Life Plans Incorporated v. Security Life of Denver Insura
2015 U.S. App. LEXIS 15424
7th Cir.2015Background
- Life Plans, Inc. (LPI) developed an ALPS-financed life product (“Peak”) and entered a Joint Cooperation Agreement (JCA) with Security Life of Denver (SLD) on June 7, 2011: SLD agreed to accept at least $100 million of premium per year for three years (total $300M).
- Four months later SLD sent notice terminating the JCA, citing lack of approval under its internal Product Review and Approval Process (PARP/PARP-like).
- LPI sued for breach of contract (claiming SLD could not terminate during the three-year commitment and/or failed to process pending applications) and for breach of the implied covenant of good faith and fair dealing; SLD removed to federal court.
- The district court granted summary judgment to SLD, holding the JCA allowed termination on 30 days’ notice and that a condition precedent (approval) had not occurred; it also denied LPI leave to amend and denied LPI’s motion to alter regarding pending applications.
- The Seventh Circuit reversed: it found (1) the contract is ambiguous on whether SLD could terminate during the initial three-year commitment; (2) genuine disputes exist about what approval process the contract required and whether approval occurred; (3) there are triable disputes over whether SLD failed to process pending applications; (4) a reasonable jury could find a breach of the implied covenant; and (5) the district court abused its discretion in denying leave to amend.
Issues
| Issue | Plaintiff's Argument (Life Plans) | Defendant's Argument (Security Life) | Held |
|---|---|---|---|
| Whether SLD could terminate the JCA at any time despite the three-year $100M/year commitment | The “Commitments” clause created a binding three-year obligation; termination clause should apply only after that initial term | The termination clause (30 days’ notice) is unqualified and permits termination at any time, rendering the commitment optional | Reversed district court: contract is ambiguous; extrinsic evidence creates genuine factual disputes for a jury to decide |
| Whether a condition precedent (Product Review and Approval Process / PARP) failed, relieving SLD of obligations | The required review/approval was satisfied (or the contract did not refer to PARP as SLD contends) | The policy failed SLD’s internal PARP (two-step process) and thus SLD had no obligation to offer Peak | Reversed: meaning of “Product Review and Approval Process” and whether approval occurred are disputed material facts precluding summary judgment |
| Whether SLD breached the JCA by failing to process applications pending at notice of termination | Dozens of applications (at least nine) were submitted and some were underwritten/approved; SLD owed to complete processing | No Peak applications were pending because the policy was never offered/approved | Reversed: genuine dispute exists as to whether pending applications existed and whether SLD processed them |
| Whether SLD breached the implied covenant of good faith and fair dealing | SLD acted arbitrarily/unreasonably (internal emails and conduct) to prevent LPI from obtaining the contract’s benefits | SLD legitimately concluded the product was too risky; its conduct was authorized by the contract | Reversed: triable factual issues exist whether SLD’s conduct was arbitrary or unreasonable and denied LPI the fruits of the bargain; implied-covenant claim survives under Delaware law |
Key Cases Cited
- Norton v. K-Sea Transportation Partners L.P., 67 A.3d 354 (Del. 2013) (contract interpretation focuses on parties’ expressed intent)
- E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108 (Del. 1985) (contracts construed as a whole)
- AT&T Corp. v. Lillis, 953 A.2d 241 (Del. 2008) (plain meaning controls absent special intent)
- GMG Capital Inv., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776 (Del. 2012) (give effect to all contractual provisions)
- Mathews v. Sears Pension Plan, 144 F.3d 461 (7th Cir. 1998) (disputes over extrinsic evidence are jury questions)
- Dunlap v. State Farm Fire & Casualty Ins. Co., 878 A.2d 434 (Del. 2005) (implied covenant prohibits arbitrary or unreasonable conduct that deprives contract fruits)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standards)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (standard for genuine dispute of material fact)
- Foman v. Davis, 371 U.S. 178 (Rule 15(a) liberal standard for leave to amend)