the class proceeding will likely 'produce a common answer.' "). Here there is no expert testimony (or other evidence) establishing that if an assumption were unreasonable with respect to one product or rate class, it would be unreasonable with respect to them all.
Whether plaintiffs can prove Lincoln's lapse assumptions were inconsistent with "credible historical experience" on a classwide basis depends on what the relevant universe of historical experience is—and whether it will generate the same answers for all class policies. Theoretically, a challenge to Lincoln's assumptions could be based on anything from the experience of a single rate class to the experience of the industry as a whole. Actuarial Standard of Practice 25, section 3.4 explains that actuaries should "use professional judgment when . . . developing or using a credibility procedure." (Pfeifer Report ¶ 32.) That includes deciding whether to assign "full, partial, or zero credibility to the subject experience." (Id.); see also (id. at ¶ 85 (noting that an actuary may supplement data with "reasonably comparable data from other sources")).
Plaintiffs do not, because they cannot, argue that Lincoln's funding assumption was inconsistent with the historical experience of each product and rate class. Their actuarial expert did not examine the historical experience of the class policies. (Stern Dep. at 203:19-22; 204:24-205:17). Nor did he explain why the historical experience of all class policies or of the industry as a whole would show Lincoln's assumptions were unreasonable with respect to every product and rate class. He simply "assumed . . . that . . . even though we have different rate classifications and different products, for the most part their characteristics are similar." (Id. at 196:15-18.) But that is exactly what plaintiffs need to prove in order to litigate their claims on a classwide basis.
What experience is relevant to—and capable of disproving—the validity of Lincoln's funding assumptions is a matter of actuarial science. That determination should be made with the help of an actuary, not by the Court acting alone. See Yeransian v. Markel Corp., No. 16-808, 2017 WL 3225987, at *9 (D. Del. July 31, 2017). The Court cannot say plaintiffs' challenge Lincoln's funding assumptions will rise or fall together where no reliable actuary has done so.
c
The same flaws infect plaintiffs' challenge to Lincoln's reinsurance premium assumption. Again, plaintiffs rely on the fact that Lincoln applied the same assumption to all policies subject to the determination. But the Court must consider more than the uniformity of the defendant's conduct. See Marcus, 687 F.3d at 611 (faulting the district court for focusing exclusively on the defendant's conduct, rather than making the "findings critical to the predominance analysis"). It must "formulate some prediction as to how specific issues will play out." In re Hydrogen Peroxide, 552 F.3d at 311. Under this standard, plaintiffs have not shown that the impropriety of Lincoln's reinsurance premium assumption can be proven on a classwide basis.
Plaintiffs rely on two propositions to make the requisite showing. First, Lincoln assumed reinsurance rates would increase in response to adverse mortality expectations. See (Milliman Report at 6); (Desmonds Dep. Vol. I at 291:7-11). Second, Lincoln's corporate designees could not remember details about reinsurance negotiations occurring around the time of the redetermination. See (Desmonds Dep. Vol. II at 428:22-429:8); (Stankiewicz Dep. at 223:4-19). Desmonds' "general understanding at the time was that there was significant reinsurance activity," but she could not "recall the specific nature of that activity or the timeline associated with it." (Desmonds Dep. Vol. II at 428:22-25.)
Again, identifying a generalized assumption and proving it unreasonable are two separate things. Plaintiffs and their expert make much of the fact that Lincoln agreed to a five-year, fixed rate increase with Swiss Re that took effect in June 2016. See (id. 426:11-15); (Stern Decl. ¶ 115). But they do not produce evidence that any class policies were actually ceded to Swiss Re. Cf. (Desmonds Dep. Vol. II at 426:21-427:10). Without that evidence, the Court cannot conclude the Swiss Re agreement is even relevant to Lincoln's reinsurance premium assumption, let alone that it can prove Lincoln's assumption was unreasonable as applied to all class policies. Cf. Fed. R. Evid. 104(b).
3
Plaintiffs third theory of breach poses even greater problems. There is little doubt proof Lincoln impermissibly recouped past losses will vary by product and rate class.
While the parties debate exactly what it means to "recoup past losses," both agree an insurer does so if it changes a non-guaranteed element in a way that produces higher expected future profitability than profitability expected at pricing. See (Milliman Report at 5). Plaintiffs' problem is that whether recoupment occurred turns on more than the assumptions Lincoln used to redetermine cost of insurance rates. It depends on the impact those assumptions had on expected profitability, which in turn depends on what assumptions were used at pricing. (Stern Decl. ¶¶ 106, 109-110.) But as Pfeifer explains, each product was priced separately using different assumptions. (Pfeifer Rep. ¶¶ 75-76.) And the Milliman report shows the impact of the redetermination varied from rate class to rate class. (Milliman Report at 8-10.) Thus, even if plaintiffs could prove a particular assumption was unreasonable on a classwide basis, it would not be sufficient to prove that Lincoln recouped past losses.
This is doubly true of plaintiffs' challenges to the pricing assumptions Lincoln used in the redetermination. As an initial matter, Stern acknowledges Lincoln used different pricing assumptions for the different products at issue. (Stern Decl. ¶ 117); see also (Milliman Report at 20). But even the limited examples Stern gives of pricing assumptions that could be challenged on a classwide basis don't hold up.
First, Stern claims Lincoln erred by not accounting for the adverse mortality of Exchange policies in the pricing assumptions it used during the redetermination process. (Stern Decl. ¶¶ 119-121.) But this claim is premised on Stern's assertion that Lincoln assumed the same pricing mortality for all class policies at redetermination. (Id. ¶ 119.) That assertion is hard to credit: Stern did not "look[ ] at the inputs or the assumptions that went into the model." (Stern Dep. at 201:2-4.)
Second, Stern claims Lincoln erred by not accounting for the increased reinsurance premiums associated with Exchange policies in its pricing assumptions. (Stern Decl. ¶ 121.) But again, there is no proof Jefferson-Pilot (1) expected to issue Exchange policies in all products and rate classes, (2) expected to reinsure Exchange policies in each product and rate class, and (3) expected or should have expected to pay increased premiums for reinsured Exchange policies in every product and rate class. Without this information, it is hard to say Lincoln's decision not to factor reinsurance costs in its expected profitability at pricing caused Lincoln to overstate expected profitability for all class policies.
4
Finally, plaintiffs claim Lincoln violated the uniformity provision of the class policies. In the Second Amended Complaint, they allege the slope of the cost of insurance adjustments varied between policyholders in the same rate class. (SAC ¶ 63.) They barely reference this theory in their motion. Instead, Stern advances the new theory that Lincoln violated the uniformity provision by including Exchange and ARTS policies in the standard rate class. (Stern Decl. ¶¶ 124-129.) But by its own terms, this theory of breach applies only to standard rate class policies. It cannot be proven on a classwide basis.
Paragraph 127, which appears to suggest otherwise, is nonsensical and contradicted by the Milliman Report itself. Lincoln raised the issue in its opposition, (Mem. Opp'n at 12), and plaintiffs effectively conceded it in their reply, see (Reply Supp. at 1-2, ECF 202), choosing instead to emphasize what they characterize as their "primary" challenges to the increase.
* * *
"Rule 23 does not require the absence of all variations in a defendant's conduct or the elimination of all individual circumstances," but it does require that common issues predominate over individual ones. Reyes v. Netdeposit, LLC, 802 F.3d 469, 489 (3d Cir. 2015). Here, plaintiffs have not shown that the differences between policies are "subtle" and "meaningless." Id. at 491. A class in which plaintiffs' theories of liability may produce different results for different class members is not "sufficiently cohesive to warrant adjudication by representation." Marcus, 687 F.3d at 600 (quoting Amchem, 521 U.S. at 594, 117 S.Ct. 2231).
B
Plaintiffs point to a line of cases in which courts have certified classes alleging an insurer violated the cost of insurance provisions of their universal life policies. But those cases do not help them. In several, the defendants did not contend there were any variations between the class policies. The others are distinguishable or unpersuasive.
See Advance Tr. & Life Escrow Servs., LTA v. ReliaStar Life Ins. Co., No. 18-2863, 2022 WL 911739, at *12 (D. Minn. Mar. 29, 2022) ("ReliaStar has not suggested that COI rates or Rider Charges are determined differently in the relevant polices."); Fleisher v. Phoenix Life Ins. Co., No. 11-8405, 2013 WL 12224042 (S.D.N.Y. July 12, 2013) (describing "whether the rate increases were unlawful" as an "admittedly common question").
In Hanks v. Lincoln Life & Annuity Co. of New York, 330 F.R.D. 374 (S.D.N.Y. 2019), the policies at issue required cost of insurance rates to be "based on the Insured's sex, attained age and premium class" and be "made on a uniform basis." Id. at 378. They could be "adjusted by Aetna from time to time . . . based on Aetna's future cost factors, such as mortality, investment income, expenses and the length of time policies stayed in force." Id. at 378. Lincoln Life acquired Aetna's insurance business under an indemnity reinsurance agreement, then proposed a cost of insurance increase based on factors including "lower investment income and higher reinsurance costs." Id. The increased rates were not applied to New York policyholders. Id.
Hanks sued on behalf of a putative class, alleging the rate increase "was improperly (1) based on Lincoln Life's future cost factors, rather than [Aetna's]; (2) applied to policy holders regardless of their class (sex, age, premium, etc.); and (3) imposed on a non-uniform basis because it did not include New York policyholders." Id. The three claims Hanks brought all alleged that the defendants' admitted conduct violated the express terms of the contract. There was no allegation any of the underlying assumptions were actuarially unsound. Hanks only involved claims analogous to plaintiffs' first theory of breach. It provides no support for the proposition that their second, third, and fourth theories can be adjudicated across products and rate classes.
Courts in the other cases on which plaintiffs rely did not conduct the rigorous analysis required by Third Circuit precedent. In Feller v. Transamerica Life Insurance Company, No. 16-1378, 2017 WL 6496803 (C.D. Cal. Dec. 11, 2017), the court certified a nationwide breach of contract class involving allegations similar to the ones in this case despite apparently substantial variation in the relevant policy language. Id. at 2-3. In analyzing predominance, the Court did not consider how plaintiffs would prove each of their theories of breach, instead focusing on the defendants conduct. Id. at 11. It then relied on the general principle that "claims arising from interpretations of a form contract appear to present the classic case for treatment as a class action." Id. (citing Kleiner v. First Nat. Bank of Atlanta, 97 F.R.D. 683, 692 (N.D. Ga. 1983)).
Similarly, in Advance Trust & Life Escrow Services, LTA v. North American Company for Life & Health Insurance, No. 18-368, 592 F.Supp.3d 790, 799-801 (S.D. Iowa Mar. 22, 2022), the class policies specified the cost of insurance rates would be "based on expectations of future mortality." Id. at 805. The defendant had not adjusted rates for three decades, despite improving mortality rates. Plaintiffs claimed the defendant violated this provision by (1) considering factors other than future mortality and (2) not decreasing the rates to reflect improved mortality experience. Id. The Court admitted expert testimony from an actuary—Howard Zail—who opined that he could establish breach by using a "simple, mechanical process" to demonstrate what cost of insurance rates should have been if mortality expectations had been updated. Id. at 800. In doing so, it acknowledged Zail's approach was irrelevant to the plaintiffs' first theory of breach, but dismissed this concern as "attempt to resurrect the long-buried theory-of-the-pleadings doctrine" Id. It then certified a class, finding that common issues predominated because "[t]he relevant contract term was uniform." Id. It did not consider whether each of plaintiffs' theories could be proven on a classwide basis, or what it would mean for predominance and adequacy if the answer were no.
Following Eighth Circuit precedent, the court declined to conduct a "an exhaustive and conclusive Daubert inquiry." Advance Tr. & Life Escrow Servs., 592 F.Supp.3d at 799 (quoting In re Zurn Pex Plumbing Prod. Liab. Litig., 644 F.3d 604, 613 (8th Cir. 2011)). But see Allen, 37 F.4th at 906 (Porter, J., concurring) (critiquing the "watered-down Daubert analysis" approved in Zurn).
The Third Circuit Court of Appeals has rejected this approach to the predominance inquiry. The Court cannot decline "to analyze predominance in the context of Plaintiffs' actual claims" simply because the defendant's conduct was uniform. Neale v. Volvo Cars of N. Am., LLC, 794 F.3d 353, 372 (3d Cir. 2015). Nor can it "relax its certification analysis, or presume a requirement for certification is met," because the claim is a type courts regularly certify. In re Hydrogen Peroxide, 552 F.3d 305.
C
Lincoln also challenges predominance on the ground that not all putative class members have standing. This argument is without merit. First, at class certification the "standing inquiry focuses solely on the class representative(s)." Mielo v. Steak 'N Shake Operations, Inc., 897 F.3d 467, 478 (3d Cir. 2018). The Supreme Court's decision TransUnion LLC v. Ramirez, — U.S. —, 141 S. Ct. 2190, 210 L.Ed.2d 568 (2021), did not change that. While it held that each class member must have standing "to recover individual damages," it did not "address the distinct question whether every class member must demonstrate standing before a court certifies a class." Id. at 2208 & n.4; accord Butela v. Midland Credit Mgmt. Inc., 341 F.R.D. 581, 588 (W.D. Pa. 2022). If liability could be determined on a classwide basis, the fact that individual class members may have no damages would not be a barrier to certification. Individual damages issues "do not ordinarily preclude the use of the class action device." In re Suboxone, 967 F.3d at 272.
Importantly, breach of contract differs from other causes of action where injury is a separate element that must be proven in order to establish liability. An antitrust plaintiff, for example, must show "individual injury resulting from that violation" in addition to "measurable damages." In re Suboxone, 967 F.3d at 270 (quoting In re Hydrogen Peroxide, 552 F.3d at 311.) As a result, an antitrust class action may only be certified if every class member can "show antitrust injury through evidence that is common to the class," even though damages cannot be measured on a classwide basis. In re Lamictal Direct Purchaser, 957 F.3d at 195.
Second, a "party to a breached contract has a judicially cognizable interest for standing purposes, regardless of the merits of the breach alleged." Vogt v. State Farm Life Ins. Co., 963 F.3d 753, 766 (8th Cir. 2020) (citation omitted), cert. denied, — U.S. —, 141 S. Ct. 2551, 209 L. Ed. 2d 577 (2021); see also 24 Williston on Contracts § 64:9 (4th ed.) ("An unexcused failure to perform a contract is a legal wrong. An action will therefore lie for the breach although it causes no injury."). Indeed, the same term it decided Trans Union, the Supreme Court pointed to nineteenth century breach of contract cases to illustrate the common law principle that "every legal injury necessarily causes damage," even without evidence of other harm. Uzuegbunam v. Preczewski, — U.S. —, 141 S. Ct. 792, 798, 209 L.Ed.2d 94 (2021); see also Republic Servs. of Pennsylvania, LLC v. Caribbean Operators, LLC, 301 F. Supp. 3d 468, 476 (E.D. Pa. 2018) (holding nominal damages were available for breach of contract and sufficient to confer standing).
Third, depletion of the account value of a universal life policy is economic injury, even if it has no impact on the policyholder's death benefit. Increased cost of insurance charges reduce the surrender value of the policy, which limits policyowners ability to take partial withdraws or use the policy as collateral. (Pfeifer Report ¶ 20); (Pfeifer Dep. at 180:4-18:18); (Mills Dep. at 166:14-19; 171:4-7).
These are real economic harms, even if the policyholder could keep the policy in force without paying additional out-of-pocket premiums. See Vogt, 963 F.3d at 770. Diminution in the value of property is its own injury. Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 190 (3d Cir. 2006). And any monetary loss, however small, confers standing. Cottrell v. Alcon Lab'ys, 874 F.3d 154, 163 (3d Cir. 2017) (quoting Carter v. HealthPort Techs., LLC, 822 F.3d 47, 55 (2d Cir. 2016)). By focusing on "out-of-pocket" costs, Lincoln mistakenly treats the money in plaintiffs' bank accounts as different in kind—and more worthy of constitutional protection—than the money invested plaintiffs' policies. A reduction in either works an economic harm.
D
When asked at oral argument whether a class should be certified even if plaintiffs could not prove each of their theories of breach on a classwide basis, plaintiffs' counsel said yes. In his words, "the primary issues . . . like reinsurance . . . and investment earnings do apply [to the entire class] and will have the same result." (Class Certification Hr'g Tr. at 37:4-6.)
The Court may, in its discretion, alter or amend the class definition to ensure compliance with Rule 23. Boyle v. Progressive Specialty Ins. Co., 326 F.R.D. 69, 100 n. 90 (E.D. Pa. 2018) (citing Finberg v. Sullivan, 634 F.2d 50, 64 n.9 (3d Cir. 1980)). This includes the power to limit the class "to a core set of claims . . . well-suited to aggregate treatment." Tobias Barrington Wolff, Discretion in Class Certification, 162 U. Pa. L. Rev. 1897, 1940 (2014); see also Reyes, 802 F.3d at 494 & n.20 (3d Cir. 2015) (citing Wolff).
If the class is certified to pursue only one theory of breach—that Lincoln considered impermissible factors when adjusting cost of insurance rates—Rule 23(b)(3)'s predominance inquiry would be easily satisfied. The critical question would become whether plaintiffs remain able to "fairly and adequately protect the interests of the class." Fed. R. Civ. Pro. 23(a)(4).
A plaintiff who advances less than all of the claims available to the class "risks creating an irreconcilable conflict of interest." Slade v. Progressive Sec. Ins. Co., 856 F.3d 408, 412 (5th Cir. 2017); see also Nafar v. Hollywood Tanning Sys., Inc., 339 F. App'x 216, 225 (3d Cir. 2009). For example, In re Community Bank of Northern Virginia, 418 F.3d 277 (3d Cir. 2005), the Court of Appeals vacated an order certifying a settlement class and instructed the district court to consider whether plaintiffs' failure to raise other colorable claims on behalf of a large portion of class members rendered plaintiffs inadequate representatives. Id. at 305-307. While plaintiffs may choose to strategically waive claims to facilitate class treatment, Murray v. GMAC Mortg. Corp., 434 F.3d 948, 953 (7th Cir. 2006), the "decision to waive unnamed class members' claims will defeat adequacy where the lost value of the waived claims . . . is greater than the strategic value of the decision to waive." Slade, 856 F.3d at 412.
Here, the problem is twofold. First, plaintiffs seek to certify only a breach of contract claim on a nationwide basis, even though they allege Lincoln's actions also violated state consumer protection laws and their implied duty of good faith and fair dealing. Certifying a nationwide class to pursue a breach of contract claim without pursuing those claims on the same scale raises its own adequacy concern. By itself, this would not be an insurmountable obstacle to certification. Todd v. Tempur-Sealy Int'l, Inc., No. 13-4984, 2016 WL 5746364, at *5 (N.D. Cal. Sept. 30, 2016) ("A strategic decision to pursue those claims a plaintiff believes to be most viable does not render her inadequate as a class representative"); see also In re Universal Serv. Fund Tel. Billing Pracs. Litig., 219 F.R.D. 661, 668-670 (D. Kan. 2004). But the problem is compounded because the proposed class cannot even pursue all of the theories of breach class members might otherwise advance.
To be clear, plaintiffs did not create this problem by proposing state subclasses to pursue those claims, as Lincoln's briefing suggested, see (Mem. Opp'n Class Certification at 34-35), or by deciding to withdraw those proposed classes after oral argument. Instead, the problem is inherent in pursuing a nationwide class on only one of several theories of liability available to its members. A motion for class certification "puts at issue all claims actually and potentially asserted on behalf of putative class members," not just those the plaintiff seeks to advance on a classwide basis. In re AXA Equitable Life Ins. Co. COI Litig., No. 16-740, 2020 WL 4694172, at *5 (S.D.N.Y. Aug. 13, 2020).
Under Pennsylvania law, res judicata "prohibits parties involved in prior, concluded litigation from subsequently asserting claims in a later action that were raised, or could have been raised, in the previous adjudication." In re Coatesville Area Sch. Dist., 244 A.3d 373, 378 (Pa. 2021) (citation omitted). The same principles apply to members of a "properly entertained class action." Taylor v. Shiley Inc., 714 A.2d 1064, 1066 (Pa. Super. Ct. 1998) (quoting Cooper v. Fed. Rsrv. Bank of Richmond, 467 U.S. 867, 874, 104 S.Ct. 2794, 81 L.Ed.2d 718 (1984)).
On this record, the Court cannot conclude the strategic value of certification outweighs the risk of sacrificing plaintiffs' other claims. First, the plaintiffs have made no attempt to quantify the portions of the increase attributable to their various theories of breach. While such quantification is not necessary to establish the existence of damages, it frustrates the Court's duty to conduct a "rigorous analysis" before deciding to certify a class to pursue only a subset of the claims available to it. Hohider v. United Parcel Serv., Inc., 574 F.3d 169, 201 (3d Cir. 2009). Plaintiffs have not adequately explained why they are willing to abandon claims that their own expert considered significant. See, e.g., (Stern Decl. ¶¶ 96, 100); see also Tasion Commc'ns, Inc. v. Ubiq, 308 F.R.D. 630, 641-42 (N.D. Cal. 2015) (finding representative inadequate where "[p]laintiffs' own allegations . . . establish that the abandoned damages here are likely to be significant"). Moreover, if plaintiffs can seek the entire amount of the cost of insurance increase if they prove any breach contributed to the increase, it is hard to justify sacrificing most theories of breach to pursue the few that are susceptible to classwide treatment.
Second, it is not clear how much "strategic value" absent class members would receive in exchange for their sacrifice. In Murray v. GMAC Mortgage Corporation, the Seventh Circuit explained that courts should not refuse to certify a claim simply "because the plaintiff decides not to make the sort of person-specific arguments that render class treatment infeasible." 434 F.3d at 953. Here, it is not clear the arguments plaintiffs would have to forgo to make this class feasible on this record would prevent any class from being certified. It seems possible that differently constructed classes or subclasses could have pursued most or all of plaintiffs' breach of contract theories. For example, almost all of the class members own Legend 300 policies. (Desmonds Dep. Vol. I at 128:25-129:1.) Those twenty-two thousand policies are divided into only four rate classes. (Mills Decl. tbl. 8.) Plaintiffs' desire to create the largest possible class may have come at the expense of a class or classes better suited to litigate a wider range of claims on behalf of most class members. See Bowe v. Pub. Storage, 318 F.R.D. 160, 175 (S.D. Fla. 2015) ("[C]ourts have found proposed representatives inadequate where they had strategically abandoned . . . substantial and meaningful claims that many absent class members could potentially bring and prevail upon.").
The Court need not resolve these questions. It is sufficient to point out that given the serious preclusion concerns that could arise were the Court to allow the proposed class to proceed on so narrow a range of theories, plaintiffs almost non-existent briefing on the adequacy issue, and the absence of any meaningful attempt to value plaintiffs specific theories of breach, plaintiffs have not demonstrated there are no fundamental conflicts of interest between themselves and absent class members. See In re Processed Egg Prod. Antitrust Litig., 312 F.R.D. 124, 168 (E.D. Pa. 2015) (declining to certify a class where plaintiffs did not provide "the legal and evidentiary support necessary" to evaluate the preclusion issues raised by partial certification.)
E
It may be that a narrower class or a grouping of subclasses could cure the predominance and adequacy issues presented by the current class. In re Cendant Corp. Sec. Litig., 404 F.3d 173, 202 (3d Cir. 2005). But plaintiffs, not the Court, "bear the burden of constructing subclasses." Reyes, 802 F.3d at 494 (quoting U.S. Parole Comm'n v. Geraghty, 445 U.S. 388, 408, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980)). In any event, any narrower class "must independently meet the requirements of Rule 23." Betts v. Reliable Collection Agency, Ltd., 659 F.2d 1000, 1005 (9th Cir. 1981); Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 434 n.11 (4th Cir. 2003). Plaintiffs have not shown that any rate or product subclass satisfies all of the Rule's requirements.
IX
Plaintiffs also move to certify a nationwide class under Rule 23(b)(2). This class seeks orders enjoining Lincoln from "denying illustrations to policyholders during their policies' grace periods" and (2) "collecting the unlawfully and unfairly increased COI amounts." (Order Granting Unopposed Motion to Stay Individual Claims at 2, ECF 235). Neither is appropriate for class treatment.
A
With respect to their first claim, Plaintiffs have not shown they have standing to pursue an injunction challenging Lincoln's policy of denying illustrations to policyholders during their grace periods. See TransUnion, 141 S. Ct. at 2208 ("Standing is not dispensed in gross; rather, plaintiffs must demonstrate standing for each claim that they press and for each form of relief that they seek.").
While the US Life plaintiffs claim they were denied an illustration during their policies' grace period, (SAC ¶¶ 65-66); (Brinke Dep. at 288:2-23, ECF 195-5), their policy has since lapsed, (Renenger Decl., Exs. 79-80, ECF 195-5). Because they no longer own a class policy and are not entitled to an illustration under any circumstance, they have no standing to pursue an injunction. "Where there is no likelihood of future harm, there is no standing to seek an injunction, and so no possibility of being certified as a Rule 23(b)(2) class." Berni v. Barilla S.p.A., 964 F.3d 141, 149 (2d Cir. 2020).
Plaintiffs have not identified any other proposed class representative who (1) intends to request illustrations in the future and (2) is likely to do so while their policy is in its grace period. Indeed, the absence of such evidence raises questions about whether "injunctive relief is appropriate respecting the class as a whole." Id. at 146 (quoting Fed. R. Civ. P. 23(b)(2)); Dukes, 564 U.S. at 365, 131 S.Ct. 2541. By the same token, plaintiffs have not proven they satisfy the adequacy and typicality requirements with respect to this claim. The absence of a class representative with clear standing to challenge Lincoln's grace period illustrations policy suggest they lack the same "stake in the litigation" as class members who do intend to request illustrations when their plans fall into a grace period. In re Schering Plough, 589 F.3d at 597. The Court will not certify a Rule 23(b)(2) class to pursue this claim.
B
Plaintiffs' second claim raises a different problem: cohesion. "While 23(b)(2) class actions have no predominance or superiority requirements, it is well established that the class claims must be cohesive." Barnes v. Am. Tobacco Co., 161 F.3d 127, 143 (3d Cir. 1998). This requirement protects absent class members from being involuntarily bound by an adverse judgment and ensures the resulting litigation does not become unmanageable. Id. at 143. Indeed, "[t]he key to the (b)(2) class is 'the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.' " Dukes, 564 U.S. at 360, 131 S.Ct. 2541 (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 132 (2009)). Because there are many theories of breach that cannot be litigated on a classwide basis, plaintiffs have not demonstrated the class is cohesive enough to be certified under Rule 23(b)(2). Even if the classwide claims failed, another policyholder might successfully challenge Lincoln's cost of insurance adjustments on grounds that cannot be raised in this litigation.
An appropriate Order follows.
ORDER
AND NOW, this 9th day of August 2022, upon consideration of Plaintiffs' Motion for Class Certification (ECF 111), Defendants' Motion to Exclude the Proposed Expert Opinions of Larry Stern and Robert Mills (ECF 192), the parties' responses and replies (ECF 190, 198, 203, 205, 209) and after holding oral argument (ECF 230), it is hereby ORDERED that, consistent with the accompanying Memorandum:
1. Defendants' Motion to Exclude is GRANTED with respect to Stern's opinions and DENIED with respect to Mills' opinions; and
2. Plaintiffs' Motion for Class Certification is DENIED.
3. The Court will file its Memorandum Opinion on the public docket after considering requests, if any, for redactions. The parties shall submit their proposed redactions on or before August 23, 2022. The proposals must meet the standards set out below.
The public has a right of access to judicial materials. In re Avandia Mktg., Sales Pracs. & Prod. Liab. Litig., 924 F.3d 662, 672 (3d Cir. 2019). To overcome the strong presumption of access, the party seeking the redaction must show the "material is the kind of information that courts will protect" and that it will suffer "a clearly defined and serious injury" if the material is disclosed. "In delineating the injury to be prevented, specificity is essential." In re Cendant Corp., 260 F.3d 183, 194 (3d Cir. 2001) "Broad allegations of harm, bereft of specific examples or articulated reasoning, are insufficient." Id. The parties should propose the most limited redactions consistent with preventing the injuries they identify.
BY THE COURT: