309 F. Supp. 3d 89
S.D. Ill.2018Background
- Plaintiffs are owners/beneficiaries of AUL II flexible-premium universal life policies; policies have two components: a life-insurance component (cost of insurance, COI) and a savings/account component with a guaranteed minimum crediting rate.
- AXA reserved contractual discretion to change COI "on a basis that is equitable to all policyholders of a given class" and using "reasonable assumptions."
- AXA increased COI for a defined class (insureds aged 70+ at issue and face amounts $1,000,000+); plaintiffs allege breaches of the policies and breaches of the implied covenant of good faith and fair dealing, plus requests for punitive and declaratory relief.
- AXA moved under Rule 12(b)(6) to dismiss the implied-covenant claims, punitive damages claims, and declaratory judgment claims; it did not move to dismiss the express breach-of-contract claim.
- The Court reviewed pleadings under Twombly/Iqbal plausibility standards and applied relevant state (including California) law to the tort claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether contractual implied covenant claims survive where policies expressly constrain insurer discretion | Plaintiffs: COI increases were unreasonable, targeted, and the implied covenant protects against abusive exercise of discretion | AXA: Policies expressly require equitable and reasonable exercise of discretion; implied-covenant claim duplicates express breach | Dismissed — contractual implied-covenant claims are duplicative of express contract claims |
| Whether California law permits tort claim for breach of implied covenant for these policies | Plaintiffs: The tort exception for insurers applies to policies with savings components and COI increases that deprive insureds of benefits | AXA: Tort exception is limited to insurance-claim mishandling/denial of benefits; here alleged harm relates to savings component, not denial of life-insurance benefits | Dismissed — California tort claim not available absent benefits presently due; exception not extended to savings-component allegations |
| Whether punitive damages are available | Plaintiffs: Seek punitive damages tied to tort good-faith claims | AXA: No underlying tort; punitive damages unavailable for ordinary contract breach | Dismissed — punitive damages require an underlying tort and tort claims were dismissed |
| Whether declaratory-judgment claims should be dismissed as duplicative | Plaintiffs: Seek declarations that COI increases are improper and guidance on limits | AXA: Contract claims will resolve same issues; DJA relief would be duplicative or unripe | Dismissed — DJA claims duplicative of contract claims and not useful or necessary |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (application of plausibility pleading standard)
- ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (pleading and inference principles on motion to dismiss)
- State St. Bank & Trust Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158 (2d Cir. 2004) (definition of implied covenant of good faith and fair dealing)
- Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (Cal. Ct. App. 1990) (implied-covenant claim duplicative when based on same allegations as breach of contract)
- Cates Constr., Inc. v. Talbot Partners, 21 Cal.4th 28 (Cal. 1999) (tort remedy for breach of implied covenant limited to insurance special-relationship cases)
- Jonathan Neil & Assocs., Inc. v. Jones, 33 Cal.4th 917 (Cal. 2004) (limitations on extending tort bad-faith remedy; focus on denial/withholding of benefits)
- N.Y. Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308 (N.Y. 1995) (punitive damages not recoverable absent an independent tort)