112 F. Supp. 3d 122
S.D.N.Y.2015Background
- U.S. Bank sued PHL Variable Life Insurance Co. ("Phoenix") alleging COI (cost-of-insurance) rate increases breached contracts and the covenant of good faith and fair dealing; trial was imminent.
- Phoenix moved for judgment on the pleadings to dismiss U.S. Bank’s implied-covenant claim in one action; court had dismissed an analogous New York-based claim previously and addressed the California-law version here.
- Major factual disputes concern Phoenix’s discretion to set COI rates, whether increases targeted minimally funded policies (including life‑settlement investor–owned blocks), and whether increases recouped past losses or were actuarially justified.
- Several Daubert/Rule 37-style and evidentiary in limine disputes were litigated: admissibility and scope of expert testimony (Phoenix’s expert Pfeifer; U.S. Bank’s experts Foundree and Stern), reliance on prior experts’ analyses, and admissibility of regulatory, reinsurance, Towers Watson, and PwC documents.
- The court balanced California contract/covenant principles, discovery‑disclosure rules, and Rules 401/403/702/803/805/37 in resolving which claims and evidence survive to trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Whether U.S. Bank’s covenant claim is cognizable under California law | U.S. Bank: covenant governs exercise of contractual discretion and can allege Phoenix abused its discretion (penalizing minimal funding, forcing lapses, using increases to manage profitability) | Phoenix: California law bars covenant claims that merely challenge contractually granted discretion unless discretion is so broad as to render contract illusory | Denied Phoenix’s motion — covenant applies to exercises of discretion unless contract expressly permits the complained-of conduct; claim survives to trial |
| 2) Whether Phoenix’s expert (Pfeifer) may rely on another expert’s (French) analyses | U.S. Bank: Pfeifer impermissibly adopts French’s work without independently validating underlying methods/data | Phoenix: Pfeifer independently analyzed, and may rely on others’ work for his opinion | Denied U.S. Bank’s motion — experts may rely on other experts’ analyses; deficiencies go to weight and cross-examination, not automatic exclusion |
| 3) Whether Pfeifer may testify that a COI increase was inevitable regardless of methodology (opinion not in his report) | U.S. Bank: this inevitability opinion exceeds Pfeifer’s disclosed report and must be excluded under Rule 37(c)(1) | Phoenix: statements in Pfeifer’s rebuttal and reports encompass inevitability or at least alternative-method detail | Granted U.S. Bank’s motion — testimony beyond the expert report is excluded; inevitability opinion was not disclosed |
| 4) Admissibility of various documentary and lay/fact-witness testimony (reinsurance/Towers Watson/PwC/regulatory; U.S. Bank experts; fact witnesses giving opinion-like testimony) | U.S. Bank: excludes undisclosed models, computer programs, and prevents Phoenix from using non‑disclosed expert testimony; seeks exclusion of inflammatory STOLI rhetoric | Phoenix: produced underlying documents, argues many materials are party admissions/business records or otherwise relevant to actuarial justifications and motive | Mixed rulings: many contemporaneous Phoenix/regulator/reinsurer/PwC documents admitted as party admissions or business records; certain regulatory letters and Towers Watson consultant item excluded; fact witnesses may give lay opinion within limits; inflammatory STOLI rhetoric and unrelated attacks on investor character excluded |
Key Cases Cited
- Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654 (1958) (recognizes implied covenant of good faith and fair dealing applies to insurance policies)
- Carma Developers (Cal.), Inc. v. Marathon Dev. California, Inc., 2 Cal.4th 342 (1992) (implied covenant restrains contractual discretion unless contract expressly permits the challenged conduct)
- Perdue v. Crocker Nat'l Bank, 38 Cal.3d 913 (1985) (where contract grants discretionary power affecting another's rights, duty to exercise that discretion in good faith applies)
- Faulkner v. Arista Records LLC, 46 F.3d 365 (F. Supp. 3d) (2014) (expert may rely on facts/opinions/data from others; admissibility focused on whether expert independently applies methods)
- Eberli v. Cirrus Design Corp., 615 F. Supp. 2d 1357 (S.D. Fla. 2009) (experts may base opinions on others' work but must not merely parrot without understanding)
- TK-7 Corp. v. Estate of Barbouti, 993 F.2d 722 (10th Cir. 1993) (expert reliance limits if unfamiliar with methods or underlying basis)
- Mike's Train House, Inc. v. Lionel, LLC, 472 F.3d 398 (6th Cir. 2006) (expert cannot testify to another expert's conclusions as if they were his own)
- Advanced Analytics, Inc. v. Citigroup Global Markets, Inc., 301 F.R.D. 31 (S.D.N.Y. 2014) (expert testimony exceeding expert report may be excluded under Rule 37(c)(1))
- LaMarca v. United States, 31 F. Supp. 2d 110 (E.D.N.Y. 1998) (disclosure rules for expert testimony are intended to prevent unfair surprise and allow meaningful cross-examination)