William Burnett v. Conseco Life Insurance Company
690 F. App'x 536
| 9th Cir. | 2017Background
- Plaintiffs William Burnett and Joe Camp sued Conseco Life for breach of contract, alleging the insurer effectively forced surrender of whole life policies by improperly raising rates and premiums.
- The district court dismissed Plaintiffs’ pre-termination breach claims under Rule 12(b)(6), reasoning that receiving cash/surrender value at termination made the claims legally noncognizable.
- Plaintiffs sought consequential damages (e.g., the difference between prior premiums and post-termination premiums for equivalent coverage), not recovery of death benefits.
- Plaintiffs signed surrender agreements that contained a broad release provision, but that release applied only if Conseco Life waived surrender charges; Conseco Life did not waive them.
- The Ninth Circuit applied California choice-of-law rules and principles governing insurance contracts and pre-termination breaches, and reviewed the dismissal de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are pre-termination breach claims cognizable where insureds received surrender/cash value? | Burnett: Yes — California permits pre-termination breach claims and consequential damages are recoverable despite surrender value. | Conseco: No — receipt of cash value upon surrender forecloses breach claims. | Court held pre-termination breach claims are cognizable; dismissal improper. |
| Can plaintiffs recover consequential damages (replacement/price-difference) rather than death benefits? | Burnett: Yes — consequential damages (replacement cost, premium differential) are allowed under California law. | Conseco: Argued such recovery is foreclosed by insurance law and surrender. | Court held consequential damages are not foreclosed and may be sought. |
| Did the surrender agreements waive Plaintiffs’ contractual claims? | Burnett: No — release applies only if Conseco waived surrender charges, which it did not. | Conseco: Claimed the release bar precluded contract claims. | Court held the release did not apply because required condition (waiver of surrender charges) was unmet. |
| May the appellate court affirm on new grounds not raised below? | Burnett: N/A | Conseco: Raised three alternative grounds for affirmance on appeal. | Court treated those arguments as waived for failure to raise below. |
Key Cases Cited
- Harkonen v. U.S. Dep’t of Justice, 800 F.3d 1143 (9th Cir.) (standard of review for Rule 12(b)(6) dismissal)
- Abogados v. AT&T, Inc., 223 F.3d 932 (9th Cir.) (federal courts apply forum state choice-of-law rules in diversity cases)
- Frontier Oil Corp. v. RLI Ins. Co., 63 Cal. Rptr. 3d 816 (Cal. Ct. App.) (party arguing foreign law governs must show material difference)
- Buss v. Superior Court, 939 P.2d 766 (Cal. 1997) (insurance policy is a contract between insurer and insured)
- Ravel v. Hubbard, 246 P.2d 88 (Cal. Dist. Ct. App.) (liability attaches for breaches occurring prior to contract termination)
- Merrill v. Cont’l Assurance Co., 19 Cal. Rptr. 432 (Cal. Dist. Ct. App.) (applicability of pre-termination breach rule in insurance context)
- Jennings v. Prudential Ins. Co., 121 Cal. Rptr. 125 (Cal. Ct. App.) (surrender terminates right to death benefit)
- Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 102 P.3d 257 (Cal. 2004) (description of general and consequential damages)
- Wise v. S. Pac. Co., 463 P.2d 426 (Cal. 1970) (recovery of replacement cost for wrongfully terminated life insurance/benefits)
- Mansourian v. Regents of Univ. of Cal., 602 F.3d 957 (9th Cir.) (arguments not raised below are generally waived)