Opinion
No. 1:22-cv-01031-STA-jay
2023-02-07
John Baker MCCLANAHAN, Personal Representative of the Estate of Melissa Buchanan, on behalf of himself and all others similarly situated, Plaintiffs, v. STATE FARM LIFE INSURANCE COMPANY, Defendant.
David Matthew Wilkerson, Van Winkle Law Firm, Asheville, NC, George Brandt, III, Henderson Brandt and Vieth, Spartanburg, SC, Melinda Coolidge, Pro Hac Vice, James L. Pizzirusson, Pro Hac Vice, Nathaniel C. Giddings, Pro Hac Vice, Hausfeld LLP, Washington, DC, Kimberly A. Fetsick, Pro Hac Vice, Hausfeld LLP, New York, NY, Larry D. Lahman, Roger L. Ediger, Pro Hac Vice, Mitchell & Declerck, PLLC, Enid, OK, Sophia Goren Gold, KalielGold PLLC, Berkeley, CA, for Plaintiff Gettys Bryant Millwood. Craig Dixon Justus, David Matthew Wilkerson, The Van Winkle Law Firm, Asheville, NC, George Brandt, III, Henderson Brandt and Vieth, Spartanburg, SC, Melinda Coolidge, Pro Hac Vice, James L. Pizzirusson, Pro Hac Vice, Nathaniel C. Giddings, Pro Hac Vice, Hausfeld LLP, Washington, DC, Kimberly A. Fetsick, Pro Hac Vice, Hausfeld LLP, New York, NY, Larry D. Lahman, Pro Hac Vice, Roger L. Ediger, Pro Hac Vice, Mitchell & Declerck, PLLC, Enid, OK, Sophia Goren Gold, Kalielgold PLLC, Berkeley, CA, for Plaintiff John Baker McClanahan. Cari Katrice Dawson, Pro Hac Vice, Tiffany L. Powers, Pro Hac Vice, John E. Stephenson, Jr., Pro Hac Vice, John E. Stephenson, Jr., Kara Frances Kennedy, Pro Hac Vice, Tejas Surendra Patel, Pro Hac Vice, Alston & Bird LLP, Atlanta, GA, Todd Noteboom, Stinson LLP, Minneapolis, MN, Courtney J. Harrison, Pro Hac Vice, Stinson LLP, Kansas City, MO, Daniella Patricia Main, Pro Hac Vice, Alston and Bird LLP, Dallas, TX, David Carl Wohlstadter, Pro Hac Vice, Alston and Bird LLP, New York, NY, Deborah Lynn Stein, Pro Hac Vice, Marcellus Antonio McRae, Pro Hac Vice, Gibson Dunn and Crutcher LLP, Los Angeles, CA, Jeremy A. Root, Stinson LLP, Jefferson City, MO, Joshua Tate Thompson, Perry D. Boulier, Boulier Thompson and Barnes LLC, Spartanburg, SC, Katelyn Ashton, Kyle R. Cummins, Samuel Keenan Carter, Butler Snow LLP, Memphis, TN, Kristin Andrea Linsley, Pro Hac Vice, Gibson Dunn and Crutcher LLP, San Francisco, CA, for Defendant.
David Matthew Wilkerson, Van Winkle Law Firm, Asheville, NC, George Brandt, III, Henderson Brandt and Vieth, Spartanburg, SC, Melinda Coolidge, Pro Hac Vice, James L. Pizzirusson, Pro Hac Vice, Nathaniel C. Giddings, Pro Hac Vice, Hausfeld LLP, Washington, DC, Kimberly A. Fetsick, Pro Hac Vice, Hausfeld LLP, New York, NY, Larry D. Lahman, Roger L. Ediger, Pro Hac Vice, Mitchell & Declerck, PLLC, Enid, OK, Sophia Goren Gold, KalielGold PLLC, Berkeley, CA, for Plaintiff Gettys Bryant Millwood. Craig Dixon Justus, David Matthew Wilkerson, The Van Winkle Law Firm, Asheville, NC, George Brandt, III, Henderson Brandt and Vieth, Spartanburg, SC, Melinda Coolidge, Pro Hac Vice, James L. Pizzirusson, Pro Hac Vice, Nathaniel C. Giddings, Pro Hac Vice, Hausfeld LLP, Washington, DC, Kimberly A. Fetsick, Pro Hac Vice, Hausfeld LLP, New York, NY, Larry D. Lahman, Pro Hac Vice, Roger L. Ediger, Pro Hac Vice, Mitchell & Declerck, PLLC, Enid, OK, Sophia Goren Gold, Kalielgold PLLC, Berkeley, CA, for Plaintiff John Baker McClanahan. Cari Katrice Dawson, Pro Hac Vice, Tiffany L. Powers, Pro Hac Vice, John E. Stephenson, Jr., Pro Hac Vice, John E. Stephenson, Jr., Kara Frances Kennedy, Pro Hac Vice, Tejas Surendra Patel, Pro Hac Vice, Alston & Bird LLP, Atlanta, GA, Todd Noteboom, Stinson LLP, Minneapolis, MN, Courtney J. Harrison, Pro Hac Vice, Stinson LLP, Kansas City, MO, Daniella Patricia Main, Pro Hac Vice, Alston and Bird LLP, Dallas, TX, David Carl Wohlstadter, Pro Hac Vice, Alston and Bird LLP, New York, NY, Deborah Lynn Stein, Pro Hac Vice, Marcellus Antonio McRae, Pro Hac Vice, Gibson Dunn and Crutcher LLP, Los Angeles, CA, Jeremy A. Root, Stinson LLP, Jefferson City, MO, Joshua Tate Thompson, Perry D. Boulier, Boulier Thompson and Barnes LLC, Spartanburg, SC, Katelyn Ashton, Kyle R. Cummins, Samuel Keenan Carter, Butler Snow LLP, Memphis, TN, Kristin Andrea Linsley, Pro Hac Vice, Gibson Dunn and Crutcher LLP, San Francisco, CA, for Defendant.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
S. THOMAS ANDERSON, UNITED STATES DISTRICT JUDGE
Melissa Buchanan purchased a universal life insurance policy from Defendant State Farm Life Insurance Company in 1999. One of the terms of her policy allowed State Farm to collect a monthly cost of insurance ("COI") charge, a fee deducted from the cash value of Ms. Buchanan's policy and calculated "based on the Insured's age on the policy anniversary, sex, and applicable rate class." Another policy provision permitted State Farm to reduce the COI charge if mortality rates improved, more specifically, allowing the charge to be "adjusted for projected changes in mortality." Ms. Buchanan's estate now alleges that State Farm periodically reduced the COI rates but failed to do so in a manner that complied with the terms of her policy. Plaintiff John Baker McClanahan, the personal representative of Ms. Buchanan's estate, seeks to recover damages for breach of contract, breach of the implied covenant of good faith and fair dealing, and conversion on behalf of his late aunt's estate and seeks the certification of a class of Tennessee policyholders who purchased universal life insurance coverage from State Farm.
State Farm seeks summary judgment on a number of issues, including its defense that the statute of limitations bars the claims. For the reasons set forth below, State Farm's Motion for Summary Judgment is GRANTED on the statute of limitations defense.
BACKGROUND
I. Plaintiff's Claims Regarding Cost of Insurance Rate Reductions
Melissa Buchanan, a former resident of Jackson, Tennessee, and now deceased, purchased a universal life insurance policy from State Farm (Policy No. LF-1206-8657) (the "Buchanan Estate Policy") in 1999. (Compl. ¶ 14 (ECF No. 1)). Ms. Buchanan's policy had an initial face value of $75,000. (Id.) State Farm paid $70,276.09 after Ms. Buchanan passed away in December 2016. (Id.)
State Farm sold Ms. Buchanan a form policy, FORM-86040, which was part of the company's 86000 series ("the Policy"). (Id. ¶ 1.) State Farm sold Ms. Buchanan the same policy it sold to other Tennessee customers through independent State Farm agents. (Hendren Decl. ¶ 3, ex. 12 to Def.s' Resp. in Opp'n (ECF No. 211-12). The policy not only paid a benefit upon the death of the policyholder. The policy also permitted policyholders to pay premiums on their own schedule and have their premiums applied to the policy's "cash value." (Id.) The policy's cash value earned a minimum interest rate of 4%. (Id.) As the policyholder paid the premiums on the policy, State Farm deducted 7.5% of the premium as a "premium expense charge." (Id.) State Farm also assessed a monthly deduction from the policyholder's cash value, representing a cost of insurance ("COI") charge, a $4 monthly expense charge, and the costs of any riders. (Id.) The deductions from the premiums and ongoing monthly deductions stayed with State Farm and did not accrue to the cash value of the policyholder's policy.
State Farm has cited the declaration of Alan R. Hendren, an assistant vice-president of State Farm Life Insurance Company, for this proposition. In point of fact, Mr. Hendren's declaration states that State Farm sold the 86040-40 form policy in South Carolina. The Court notes that Plaintiff originally filed suit in the United States District Court for the District of South Carolina and alleged claims on behalf both Tennessee policyholders and South Carolina policyholders. The South Carolina District Court granted a motion to sever the claims and transfer the claims of the Tennessee policyholders to this Court on February 18, 2022. The discrepancy about where State Farm sold these policies is not actually material for purposes of deciding Defendant's Rule 56 Motion.
Plaintiff's claim and the claims of the putative class concern the COI charges calculated and retained by State Farm during a class period from January 1, 1993, to December 31, 2020. The policy contains the following provision for the calculation of the COI:
Cost of Insurance. This cost is calculated each month. The cost is determined separately for the Initial Basic Amount and each increase in Basic Amount. The cost of insurance is the monthly cost of insurance rate times the difference between (1) and (2), where:The policy then states that COI rates "for each policy year are based on the Insured's age on the policy anniversary, sex, and applicable rate class" and that "[s]uch rates can be adjusted for projected changes in mortality." (Id.)
(1) is the amount of insurance on the deduction date at the start of the month divided by 1.0032737, and
(2) is the account value on the deduction date at the start of the month before the cost of insurance and the monthly charge for any waiver of monthly deduction benefit rider are deducted.
Until the account value exceeds the Initial Basic Amount, the account value is part of the Initial Basic Amount. Once the account value exceeds that amount, if there have been any increases in Basic Amount, the excess will be part of the increases in order in which the increases occurred.
(Buchanan Universal Life Policy 10 (ECF No. 1-2, 205-2); Pl.'s Statement of Add'l Facts ¶¶ 1, 2 (ECF No. 286).)
According to Plaintiff, State Farm reduced its COI rates three times, though only twice during the class period: (1) November 1, 1990 (with those COI rates remaining in force until December 31, 2001); (2) January 1, 2002 (remaining in force until May 31, 2008); and (3) June 1, 2008 (remaining in force through the present). (Pl.'s Statement of Add'l Fact ¶ 6; Corrected Stern Decl. ¶¶ 94, 105, 117, ex. 3 to Pl.'s Mot. to Cert. Class (ECF No. 205-3)). Plaintiff alleges that State Farm based COI changes on factors other than "projected changes in mortality" and never disclosed what those additional factors were. (Pl.'s Statement of Add'l Fact ¶¶ 4, 5, 7.) State Farm's use of factors other than changes in mortality in calculating COI rates and its failure to adjust its COI rates based on its projected improvements in mortality had a substantial impact on the amounts deducted each month during the class period from the policyholders' cash values, a sum Plaintiff calculates at over $21 million. (Id. ¶ 20; Corrected Stern Decl. ¶¶ 147-152.)
From these premises, Plaintiff alleges that State Farm has breached the terms of its policy and the policy's implied covenant of good faith and fair dealing. Plaintiff further alleges that State Farm is liable for conversion. Plaintiff seeks declaratory and injunctive relief on behalf of the Estate of Melissa Buchanan and the following class of Tennessee policyholders:
All persons who own or owned a universal life insurance policy issued by State Farm Life Insurance Company on Form-86040 in the State of Tennessee at any time between January 1, 1993, and December 31, 2020, inclusive. Excluded from this Class are all persons who were on permanent disability for the entire period from January 1, 1993, through December 31, 2020, inclusive.Plaintiff has sought certification of the class under Federal Rule of Civil Procedure 23. See Pl.'s Mot. for Class Certification, June 1, 2022 (ECF No. 204). In support of its own claim and the claims brought on behalf of the putative class, Plaintiff has retained Larry N. Stern, an actuary with experience in the life insurance industry who has calculated what the total cash value of the class's life insurance policies would have been if State Farm had reduced COI rates based only on projected improvements in mortality. In a Motion to Exclude (ECF No. 210), State Farm seeks a ruling on the admissibility of Stern's opinion evidence. For its part Plaintiff has filed a Motion for Partial Summary Judgment (ECF No. 233) on the issue of liability as well as a Motion to Exclude (ECF No. 235) the opinion testimony of several witnesses disclosed by State Farm. A jury trial is currently set for April 22, 2024.
II. Defendant's Motion for Summary Judgment
State Farm seeks judgment as a matter of law on Plaintiff's claims for breach of contract, breach of the implied covenant of good faith and fair dealing, conversion, and declaratory judgment. First, State Farm argues that Plaintiff's claims are now time barred. Plaintiff alleges a breach of contract that occurred at two different times during the class period, the most recent happening in 2008. Plaintiff's breach of contract claims accrued far outside of the six-year statute of limitations for contract claims under Tennessee law. And Tennessee' version of the discovery rule does not apply to breach of contract claims. Second, even assuming Plaintiff had timely claims, Plaintiff has not carried his burden to prove that State Farm breached the policy. Plaintiff has not shown that State Farm reduced the cost of insurance rates based on impermissible factors. Plaintiff's expert Larry Stern did not offer any admissible opinion on the question of breach or damages. State Farm contends that the policy's use of the phrase "based on" refers to the initial assignment of a rate to a policyholder, not subsequent reductions in the cost of insurance rate. Furthermore, the phrase "based on" does not as a matter of contractual interpretation suggest an exclusive list of factors. Put another way, a policyholder's "rate class" is not synonymous with mortality. In the final analysis, the policy language addressed to cost of insurance rate reductions is permissive, not mandatory. State Farm argues that Plaintiff's remaining claims, breach of the contract's implied covenants, conversion, and prayer for a declaratory judgment are all duplicative or derivative of Plaintiff's breach of contract claims. Therefore, State Farm is entitled to judgment as a matter of law on all claims.
To decide State Farm's Rule 56 Motion, the Court must consider whether any genuine issue of material fact exists that might preclude judgment as a matter of law. A fact is material if the fact "might affect the outcome of the lawsuit under the governing substantive law." Baynes v. Cleland, 799 F.3d 600, 607 (6th Cir. 2015) (citing Wiley v. United States, 20 F.3d 222, 224 (6th Cir. 1994) and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. For purposes of summary judgment, a party asserting that a material fact is not genuinely in dispute must cite particular parts of the record and show that the evidence fails to establish a genuine dispute or that the adverse party has failed to produce admissible evidence to support a factual contention. Fed. R. Civ. P. 56(c)(1). Local Rule 56.1(a) requires a party seeking summary judgment to prepare a statement of facts "to assist the Court in ascertaining whether there are any material facts in dispute." Local R. 56.1(a). State Farm has filed a statement of undisputed facts, and Plaintiff has filed a response as well as a statement of additional facts.
State Farm objects that Plaintiff's statement of additional facts contains many compound statements and therefore does not conform to the requirements of Local Rule of Court 56.1. Def.'s Sealed Resp. to Pl.'s Statement of Add'l Fact 1 n.1 (ECF No. 286). To the extent that the Court finds State Farm has not properly responded to any such fact, State Farm requests an opportunity to provide a further response.
The Court notes State Farm's objection for the record. The Court finds that most of the additional facts asserted by Plaintiff concern State Farm's COI reductions in 2002 and 2008, the information on which State Farm relied in calculating those reductions, and the impact of the COI rate reductions on State Farm policyholders. Because the Court concludes State Farm is entitled to judgment as a matter of law on its statute of limitations defense, the Court finds many of Plaintiff's additional facts are not addressed to that issue and are therefore not particularly relevant to the Court's legal analysis.
Based on the parties' submissions, the Court finds that the following facts are undisputed for purposes of summary judgment, unless otherwise noted. Under the Policy provision that the cost of insurance "rates can be adjusted for projected changes in mortality," State Farm exercised its discretion to reduce cost of insurance rates for this Policy four times: in 1987, 1990, 2002, and 2008. (Def.'s Statement of Undisputed Fact ¶ 43.) In November 1990, State Farm exercised its discretion and reduced COI rates for policies covering certain categories of insureds: female non-smokers age [Redacted] and up, male non-smokers and female smokers age [Redacted] and up, and male smokers [Redacted] age and up. (Id. ¶¶ 46, 47.) The COI rates adopted in November 1990 were in effect at the start of the alleged class period in November 1993 and remained in effect until December 31, 2001. (Pl.'s Statement of Add'l Fact ¶ 6.)
State Farm chose to implement another COI rate reduction, which took effect January 1, 2002 for most insureds over age [Redacted]. (Id.; Def.'s Statement of Undisputed Fact ¶ 49.) Plaintiff's aunt, Ms. Buchanan, was 49 years old in 2002 and immediately experienced a [Redacted]% COI rate reduction. (Id. ¶ 50.) State Farm sent a mailing to all policyholders informing them of the 2002 COI rate reduction based on improved mortality expectations, which read as follows: "On behalf of your State Farm agent, we are happy to share good news regarding your life insurance. Our research indicates that people are living longer, which allows us to reduce the current cost of insurance rates at most ages [Redacted]. These rates are used to determine the monthly cost of insurance deductions from your policy's account value." (Id. ¶ 53.) By comparing her annual notice for 2001 with the annual notice from 2002, Plaintiff's aunt would have seen that her annual cost of insurance charges went down by $91.62. (Id. ¶ 54.)
In June 2008, State Farm chose to lower cost of insurance rates again. (Id. ¶ 55.) State Farm exercised its discretion to lower COI rates for all age, sex, and rate class groups. (Id. ¶ 57.) Plaintiff's aunt was 55 in 2008 and received a [Redacted]% rate decrease. (Id. ¶ 59.) After the 2008 COI rate adjustment, State Farm again sent a letter to policyholders informing them of the rate change related to projected changes in mortality: "Our research shows that customers, like you, are living longer. As a result of these findings, we are able to pass the savings on to you by reducing the current cost of insurance rates for your policies listed above." (Id. ¶ 60.) The Court addresses other proof cited by the parties in its discussion of the statute of limitations issue below.
Plaintiff asserts that the applicable rate classes for the policy are "Regular (Smoker)" and "Non-Smoker" and that State Farm used rate classes, along with age and gender, to determine the mortality expectations of a group or class of insureds. Pl.'s Statement of Add'l Fact ¶¶ 9, 10. State Farm disputes this specific characterization of the term.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56(a), a party is entitled to summary judgment if the party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The Supreme Court has stated that "[t]hough determining whether there is a genuine issue of material fact at summary judgment is a question of law, it is a legal question that sits near the law-fact divide." Ashcroft v. Iqbal, 556 U.S. 662, 674, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In reviewing a motion for summary judgment, a court must view the evidence in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A court does not engage in "jury functions" like "credibility determinations and weighing the evidence." Youkhanna v. City of Sterling Heights, 934 F.3d 508, 515 (6th Cir. 2019) (citing Anderson v. Liberty Lobby, 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Rather, the question for the Court is whether a reasonable juror could find by a preponderance of the evidence that the nonmoving party is entitled to a verdict. Anderson, 477 U.S. at 252, 106 S.Ct. 2505. In other words, the Court should ask "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52, 106 S.Ct. 2505. Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. 2548.
In this case the Court has subject-matter jurisdiction by virtue of the parties' diversity of citizenship and the amount in controversy. 28 U.S.C. § 1332. A federal court sitting in diversity applies the law of the forum state, including the forum's choice-of-law rules. Atl. Marine Constr. Co. Inc. v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. 49, 134 S. Ct. 568, 582, 187 L.Ed.2d 487 (2013); Standard Fire Ins. Co. v. Ford Motor Co., 723 F.3d 690, 692 (6th Cir. 2013). In contract cases, Tennessee follows the rule of lex loci contractus, meaning that "a contract is presumed to be governed by the law of the jurisdiction in which it was executed absent a contrary intent" such as a valid contractual choice-of-law provision. Se. Texas Inns, Inc. v. Prime Hospitality Corp., 462 F.3d 666, 672 (6th Cir. 2006) (applying Tennessee law); Ohio Cas. Ins. Co. v. Travelers Indem. Co., 493 S.W.2d 465, 467 (Tenn. 1973). The parties in this case agree that the substantive law of Tennessee governs the questions of law presented in State Farm's Rule 56 Motion.
ANALYSIS
I. Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing
The issue presented is whether Plaintiff's contract claims are now time barred by the applicable statute of limitations. Plaintiff alleges two claims sounding in contract: State Farm's breach of Ms. Buchanan's insurance policy and its breach of the policy's implied covenant of good faith and fair dealing. In Tennessee, the essential elements of a breach of contract claim are as follows: "(1) the existence of an enforceable contract, (2) nonperformance amounting to a breach of the contract, and (3) damages caused by the breach of the contract." Life Care Ctrs. of Am., Inc. v. Charles Town Assocs., Ltd., 79 F.3d 496, 514 (6th Cir. 1996); C & W Asset Acquisition, LLC v. Oggs, 230 S.W.3d 671, 676-77 (Tenn. Ct. App. 2007) (quoting ARC LifeMed, Inc. v. AMC-Tenn., Inc., 183 S.W.3d 1, 26 (Tenn. Ct. App. 2005)). Under Tennessee law, "every contract contains an implied covenant of good faith and fair dealing in its performance and its enforcement." Beijing Fito Med. Co., Ltd. v. Wright Med. Tech., Inc., 763 F. App'x 388, 392-93 (6th Cir. 2019) (citing Dick Broad. Co., Inc. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 661 (Tenn. 2013)). There exists, though, "no standalone claim for breach of the implied covenant—it does not form an independent basis for relief." Id. at 393 (citing Berry v. Mortg. Elec. Registration Sys., 2013 WL 5634472, at *7 (Tenn. Ct. App. Oct. 15, 2013)). Any action based on contract must commence within six years "after the cause of action accrued." Tenn. Code Ann. § 28-3-109(a)(3).
This statute of limitations also applies to Plaintiff's claim against State Farm for breach of the implied covenant of good faith and fair dealing. Because the "legal basis" of the breach of implied covenant claim is breach of contract "and the damages sought and awarded are for breach of contract," the Court holds that Tenn. Code Ann. § 28-3-109(a)(3)'s six-year statute of limitations applies to Plaintiff's breach of implied warranty claim. Benz-Elliott v. Barrett Enterprises, LP, 456 S.W.3d 140, 152 (Tenn. 2015). Therefore, like his breach of contract claim, Plaintiff had to file his breach of implied covenant claim within six years "after the cause of action accrued." Tenn. Code Ann. § 28-3-109(a)(3).
The Tennessee Supreme Court has explained that statutes of limitations are "shields, not swords" and reflect "a societal choice that actions must be brought within a certain time period." Redwing v. Catholic Bishop for Diocese of Memphis, 363 S.W.3d 436, 456 (Tenn. 2012) (citations omitted). Statutes of limitations under Tennessee law "(1) promote stability in personal and business relationships, (2) give notice to defendants of potential lawsuits, (3) prevent undue delay in filing lawsuits, (4) avoid the uncertainties and burdens inherent in pursuing and defending stale claims, and (5) ensure that evidence is preserved and facts are not obscured by the lapse of time or the defective memory or death of a witness." Id. (internal quotations marks and citations omitted). By enacting statutes of limitations, the Tennessee legislature presumes that "persons with the legal capacity to litigate will not delay bringing suit on a meritorious claim beyond a reasonable time." Id. (citations omitted).
A statute of limitations is an affirmative defense. Fed. R. Civ. P. 8(c); Surles v. Andison, 678 F.3d 452, 458 (6th Cir. 2012). When a party seeks judgment as a matter of law on a statute of limitations, the Court must decide two questions: "(1) whether the statute of limitations has run and (2) whether there exists a genuine issue of material fact as to when the plaintiff's cause of action accrued." Henry v. Norfolk S. Ry. Co., 605 F. App'x 508, 510 (6th Cir. 2015) (quoting Campbell v. Grand Trunk W. R.R. Co., 238 F.3d 772, 775 (6th Cir. 2001)). As the party invoking the statute of limitations as an affirmative defense, State Farm has the burden to prove that the statute of limitations has run on Plaintiff's contract claims and that no genuine issue of material fact exists as to when the claims accrued. Id. If State Farm can discharge its burden to show that the claims are now time barred, the burden shifts to Plaintiff to prove an exception to the statute of limitations. Redwing, 363 S.W.3d at 463-64, 467; Lutz v. Chesapeake Appalachia, L.L.C., 717 F.3d 459, 464 (6th Cir. 2013).
Plaintiff filed suit on May 17, 2019. The estate's claims for breach of contract and breach of the implied covenant of good faith and fair dealing are timely under Tennessee's six-year statute of limitations, only if the causes of action accrued on or after May 17, 2013. If the claims accrued before that date, then Plaintiff filed his Complaint out of time. In Tennessee, "a breach-of-contract cause of action accrues as of the date of the breach." Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn., Inc., 566 S.W.3d 671, 709 (Tenn. 2019); State of Use of Cardin v. McClellan, 113 Tenn. 616, 85 S.W. 267, 269 (1905) ("[T]he cause of action . . . for the breach of a contract . . . accrues immediately upon the happening of . . . the breach, even though the actual damage resulting therefrom may not occur until some time afterwards.").
Applying these principles to the facts of this case, the Court holds that Plaintiff's claims against State Farm accrued more than six years before Plaintiff filed suit in May 2019. State Farm made two COI rate reductions during the class period, in 2002 and 2008. Plaintiff alleges that each reduction was a breach of Ms. Buchanan's policy, meaning the first breach occurred 17 years before Plaintiff filed suit on behalf of his late aunt's estate and the rest of the putative class of State Farm policyholders in Tennessee. The most recent reduction took place eleven years before Plaintiff filed suit. As a matter of Tennessee law, Ms. Buchanan's breach of contract claims "accrued as of the date of [each] breach." Individual Healthcare Specialists, 566 S.W.3d at 709. The Court can easily conclude then that State Farm has discharged its burden to show that the statute of limitations has run on each of Plaintiff's contract claims and that there is no genuine dispute over when the claims accrued. Henry, 605 F. App'x at 510.
The parties do not seriously dispute this conclusion. They do, however, disagree over whether the discovery rule should apply to save Ms. Buchanan's untimely claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Generally speaking, the discovery rule is an exception to the statute of limitations. Pero's Steak & Spaghetti House v. Lee, 90 S.W.3d 614, 621 (Tenn. 2002) (describing the discovery rule as an "equitable exception" to the statute of limitations). The burden now shifts to Plaintiff to prove that this exception to the statute of limitations applies in this case. Redwing, 363 S.W.3d at 463-64, 467; Lutz, 717 F.3d at 464. Plaintiff argues that under Tennessee law, the statute of limitations in breach of contract cases is tolled where a breach is "inherently undiscoverable." According to Plaintiff, even if State Farm informed its policyholders of the COI rate reductions, "State Farm never disclosed how it calculated COI Rates, or that it used factors other than mortality in setting COI Rates." Pl.'s Resp. in Opp'n 19 (ECF No. 281). Under the circumstances, State Farm's breach of the policy in calculating the COI rate reductions was inherently undiscoverable. Plaintiff also cites a number of similar cases where policyholders sued State Farm over COI rate reductions and courts applying the law of other jurisdictions have denied State Farm summary judgment on its statute of limitations defense. In the alternative, Plaintiff argues that State Farm fraudulently concealed its breach of contract. The Court holds that as a matter of Tennessee law, Plaintiff has failed to carry his burden to prove either exception to the statute of limitations.
A. Discovery Rule in Contract Actions
The validity of the discovery rule as an exception to Tennessee's statute of limitations in breach of contract actions is unsettled. As in any case where the Court has jurisdiction based on the parties' diversity of citizenship and state substantive law applies, the Court must follow "a ruling from the state supreme court." Smith v. Gen. Motors LLC, 988 F.3d 873, 878 (6th Cir. 2021) (citing In re Darvocet, Darvon & Propoxyphene Prods. Liab. Litig., 756 F.3d 917, 937 (6th Cir. 2014)). The Tennessee Supreme Court has never adopted the discovery rule in breach of contract cases, declining to reach the question on two different occasions. Indiv. Healthcare Specialists, 566 S.W.3d at 709 ("This Court has not addressed . . . the underlying question of whether, under any circumstances, the discovery rule could apply to toll the six-year statute of limitations in breach-of-contract actions."); see also Snake Steel, Inc. v. Holladay Construction Grp., LLC, 625 S.W.3d 830 (Tenn. 2021) (same).
Without a clear ruling from the Tennessee Supreme Court, the Erie doctrine requires this Court to "predict[ ] how the state supreme court would rule by looking to all available data, including decisions of the states' appellate courts." Smith, 988 F.3d at 878 (internal citation omitted); see also Lindenberg v. Jackson Nat'l Life Ins. Co., 912 F.3d 348, 358 (6th Cir. 2018) (citing Tenn. Sup. Ct. R. 4(G)(2) for the proposition that a published opinion of the Tennessee Court of Appeals is "controlling authority for all purposes unless and until such opinion is reversed or modified by a court of competent jurisdiction"). Based on the available data, the Court predicts that the Tennessee Supreme Court would only apply the discovery rule as an exception to the statute of limitations for contract actions in rare cases where the breach of contract was inherently undiscoverable.
First, even though the Tennessee Supreme Court has never addressed the issue, the Tennessee Court of Appeals recognized the discovery rule as an exception to the statute of limitations in a breach of contract case, albeit in an unpublished decision, Goot v. Metropolitan Government of Nashville and Davidson County, No. M2003-02013-COA-R3-CV, 2005 WL 3031638 (Tenn. Ct. App. Nov. 9, 2005). The Tennessee Court of Appeals held in Goot that "the discovery rule applies in cases where the breach of contract is inherently undiscovervable." Goot, 2005 WL 3031638, at *11. In the years since Goot, the Court of Appeals has cited the unreported decision for its holding on the discovery rule in contract cases, though only in other unreported decisions. See McGhee v. Shelby Cnty. Gov't, W2012-00185-COA-R3-CV, 2012 WL 2087188, at *10 (Tenn. Ct. App. June 11, 2012); House v. Edmondson, No. W2005-00092-COA-R3-CV, 2006 WL 1328810, at *18 (Tenn. Ct. App. May 16, 2006); ("A breach is 'inherently undiscoverable,' and will thereby trigger the application of the discovery rule . . . .").
Goot went back up to Court of Appeals a second time, sub nom. Taylor v. Metro. Gov't Nashville & Davidson Cnty., No. M2007-01774-COA-R3-CV, 2008 WL 5330502 (Tenn. Ct. App. Dec. 19, 2008). The appellate court held that the discovery rule did not apply to save the untimely claim of one plaintiff because the plaintiff's cause of action was not inherently undiscoverable.
Goot and its progeny might settle the issue, except for the fact that the precedential value of Goot remains less clear in light of two recent Tennessee Supreme Court cases. The Tennessee Supreme Court has never adopted Goot's holding on the discovery rule in contract cases or its formulation of the "inherently undiscoverable" standard. What is more, the Tennessee Supreme Court has now twice reversed the Tennessee Court of Appeals' application of the discovery rule under the "inherently undiscoverable" standard, concluding that the proof in each instance was insufficient to meet such a standard. Individual Healthcare Specialists, 566 S.W.3d at 715 ("Therefore, even if we were to adopt the Goot 'inherently undiscoverable' discovery rule in breach-of-contract cases, these facts do not meet that standard."); Snake Steel, 625 S.W.3d at 837 (declining to adopt the discovery rule and Goot's inherently undiscoverable standard as an exception to the statute of limitations on claims for the violation of the Tennessee Prompt Pay Act).
The Court can predict from Individual Healthcare Specialists that even if the Tennessee Supreme Court eventually adopted Goot's holding, the Tennessee Supreme Court would apply the discovery rule only under an "inherently undiscoverable" standard. Furthermore, the Tennessee Supreme Court would take a more restrictive view of the doctrine than the Tennessee Court of Appeals has heretofore taken. To illustrate the point, the Court will examine the leading Tennessee cases on the discovery rule in contract cases—Goot, Individual Healthcare Specialists, and (to a lesser extent) Snake Steel—and the manner in which the Tennessee courts have applied the inherently undiscoverable standard. The Court will then consider the evidence marshaled by Plaintiff in support of his theory that State Farm's breaches of Ms. Buchanan's policy were inherently undiscoverable during the limitations period.
Goot "involve[d] a dispute between the surviving spouses of five disabled city employees and the Metropolitan Government of Nashville and Davidson County over the amount of life insurance benefits payable after the employees died." Id. at *1. Nashville-Davidson County Metro Government ("Metro") provided its employees with group term life insurance in amounts of "coverage equal to twice their annual salary to a maximum of $50,000." Id. Metro's group plan granted only $7,500 in coverage to former employees who took early retirement on account of a disability and who received a disability pension. Id. The group life policy nevertheless contained a waiver-of-premium benefit for disabled former employees. The policy permitted disabled former employees who had not yet turned 60 years old to keep their life insurance coverage for the larger amount (twice their annual salary up to the $50,000 maximum) and "without continuing to pay the premiums that had been paid by the Metropolitan Government while they were active employees." Id. Disabled former employees had only to apply for the waiver-of-premium benefit "within two years after being found eligible for a disability pension." Id.
The problem was Metro never notified the disabled former employees of their eligibility for the premium waiver benefit. Id. at *2. So when former employees died, their surviving spouses received only the $7,500 benefit and not a larger benefit equal to twice the amount of their deceased spouse's annual salary, up to $50,000. Id. Five of the surviving spouses sued Metro.
Of the five surviving spouses who brought the suit, two alleged that Metro never informed their spouses about the premium waiver benefit, two alleged that Metro provided false information about their spouses' eligibility for the benefit, and one alleged that Metro should have given his deceased spouse another opportunity to apply for the benefit when the insurer "suggested to the Metropolitan Government that it offer a one-time grace period to permit disabled employees who had not requested the waiver of premium benefit to submit their applications." Goot, 2005 WL 3031638, at *3.
The Tennessee Court of Appeals held that the discovery rule applied to toll the statute of limitations on the breach of contract claim brought by one of the plaintiffs, Wanda Faye Jackson. After examining the Tennessee statute containing the limitations period for contract actions, the law of other states, and the competing policy rationales for the application of the discovery rule to contract cases, the Court of Appeals held that "the discovery rule applies in cases where the breach of contract is inherently undiscoverable." Id. at *11.
The Court of Appeals went on to conclude that Ms. Jackson's breach of contract claim against the city was inherently undiscoverable under the facts of her case. First, the city had an affirmative duty to disclose the existence of the premium waiver benefit to all disabled employees upon their early retirement. Id. at *8. ("[T]he Metropolitan Government, as part of its employment agreement with its employees, had an obligation to fully inform its employees of their rights and status with regard to the waiver of premium benefit."). The proof showed that a Metro ordinance required Metro to purchase group life insurance with the waiver of premium benefit and that the Jacksons were not aware of the premium waiver benefit when Mr. Jackson first became eligible for it in 1987 and that it would have been difficult for the Jacksons to learn of the benefit's availability independently. The Court of Appeals commented that it was "unreasonable and unrealistic to impute" to the Jacksons "independent knowledge of the details of the group life insurance policy that the Metropolitan Government had purchased or of the provision in the Metropolitan Code requiring that a waiver of premium benefit be included in the group life insurance contract." Id. at *12.
By comparison, Metro was in "a far superior position" relative to the Jacksons and should have known by its own failure to disclose the benefit that the Jacksons had no knowledge of Metro's breach. Furthermore, the proof showed that Ms. Jackson learned about the benefit when she applied for her husband's life benefit upon his death. Ms. Jackson filed suit within the limitations period after she discovered her cause of action. Id. ("Ms. Jackson filed her lawsuit against the Metropolitan Government in December 2001, within six years following her discovery of the existence of the benefit and the Metropolitan Government's breach of contract."). In its summation of its holding, the Court of Appeals stated that "[t]he inherently undiscoverable requirement is met when the injured party is unlikely to discover the wrong during the limitations period despite due diligence. To be inherently undiscoverable, the wrong and injury must be unknown to the plaintiff because of their very nature and not because of any fault of the plaintiff." Id. at *11 (citing In re Coastal Plains, Inc., 179 F.3d 197, 214-15 (5th Cir. 1999)).
The Court of Appeals in Goot remanded the case to the trial court, and as the Court has already noted, the case went back up on appeal a second time sub nom. Taylor v. Metropolitan Government of Nashville and Davidson County. In Taylor, the Court of Appeals held that the discovery rule could not save the claims of another plaintiff. The plaintiff "knew that the waiver of premium benefit existed; that her husband did not qualify for the benefit because he failed to apply for it within the one year time period; and that Metro did not inform her husband of the availability of the benefit" and yet still did not file suit within six years of making these discoveries. Taylor, 2008 WL 5330502, at *8.
In Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc., 566 S.W.3d 671 (Tenn. 2019), the Tennessee Supreme Court first addressed Goot and its adoption of the discovery rule in contract cases under the "inherently undiscoverable" standard. Individual Health Specialists involved an insurance agency's claim that BlueCross BlueShield of Tennessee, Inc. ("BlueCross") breached an agency agreement by failing to pay the insurance agency the full commissions due on the agency's sale of BlueCross insurance policies. Individual Healthcare Specialists, 566 S.W.3d at 676. The parties' agreement included a "commission schedule" with defined "commission rates" for each type of policy sold. Id. at 677. The commission schedule had in bolded text a reservation of BlueCross' "unilateral" right to "modify or change the commission and payment schedules with appropriate notification" to the insurance agency, a right BlueCross exercised at more than one time during the parties' contractual period. Id.
After conducting an internal analysis of its revenue with BlueCross in 2011, the insurance agency concluded that BlueCross had been underpaying earned commissions to the agency since 1999. Id. at 678. The insurance agency sued BlueCross for breach of contract. Following a bench trial, the trial court ruled in favor of the insurance agency, holding in part that BlueCross had breached the parties' agreement by "systemically underpaying IHS commissions during the entirety of the parties' 13-year relationship" and that the discovery rule tolled the claims accruing outside of the statute of limitations because BlueCross' breach was "inherently undiscoverable." Id. at 681. The trial court awarded the insurance agency "$1,968,765 in damages for BlueCross's systemic commission underpayments" and "$142,735 in prejudgment interest, for a total judgment of $2,111,500." Id. at 681-82. The Court of Appeals affirmed the trial court's statute of limitations holding and its application of Goot's discovery rule.
The Tennessee Supreme Court reversed. In an attempt to limit the award of damages only for breaches occurring during the limitations period, BlueCross argued on appeal that the Tennessee Supreme Court should reject the use of the discovery rule under any circumstances in breach of contract cases. In the alternative, BlueCross argued that the discovery rule should only apply in contract cases where the breach was inherently undiscoverable "on a categorical basis, rather than on a case-by-case basis." Id. at 708. After discussing the policy reasons to reject or adopt the discovery rule in contract actions and then reviewing how other jurisdictions had dealt with the issue, the Tennessee Supreme Court ultimately found it unnecessary to announce its own view on the matter.
Instead, the Court concluded that BlueCross' breach was not inherently undiscoverable, even though "the discovery of the breach in this case was not easy." Id. at 714. The proof showed that "there was a disparity of knowledge" between the parties and that BlueCross "had superior knowledge and control" over the relevant information. Id. at 712. BlueCross generated the sales data and issued monthly sales reports to the insurance agency, meaning the agency's information was only as good as the information provided by BlueCross. Id. at 712-13. The proof showed that BlueCross' internal data contained errors and perhaps more important that BlueCross knew its systems undercounted commissions owed to the agency. Moreover, the insurance agency had no access to certain "information which the proof established was necessary to determine underpayments," including BlueCross's own internal "commission reporting and payment system" and information about policy renewals and terminations. Id. at 713. The Court attached significance to the fact that the insurance agency never requested the information from BlueCross, failing to protect its own interests and neglecting its responsibility of due diligence. Id. at 715 ("[H]ad an accurate accounting of commissions earned been demanded and verified from the beginning, the years of underpayments would never have occurred."). In the final analysis, "the fact that Blue Cross's underpayments were based on complicated mathematical equations does not make them 'inherently undiscoverable' as we understand that term in this context." Id.
The Tennessee Supreme Court once more was asked to weigh in on the Goot decision and its application of the discovery rule in Snake Steel, Inc. v. Holladay Construction Group, LLC, 625 S.W.3d 830 (Tenn. 2021). At issue in Snake Steel was the one-year statute of limitations on claims under Tennessee's Prompt Pay Act, Tenn. Code Ann. § 66-34-101 et seq., a law governing the payment of contractors and subcontractors in the construction industry. The statute "requires the party withholding retainage—a percentage of total payment withheld as incentive for satisfactory completion of work—to deposit the funds into a separate, interest-bearing escrow account" and imposes a penalty of $300 per day for the failure to do so. Snake Steel, 625 S.W.3d at 831. It was undisputed that the contractor did not place the subcontractor's retainage into an interest-bearing escrow account and failed to make timely payment to the sub. Id. The Tennessee Supreme Court held that "the $300 per day penalty is assessed each day retainage is not deposited in a statutorily-compliant escrow account" and therefore "the subcontractor is not precluded from recovering the penalty assessed each day during the period commencing 365 days before the complaint was filed." Id.
Snake Steel was not, strictly speaking, a breach of contract case. The significance of the decision for present purposes is the fact that the Tennessee Supreme Court once again declined to adopt Goot's discovery rule and held that the evidence in the case did not meet the inherently undiscoverable standard. The subcontractor in Snake Steel argued that the discovery rule applied and permitted it to recover the daily penalty for each day during the three-year period before the subcontractor had filed suit. In rejecting this argument, the Tennessee Supreme Court held that the contractor's failure to pay a statutorily required penalty was not inherently indiscoverable. The Court observed that no authority had been cited for the proposition that the discovery rule applied to statutory penalties. And in that case both parties were charged with knowledge of their rights and duties under the law, though neither party had actual knowledge of the Prompt Pay Act's requirements. Id. at 837, n.17. Moreover, the Court highlighted the fact that the subcontractor had never even asked the contractor whether the retainage was being deposited into an escrow account. The Tennessee Supreme Court concluded that the breach of the statute was not inherently undiscoverable and once more left for another day the question of whether Goot's discovery rule was the law in Tennessee. Id.
The Court draws several conclusions from these cases—particularly Individual Healthcare Specialists and Goot, and to a lesser extent Snake Steel. While the Tennessee Court of Appeals has adopted a discovery rule in contract cases (and only in unreported decisions), the Tennessee Supreme Court has never adopted Goot as the law in Tennessee. The Tennessee Supreme Court has twice taken up cases squarely presenting Goot's discovery rule and twice found it unnecessary to weigh in on Goot. (It is also true that the Tennessee Supreme Court did not accept the appellant's invitation in Individual Healthcare Specialists to reject outright the discovery rule in contract cases.) At the very least, the real precedential value of Goot remains unsettled in the aftermath of Individual Healthcare Specialists and Snake Steel. And insofar as an uncritical acceptance of Goot represents an expansion of liability under Tennessee contract law, the Court is reluctant to predict that the Tennessee Supreme Court would treat Goot as the law in Tennessee. As a general rule, federal courts proceed with caution "when making pronouncements about state law" and avoid a decision on an open question of state law "which greatly expands liability." In re Darvocet, Darvon & Propoxyphene Prods. Liab. Litig., 756 F.3d at 937 (citations omitted).
What the Court can predict from Individual Healthcare Specialists and Snake Steel is that the Tennessee Supreme Court would apply the inherently undiscoverable standard in a strictly limited manner and with more rigor than the Court of Appeals had applied to the same facts. In both cases, the Tennessee Supreme Court granted leave to appeal, only to reverse the Tennessee Court of Appeals' application of Goot's discovery rule and its conclusion that a breach (or in the case of Snake Steel, a statutory violation) was inherently undiscoverable. In both cases, the Supreme Court departed from the Court of Appeals and found that the alleged breach (or violation) was not inherently undiscoverable. This suggests that if the discovery rule applies at all in Tennessee contract disputes, the Tennessee Supreme Court would treat it as an extremely narrow exception to the Tennessee statute of limitations for contract actions.
With these principles in mind, the Court holds that State Farm's alleged breaches were not inherently undiscoverable and therefore that the discovery rule should not apply as an exception to the Tennessee statute of limitations on Plaintiff's contracts claims. If confronted with the undisputed facts presented in the case at bar, the Tennessee Supreme Court would hold that State Farm's alleged breaches of contract were not inherently undiscoverable. First, Ms. Buchanan knew that State Farm collected COI rates as part of the administration of her life insurance policy and that State Farm could reduce the COI rates, consistent with the terms of her policy. The policy stated that COI rates "for each policy year are based on the Insured's age on the policy anniversary, sex, and applicable rate class" and that "[s]uch rates can be adjusted for projected changes in mortality." (Buchanan Universal Life Policy 10, ECF No. 1-2, 205-2.) The same section of the policy defined the COI rate and explained the formula by which State Farm deducted the COI rate from the cash value of the policy. (Id.) There is no real dispute here that Ms. Buchanan presumptively read and understood these terms of her policy. Under Tennessee law, an insured "is conclusively presumed to have knowledge of, and to have assented to, all the terms, conditions, limitations, provisions or recitals in the policy," regardless of whether the insured actually read the insurance contract. Webber v. State Farm Mut. Auto. Ins. Co., 49 S.W.3d 265, 274 (Tenn. 2001) (quoting General Am. Life Ins. Co. v. Armstrong, 182 Tenn. 181, 185 S.W.2d 505, 507 (Tenn. 1945)). Unlike Ms. Jackson in Goot, Ms. Buchanan knew what the contractual terms of the insurance coverage were and knew that State Farm might reduce her COI rate. Goot, 2005 WL 3031638, at *12 (remarking that it was "unreasonable and unrealistic to impute" to the Jacksons "independent knowledge of the details of the group life insurance policy that the Metropolitan Government had purchased or of the provision in the Metropolitan Code requiring that a waiver of premium benefit be included in the group life insurance contract.").
Not only was Ms. Buchanan charged with knowledge of the policy's COI rate provisions, the proof shows that State Farm actually disclosed the COI rate reductions to Ms. Buchanan when they occurred in 2002 and 2008. Ms. Buchanan received a [Redacted] percent ([Redacted]%) COI rate reduction in 2002 and a [Redacted] percent ([Redacted]%) reduction in 2008. (Def.'s Statement of Fact ¶¶ 50, 59.) State Farm mailed Ms. Buchanan and other policyholders a letter about the COI rate reductions, explaining in one of them that State Farm's "research indicates that people are living longer, which allows us to reduce the current cost of insurance rates at most ages over [Redacted]." (Id. ¶ 53.) Ms. Buchanan's 2002 annual notice showed that her annual COI rate decreased by $91.62 as compared to her 2001 annual COI rate. (Id. ¶ 54.) State Farm mailed Ms. Buchanan a similar letter in 2008. (Id. ¶ 60.) There is no genuine dispute that State Farm disclosed the reductions in Ms. Buchanan's COI rates. Again, these facts are distinguishable from the facts in Goot. Metro government in Goot breached its duty to disclose the existence of a premium waiver benefit to eligible employees and employees had no real opportunity to learn of even the existence of the benefit until the statute of limitations had run. Goot, 2005 WL 3031638, at *12 (finding that "the Jacksons were not aware that the Metropolitan Government had breached its contractual obligation to inform Mr. Jackson of the existence of this benefit"). By contrast, State Farm complied with its contractual duty to disclose the COI reductions in 2002 and 2008 and Ms. Buchanan had actual notice of the reductions.
The undisputed evidence also shows that Ms. Buchanan could have compared the reductions she received in 2002 and 2008 with public data on improved mortality data. (Def.'s Statement of Undisputed Fact ¶ 72 (citing Hendren Decl. ¶¶ 33, 35).) State Farm asserts that like any other policyholder, Ms. Buchanan could have contacted her State Farm agent to get more information about the COI rate reductions. (Id. ¶¶ 73, 74) (citing Hendren Decl. ¶¶ 33, 35; Wilson Decl. ¶¶ 7-8 (describing Ms. Buchanan's meetings with her State Farm agent and discussion of how State Farm deducted the COI); Kirk Fair Decl. ¶¶ 80, 83 (describing the role of an insurance agent in explaining policy features to a life insurance customer)). Ms. Buchanan's opportunity to get more detailed information about the COI rate reductions from State Farm itself shows that State Farm's alleged breach was not inherently undiscoverable. Individual Healthcare Specialists, 566 S.W.3d at 715 ("[H]ad an accurate accounting of commissions earned been demanded and verified from the beginning, the years of underpayments would never have occurred.").
The Court finds that Plaintiff has not actually shown that a genuine dispute exists over these facts. Plaintiff counters that State Farm's mortality tables were not publicly available and that as laypersons, policyholders were not well situated to determine whether the COI rate reductions were consistent with the publicly available data. In other words, Plaintiff believes that without State Farm's own internal COI rate tables and its calculations for the reduced rates, her contract claims remained inherently undiscoverable. Plaintiff's claim about publicly available information is somewhat at odds with the allegations of the Complaint, which cites several publicly available datasets showing significant improvements in mortality, all in support of Plaintiff's claims that State Farm failed to reduce COI rates in amounts consistent with the improvements. (Compl. ¶¶ 42-49.) The fact that State Farm may not have disclosed its own in-house data does not dispute State Farm's basic point about the general availability of data on improved mortality.
And Plaintiff has not actually contested State Farm's evidence that policyholders could have requested more information from State Farm. Plaintiff simply states without citation to any other evidence that State Farm's letter to policyholders announcing the COI rate reductions contained misrepresentations. Pl.'s Resp. to Def.'s Statement of Undisputed Fact ¶ 73 ("RESPONSE: Disputed. State Farm's own statements misrepresented how State Farm was basing its changes to the COI Rate. Dkt. 174, Exh. L to State Farm's MSJ . . . ."). Plaintiff also cites evidence about State Farm's inability to produce data as part of the discovery process in this litigation, more than eleven years after the last COI rate reduction, to show how it set COI initial rates for universal life policies, presumably going back to the 1980s, and proof that State Farm may have taken factors other than improved mortality into account in reducing its COI rates in 2002 and 2008. Id. ¶ 74 (citing evidence that State Farm was unable to produce data for purposes of litigation to demonstrate "how COI Rates were set initially" and other evidence that State Farm may have considered factors other than mortality in calculating COI rate reductions). Even viewing the proof in a light most favorable to Plaintiff, Plaintiff has not explained how any of this evidence proves a genuine dispute over whether policyholders like Ms. Buchanan could have obtained more information from State Farm in 2002 or 2008 about the reductions to COI rates.
Plaintiff's docket citation is incorrect. Docket entry 174 is a notice of appearance filed by counsel for State Farm. See K. Ashton Notice of Appearance, Mar. 29, 2022 (ECF No. 174). Plaintiff appears to cite the letter sent by State Farm to policyholders announcing the COI rate reduction.
Plaintiff's point about the relative sophistication of Ms. Buchanan (and any other policyholder in the putative class) may be true, as far as it goes. The relative sophistication of the parties to a contract is relevant to the Court's analysis of whether a breach is inherently undiscoverable. Individual Healthcare Specialists, 566 S.W.3d at 715. It does not alter the undisputed fact that State Farm disclosed to policyholders the 2002 and 2008 COI rate reductions and could have made a basic comparison of the rate reductions and the general improvements in mortality or even demanded a more detailed explanation from State Farm. The proof viewed in a light most favorable to Plaintiff evidences a "disparity of knowledge" between State Farm and its universal life policyholders in Tennessee. Id. at 712. However, policyholders like Ms. Buchanan were, relatively speaking, arguably more informed than the insurance agency in Individual Healthcare Specialists; they had accurate information about the timing of the COI rate reductions and the amounts of the reductions, both as a percentage decrease over the previous COI rates and the actual dollar amounts of the reductions. State Farm's policyholders were unquestionably more informed than Ms. Jackson, one of the surviving spouses in Goot, who had no idea a waiver-of-premium benefit even existed much less that her spouse had been eligible for it.
One last point warrants discussion. Plaintiff cites the complexity of the data and COI rate calculations and fact that trained actuaries disagree over the COI rate reductions adopted by State Farm. (Pl.'s Resp. to Def.'s Statement of Undisputed Fact ¶¶ 73, 74.). Plaintiff's argument implies that a layperson like Ms. Buchanan could not have reasonably discovered the alleged breach of the policy's COI rate reduction provision. However, Plaintiff's position is just another way of saying that "the discovery of the breach in this case was not easy." Individual Healthcare Specialists, 566 S.W.3d at 714. Be that as it may, the difficulty in discovering the breach, even a breach "based on complicated mathematical equations," does not make the breach inherently undiscoverable. Id. at 715. In the final analysis, the statutory limitations period begins to run under Tennessee law when "a plaintiff gains information sufficient to alert a reasonable person of the need to investigate the injury." Redwing, 363 S.W.3d at 459 (citations omitted). Ms. Buchanan had information about the terms of her universal life policy, the 2002 and 2008 reductions in the COI rates, the actual difference in the amounts collected by State Farm as a COI rate, and then information to compare her COI rates reduction with overall improvements in mortality. Because Ms. Buchanan had as much information as the insurance agency in Individual Healthcare Specialists (and certainly more accurate information), the Court predicts that the Tennessee Supreme Court would hold that State Farm's alleged breach of contract was not inherently undiscoverable during the limitations period. For all of these reasons, the Court concludes that State Farm's alleged breaches of contract and breach of the implied covenant of good faith and fair dealing, either in 2002 and 2008, were not inherently undiscoverable. Therefore, Plaintiff has not shown why the discovery rule applies to toll the six-year statute of limitations on Ms. Buchanan's contract claims.
And none of the additional caselaw cited by Plaintiff alters the Court's conclusion. Plaintiff relies on a series of other class actions brought by State Farm policyholders over COI rate reductions in other jurisdictions. The Court finds the cases distinguishable on a number of grounds, the most important being the fact that none involved the application of Tennessee law or considered whether the inherently undiscoverable standard applied to that jurisdiction's version of the discovery rule in breach-of-contract cases. McClure v. State Farm Life Ins. Co., 608 F.Supp.3d 813, 826 (D. Ariz. 2022) (holding that Arizona' discovery rule applied to contract actions where "the plaintiff's injury or the conduct causing the injury is difficult for plaintiff to detect"); Bally v. State Farm Life Ins. Co., 536 F.Supp.3d 495, 516 (N.D. Cal. 2021) (denying summary judgment on the SOL and holding that under California law the discovery rule applied to policyholders' breach of contract claim over COI rate reductions); Bally v. State Farm Life Ins. Co., No. 18-cv-04954-CRB, 2019 WL 3891149 (N.D. Cal. Aug. 18, 2019) (denying motion to dismiss on the SOL and holding under California's discovery rule that policyholders had no duty to investigate COI rate reductions); Vogt v. State Farm Life Ins. Co., No. 2:16-cv-04170-NKL, 2018 WL 1747336 (W.D. Mo. Apr. 10, 2018) (holding that under Missouri law policyholders' injuries "were only ascertainable with knowledge of the actuarial information used in State Farm's calculations"). Plaintiff has not shown why the Tennessee Supreme Court would follow any of these cases to answer the question presented about the discovery rule in contract actions and the inherently undiscoverable standard. The Court notes this authority but finds it distinguishable and therefore unpersuasive.
B. Fraudulent Concealment
Plaintiff has argued in the alternative that State Farm fraudulently concealed its breaches of contract when it reduced the COI rates for its universal life insurance customers. Fraudulent concealment is a tolling exception that operates to toll the running of a statute of limitations "when the defendant has taken steps to prevent the plaintiff from discovering he [or she] was injured." Redwing, 363 S.W.3d at 462 (quoting Fahrner v. SW Mfg., Inc., 48 S.W.3d 141, 146 (Tenn. 2001)) (internal quotation marks omitted). To establish that the fraudulent concealment exception applies, a plaintiff must prove that: (1) the defendant affirmatively concealed the plaintiff's injury or failed to disclose material facts regarding the injury despite a duty to do so; (2) the plaintiff could not have discovered the injury despite reasonable care and diligence; (3) the defendant knew the plaintiff had been injured; and (4) the defendant concealed material information from the plaintiff by withholding information or making use of some device to mislead the plaintiff in order to exclude suspicion or prevent inquiry. Id. at 462-63 (quotation marks and citations omitted). Where it applies, the fraudulent concealment exception tolls the running of the statute of limitations "until the plaintiff discovers or, in the exercise of reasonable diligence, should have discovered the defendant's fraudulent concealment or sufficient facts to put the plaintiff on actual or inquiry notice of his or her claim." Id. at 463 (citation omitted).
State Farm argues in a single sentence in its reply brief that Plaintiff's Complaint fails to meet the pleading requirements for fraud under Federal Rule of Civil Procedure 9(b). Rule 9(b) requires a plaintiff to allege the time, place, and content of any misrepresentation; the defendant's fraudulent intent; the fraudulent scheme; and the resulting injury. Power & Tele. Supply Co. v. SunTrust Banks, Inc., 447 F.3d 923, 931 (6th Cir. 2006) (citing Coffey v. Foamex, L.P., 2 F.3d 157, 161-62 (6th Cir. 1993)). State Farm's argument regarding the Rule 9(b) pleading standard, however, is an issue raised by State Farm for the first time in its reply. "Generally speaking, arguments raised for the first time in reply briefs are waived." Palazzo v. Harvey, 380 F. Supp. 3d 723, 730 (M.D. Tenn. 2019); see Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 553 (6th Cir. 2008) ("[R]eply briefs reply to arguments made in the response brief—they do not provide the moving party with a new opportunity to present yet another issue for the court's consideration."). Under the circumstances, the Court finds it unnecessary to reach the merits of State Farm's pleading argument.
The problem with Plaintiff's argument is that Plaintiff has cited no evidence to show that State Farm affirmatively concealed an alleged breach of the policy or failed to disclose material facts about the injury when it had a duty to do so. Affirmative concealment is an action "to prevent [the plaintiff] from discovering the fraud." Chunn v. Se. Logistics, Inc., 794 F. App'x 475, 477 (6th Cir. 2019) (applying Tennessee law). Plaintiff argues in his summary judgment briefing that State Farm "intentionally hid" its COI rates and the method by which it calculated its rate reductions. Pl.'s Resp. in Opp'n 19 (ECF No. 281). But Plaintiff's ipse dixit does not make it so. As the party with the burden of proof on the fraudulent concealment issue, Plaintiff must cite record evidence to support his claim that State Farm took affirmative steps to conceal the true state of affairs from Ms. Buchanan. Plaintiff has come forward with no such evidence. At best, the proof simply shows that State Farm had its own internal process for arriving at its COI rate reductions and that State Farm did not disclose the COI rate calculations to Ms. Buchanan. This does not suffice to show affirmative concealment on State Farm's part.
What is more, State Farm's supposed failure to act without a request from a policyholder and make public a table of its COI rates or disclose the methodology by which it calculated the relevant COI rate reductions is not the same as affirmative concealment. One of the means by which Plaintiff could prove concealment is to show that State Farm had a duty to disclose its methodology and breached that duty. As State Farms correctly notes, however, Tennessee law does not impose on insurers a "duty to disclose its internal ratemaking and pricing procedures related to [an] annuity." Cirzoveto v. AIG Annuity Ins. Co., 625 F. Supp. 2d 623, 631 (W.D. Tenn. 2009) (citing Beaudreau v. Larry Hill Pontiac/Oldsmobile/GMC, Inc., 160 S.W.3d 874 (Tenn. Ct. App. 2005)). Plaintiff has cited no authority to show how State Farm's failure to disclose similar information in the context of a universal life insurance product would meet Tennessee's definition of fraudulent concealment. And for the reasons the Court has already discussed, Plaintiff has not shown that Ms. Buchanan could not have discovered State Farm's alleged breach despite her reasonable care and diligence. The Complaint alleges that "Plaintiffs did not learn of Defendant's breaches supporting Plaintiffs' claims until approximately Spring 2019, when they engaged counsel." Compl. ¶ 56. Even if this single allegation counted as evidence, it does not show that Plaintiff was somehow prevented from engaging counsel, or taking any other steps to discover the alleged breaches, during the limitations period. Without this evidence, Plaintiff has not carried his burden to prove fraudulent concealment as an exception to the statute of limitations.
Therefore, State Farm's Motion for Summary Judgment must be GRANTED as to its statute of limitations defense to Plaintiff's claims for breach of contract and breach of the implied warranty of good faith and fair dealing.
II. Conversion
State Farm also seeks judgment as a matter of law on Plaintiff's claims for conversion. The Complaint alleges that State Farm is liable for conversion because it has "misappropriated or misapplied specific funds . . . [b]y deducting COI Charges and Expense Charges in unauthorized amounts from the Cash Values of" the policies and converted the funds for its own use. Compl. ¶ 85. Conversion is subject to Tennessee's three-year statute of limitations for tort actions. Tenn. Code Ann. § 28-3-105(2); see also Individual Healthcare Specialists, 566 S.W.3d at 680 n.6 ("[T]he statute of limitations for . . . and conversion is three years, see Tenn. Code Ann. § 28-3-105(2) (2017)."). The Court holds that the same timeliness reasoning applies to Plaintiff's conversion claims. Any claims Plaintiff may have had for conversion arising out of the 2002 or 2008 COI rate reductions are facially time barred.
Plaintiff has not shown why some exception to the three-year statute of limitations should apply to save his conversion claims. Typically, a party forfeits issues "not raised in response to dispositive motions." Swanigan v. FCA US LLC, 938 F.3d 779, 786 (6th Cir. 2019) (citing Am. Copper & Brass, Inc. v. Lake City Indus. Prods., Inc., 757 F.3d 540, 545 (6th Cir. 2014)); see also Alexander v. Carter for Byrd, 733 F. App'x 256, 261 (6th Cir. 2018) ("When a plaintiff fails to address a claim in response to a motion for summary judgment, the claim is deemed waived."). In responding to the Motion for Summary Judgment, Plaintiff addressed State Farm's arguments for the dismissal of the conversion claim, just not State Farm's statute of limitations argument that Plaintiff's conversion claim was untimely. The Court holds that State Farm is entitled to summary judgment on the conversion claim for Plaintiff's failure to address the statute of limitations issue alone.
Plaintiff did argue generally that the discovery rule and the doctrine of fraudulent concealment tolled the statute of limitations on Ms. Buchanan's contract claims. To the extent that Plaintiff's arguments could be read to include a defense of his conversation claim, the Court finds the point unpersuasive. First and foremost, the fraudulent concealment exception fails to save the untimely conversion claims, just as it failed to save the untimely contract claims. As for the discovery rule, the Tennessee Supreme Court has never held that the discovery rule applies to conversion and there is strong reason to predict that it would reject such a proposition. In Pero's Steak and Spaghetti House v. Lee, 90 S.W.3d 614 (Tenn. 2002), the Tennessee Supreme Court held that the discovery rule did not apply to tort claims for the conversion of negotiable instruments. Pero's Steak & Spaghetti House, 90 S.W.3d at 624 ("For all these reasons, we hold that the discovery rule does not apply to toll the statute of limitations for claims of conversion of negotiable instruments."). In arriving at its conclusion, the Tennessee court discussed reasons why the discovery rule would not apply to claims for conversion generally. For instance, the Pero court noted that "the tort of conversion is complete and the injury occurs at the moment the tortfeasor appropriates the plaintiff's property to his or her own use or benefit by exercising dominion over it in violation of the true owner's right." Id. at 623 (citing Barger v. Webb, 216 Tenn. 275, 391 S.W.2d 664, 665 (1965)). The Pero court also reasoned that "the law of conversion presumes that property owners know what their assets are and where they are located" and that the owner will not be "ignorant of the conversion." Id. The Tennessee Supreme Court ultimately found that "[u]nlike other situations in which the discovery rule has been applied, persons alleging conversion, and particularly conversion of a negotiable instrument, generally should be able to easily and quickly detect the loss and take appropriate action." Id. at 623-24. In light of Pero's holding and its supporting analysis, the Court predicts that the Tennessee Supreme Court would not recognize the discovery rule as an exception to the statute of limitations for Plaintiff's conversion claim.
Therefore, State Farm's Motion for Summary Judgment must be GRANTED as to its statute of limitations defense to Plaintiff's conversion claim.
III. Declaratory Judgment
Finally, State Farms seeks summary judgment on Plaintiff's declaratory judgment claim. In Count IV of the Complaint, Plaintiff requests "a declaration of the parties' respective rights and duties under the Subject Polices and requests the Court to declare the [ ] conduct of State Farm as unlawful and in material breach of the Subject Policies." (Compl. ¶ 94.) State Farm argues that the Court should dismiss this claim for the same reasons it should dismiss the contract and conversion claims.
The Court agrees. The Declaratory Judgment Act, 28 U.S.C. § 2201, provides that the federal courts "upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). By its very nature, "a declaratory judgment action is a procedural device used to vindicate substantive rights" but is not itself a substantive claim for relief. Int'l Ass'n of Machinists & Aerospace Workers v. T.V.A., 108 F.3d 658, 668 (6th Cir. 1997); see also Medtronic, Inc. v. Mirowski Family Ventures, LLC, 571 U.S. 191, 199, 134 S. Ct. 843, 187 L.Ed.2d 703 (2014) (holding that "the operation of the Declaratory Judgment Act" is "procedural" only and leaves "substantive rights unchanged"). In other words, the Act "does not create an independent cause of action" that can be invoked absent some showing of an articulated legal wrong. Davis v. United States, 499 F.3d 590, 594 (6th Cir. 2007). A party's prayer for declaratory judgment "is barred to the same extent that the claim for substantive relief on which it is based would be barred." Int'l Ass'n of Machinists & Aerospace Workers, 108 F.3d at 668. This bar includes the statute of limitations. Kondaur Capital Corporation v. Smith, 802 F. App'x 938, 948 (6th Cir. 2020) (holding that a claim for declaratory relief based on a breach of contract is subject to Tennessee's statute of limitations for contract actions).
Because the Court holds that the six-year statute of limitations bars Plaintiff's contract claims, the statute of limitations also bars Plaintiff's claim seeking a declaration that State Farm has breached Ms. Buchanan's policy. Id. Therefore, State Farm's Motion for Summary Judgment must be GRANTED as to the declaratory judgment claim.
CONCLUSION
"Stale conflicts should be allowed to rest undisturbed after the passage of time has made their origins obscure and the evidence uncertain." Smith, 802 F. App'x at 947 (quoting Pinney Dock & Transp. Co. v. Penn Cent. Corp., 838 F.2d 1445, 1467 (6th Cir. 1988)). State Farm's Motion for Summary Judgment must be GRANTED on its statute of limitations defense to Plaintiff's claims for breach of contract, breach of the implied covenant of good faith and fair dealing, conversion, and declaratory judgment.
Having decided that State Farm is entitled to judgment as a matter of law under the statute of limitations, this case is dismissed. J & R Mktg., SEP v. Gen. Motors Corp., 549 F.3d 384, 390 (6th Cir. 2008) ("If it is found, prior to class certification, that the named plaintiffs' individual claims are without merit, then dismissal is proper."); Norris v. Smart Document Solutions, LLC, 483 F. App'x 247, 251 (6th Cir. 2012) (affirming dismissal of class action allegations when district court dismissed named plaintiff's claims as time barred). The remainder of the parties' pending motions are DENIED as moot, and the Clerk is directed to enter judgment.
IT IS SO ORDERED.