Wishnev v. Northwestern Mutual Life Insurance
162 F. Supp. 3d 930
N.D. Cal.2016Background
- Plaintiff Sanford Wishnev bought four permanent life insurance policies from Northwestern Mutual and later took loans against each policy; he alleges Northwestern Mutual charged compound interest on those policy/premium loans without a written, signed agreement.
- Policies were issued between 1967 and 1976; Plaintiff signed only the applications (which did not disclose compounding); the issued policies do include a compounding provision.
- Northwestern Mutual applies a “direct recognition” dividend method: unpaid loan interest (including any compounded interest) increases loan balances and reduces dividends paid to the policyholder.
- Wishnev sued asserting declaratory relief, UCL (unlawful prong), violation of California usury statutes (Cal. Civ. Code §§ 1916-2, 1916-3), unjust enrichment, and money had and received; case removed under CAFA.
- Defendant moved to dismiss for lack of standing (no alleged payment of compound interest), statutory/constitutional exemption of insurers from usury rules (Art. XV and Cal. Ins. Code §1100.1), and because Plaintiff signed the contract containing the compounding term. The Court denied the motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurers exempt under Art. XV are also exempt from §1916-2's written-consent requirement for compound interest | §1916-2's compounding/disclosure requirement survives constitutional amendments; insurers remain subject to it | Art. XV and related Insurance Code provisions exempt insurers from §1916-2 entirely, placing regulation of compounding with the Legislature | Court: §1916-2 was not repealed as to compounding; Article XV exempted insurers from maximum-rate limits but did not eliminate §1916-2's written-signature requirement |
| Whether Plaintiff adequately alleged he "paid" usurious (compounded) interest to have standing under §1916-3 and UCL | Plaintiff suffered concrete economic injury because compounding decreased dividends and ultimately reduces surrender/death benefits, so he effectively paid the compounded interest | Plaintiff never actually paid compounded interest in cash; thus lacks standing/remedy under §1916-3 and UCL | Court: Allegation that compounding reduced dividends and will ultimately be borne by policyholder suffices to plead economic injury and standing under §1916-3 and UCL |
| Whether Plaintiff signed a written agreement permitting compounding (so §1916-2 doesn't apply) | Plaintiff signed only the application, which did not disclose or authorize compounding; he did not sign the policy containing the compounding clause | The insurance contract is the policy together with the application; under Ins. Code §10113 and case law the policy (as issued) is part of the contract, so Plaintiff agreed to compounding | Court: Plaintiff did not sign an agreement clearly authorizing compounding; the application lacked such language and cases requiring a clear, signed writing (McConnell) control |
| Available remedies for alleged §1916-2 violation (treble damages, restitution, unjust enrichment) | Plaintiff may recover interest (and seek treble damages under §1916-3 for interest actually paid) and pursue restitution/unjust enrichment and declaratory relief | Defendant argued §1916-2 is remedial and not an independent cause; also disputes that any interest was paid | Court: §1916-2 and §1916-3 provide remedies (statutory penalty is cumulative); money-had-and-received/unjust-enrichment and declaratory relief claims sufficiently pleaded; dismissal denied |
Key Cases Cited
- Penziner v. West American Finance Co., 10 Cal.2d 160 (Cal. 1937) (presumption against wholesale repeal by later constitutional amendment; statute remains unless irreconcilably repugnant)
- Carter v. Seaboard Finance Co., 33 Cal.2d 564 (Cal. 1949) (constitutional exemption language construed to free certain lenders from maximum-rate caps and vest rate regulation in Legislature)
- McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 33 Cal.3d 816 (Cal. 1983) (§1916-2 requires compounding provision be clear, in writing, and signed by borrower; notice after the fact insufficient)
- Burr v. Equitable Life Ins. Co. of Iowa, 84 F.2d 781 (9th Cir. 1936) (application and policy may constitute a single contract in conversion contexts, but facts differ where application lacks the contested term)
- Nuckolls v. Bank of California, Nat. Ass'n, 10 Cal.2d 266 (Cal. 1937) (constitutional amendment did not repeal the 1918 usury law except where in conflict)