Opinion
A2-01-49
January 24, 2002
MEMORANDUM AND ORDER
Before the Court is a motion by defendant AIG Life Insurance Company (AIG) to dismiss plaintiff's complaint as against it (doc. # 9). Plaintiff resists the motion, and defendant Conseco Senior Health Insurance Company (Conseco), pursuant to an Order by the Court, has also provided briefing indicating it generally agrees with AIG's motion. In fact, the Court has required several rounds of briefing by the parties; it therefore has before it quite an extensive set of arguments. For the reasons set forth below, the motion to dismiss is GRANTED IN PART AND DENIED IN PART. Specifically, plaintiff's contract claims against both AIG and Conseco are dismissed; plaintiff's fraud claims, subject to certain limitations set forth below, may go forward. The Court does not rule in this Order on Conseco's pending motion to strike the class allegations of the complaint (doc. # 18).
I. Facts and claims
In 1986, plaintiff Arden Haley purchased from AIG a long-term care insurance policy. The policy was guaranteed renewable for life: AIG had no right to refuse renewal so long as plaintiff paid her premium. Further, AIG could not change the premium unless it did so for all policies on a class-wide basis. The policy's terms conditioned receipt of "Skilled or Intermediate Nursing Care" benefits on prior hospitalization and receipt of "Custodial Nursing Care" benefits on prior skilled or intermediate nursing care. At the time the policy was issued, these provisions were permissible under North Dakota law.
In 1987, however, North Dakota adopted for the first time a comprehensive statute on long-term care insurance, which has changed several times before reaching its current form. That act included the original version of what has become section 26.1-45-07, at issue in this case. The 1987 version provided:
Prior institutionalization. No long-term care insurance policy that only provides benefits following institutionalization may condition the benefits upon admission to a facility for the same or related conditions within a period of less than thirty days after discharge from the institution.
The law lasted only two years in this form. In 1989, it was changed to provide as follows:
Prior institutionalization requirement prohibited.
1. Effective one year after the effective date of this Act, no long-term care insurance policy or certificate may be delivered or issued for delivery in this state if such policy:
a. Conditions eligibility for any benefits on a prior hospitalization requirement . . .
This form also lasted only two years before being changed again in 1991. The 1991 version provides:
1. No long-term care insurance policy or certificate may be delivered or issued for delivery in this state if such policy:
a. Conditions eligibility for any benefits on a prior hospitalization requirement.
This is the version currently in force. In short, then, the policy — and especially its prior hospitalization provision — was legal when AIG sold it to Haley in 1986. Subsequent changes to the law, however, prohibited such provisions in future policies.
In 1991, AIG sold Conseco a number of insurance policies, including plaintiff's. Plaintiff argues that the assignment was not effective against her, a point which will be discussed below. On April 22, 1997, plaintiff was admitted to the Villa Maria Nursing Home in Fargo, North Dakota. She had been evacuated to Fargo from her home in Grand Forks due to the flood of 1997. She stayed there until September 3, 1997, when she moved to a nursing home in Grand Forks, North Dakota. Plaintiff submitted a claim to Conseco, which denied it on the grounds that plaintiff did not meet the prior hospitalization requirement.
Plaintiff has now brought two sets of claims against both AIG and Conseco, seeking recovery in both contract and tort. The contract claims comprise Counts I and II of the Complaint; they claim breach of contract and bad faith, respectively, arising from denial of coverage after she was admitted to Villa Maria. The tort claims comprise Counts I-II of the Class Complaint and allege constructive fraud, actual fraud, and consumer fraud. Essentially, plaintiff argues that defendants had a duty to inform her of the change in law but did not do so and that they made material misrepresentations of fact to her. Defendants argue that plaintiff has failed to state a claim under either theory.
II. Analysis
A. Standard of review
In reviewing a motion to dismiss under Rule 12(b)(6), this Court "is constrained by a stringent standard." Parnes v. Gateway 2000, Inc., 122 F.3d 539, 545-46 (8th Cir. 1997) (citations omitted). A complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of her claim which would entitle her to relief. Id. at 546 (citations omitted). Moreover, the Court must accept the allegations in the complaint as true and construe them in plaintiff's favor when making this determination. Midwestern Mach., Inc. v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir. 1999). However, a court ruling on a motion to dismiss may consider "materials that are part of the public record or do not contradict the complaint, as well as materials that are necessarily embraced by the pleadings," such as a contract to which all parties agree. Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999). Nevertheless, "as a practical matter, a dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Parnes, 122 F.3d at 546.
B. Contract claims
There are essentially two issues posed by plaintiff's contract claims, both concerning the fact that she was not hospitalized. The first issue is whether she was excused from doing so for some legal reason, specifically whether the 1987 change in the law somehow altered the hospitalization term in the 1986 contract. The second is plaintiff's claim that, assuming the provision applied, she was excused from complying because it was factually impossible. The Court addresses these issues in turn and concludes that the contract claims must be dismissed.
1. Prior hospitalization provision
The Court begins by emphasizing that the plain language of the statute makes clear that it does not apply retroactively. Setting aside whether this would be permissible under the Contract Clause of the Constitution, see generally Insurer's Action Council v. Markman, 490 F. Supp. 921, 929 (D.Minn. 1980) (discussing Contract Clause), it is clear that no such retroactivty is intended. The North Dakota Century Code provides that "[n]o part of this code is retroactive unless it is expressly declared to be so." § 1-02-10. Sec. 26.1-45-07, in each of its forms since its inception in 1987, has by its terms applied only to policies issued in the future, after the law changed, and not to existing policies. See § 26.1-45-07 (providing in its current form that no long-term care policy with a hospitalization requirement "may be delivered or issued"). It thus clearly does not apply retroactively. Id.
Therefore, the question is whether some other reason exists for concluding that plaintiff's policy was somehow subject to the changed law. Plaintiff offers three reasons why the three-day hospitalization requirement would have "fallen out" of her contract: (1) she renewed her policy after the law changed; (2) her policy was "amended" in 1991 when it was transferred from AIG to Conseco; and (3) when she requested a copy of her policy in 1997, she received a policy with a number different from that which she bought. The Court will address each point in turn.
a. The effect of renewals
Plaintiff first argues that each renewal of her policy created a new policy, and since the policy would have had to comply with the law at the time of renewal, this would necessarily exclude the hospitalization requirement. The Court disagrees. Whether a renewal works a new contract or a continuation of the original one depends on the intent of the parties as discerned from the terms of the contract. See generally Kavaney Realtor Dev., Inc. v. Travelers Ins. Co., 501 N.W.2d 335, 340 (N.D. 1993); see also Couch on Insurance 3D, § 29:33. Therefore, the Court must examine the contract here to determine the parties' intent.
Crucially, plaintiff's policy had a guaranteed renewal clause: The company had no right to refuse renewal so long as plaintiff paid her premium. Further, the insurer could not unilaterally change the premium, unless it did so for all policies on a class-wide basis. Several courts have concluded that this sort of language indicates an intent to view subsequent renewals as continuations of the existing contract, rather than creations of a new one, which prevents application of statutes enacted after a contract's original effective date.
Thus, in Moore v. Metropolitan Life Ins. Co., 307 N.E.2d 554, 557 (N.Y. 1973), the court held that a policy was subject to new laws because the insurer "had an absolute right" to terminate the policy or increase its premiums. The court contrasted its holding with the situation — like the case at bar — in which "the insurer does not have the right to terminate the policy or change the premium rate without consent of the State, renewal, by the payment of premiums, merely continues in force the pre-existing policy, and statutes enacted subsequent to its original enactment cannot be applied." Id. Similarly, a federal district court in Oates v. Equitable Assur. Soc. of the United States, 717 F. Supp. 449, 452 (S.D.Miss. 1988), held that "the monthly `renewal' of the . . . policy by payment of the monthly premium constituted a continuation of the original contract," so statutes and regulations enacted after the original issuance did not apply. In so doing, it emphasized that the policy at issue was "guaranteed renewable during the lifetime of the insured." Id.; accord Hudson v. Reserve Life Ins. Co., 141 S.E.2d 926 (S.C. 1965) (holding a guaranteed renewable policy contemplated continuous coverage with each renewal, so later-enacted statutes did not apply).
Plaintiff for her part points to several cases holding that renewals of an insurance policy worked a new contract, requiring application of the law as it existed at the time of renewal. See Roy v. Audobon Ins. Co., 652 So.2d 995 (La.App. 1993); Moses v. Amer. Home Ass. Co., 376 So.2d 656 (Al. 1979). These cases, however, did not involve policies guaranteed renewable without change for life, and the Court thus finds them inapplicable.
Rather, the Court is persuaded by the reasoning of the first group of cases and finds them applicable to the case at bar. The conclusion that the policy at issue contemplated continuous coverage is consistent with the circumstances behind long-term care insurance: People purchase them to ensure coverage as they grow older and are more likely to need it. If a policy's premiums could be increased, or if it could simply be cancelled as the insured got older, it would be of little use. Viewing each renewal of the policy as a new contract, however, would give an insurer the right to do exactly that. In fact, the insurers here may well have changed the premiums to reflect the removal of the hospitalization requirement had there been such a change. Therefore, the Court concludes that the parties here intended continuous coverage, making each renewal a continuation of the original policy. As such, the changes to the law did not affect this policy, and its original terms remained in effect.
b. The effect of transfer from AIG to Conseco
Plaintiff's second argument is that when AIG transferred the policy to Conseco on 1991, the entire contract was reworked to conform with existing law, eliminating the hospitalization requirement. The Court notes that this argument depends on there being a valid assignment to Conseco; if there was not, as plaintiff seems to have urged at various points, then AIG retained the policy and is not liable on it for the reasons set forth above. For purposes of this analysis, therefore, the Court assumes without deciding that a novation occurred and replaced AIG with Conseco. The question is thus whether this required a reworking of the entire contract. The Court concludes it did not.
Rather, if a new contract was formed when Conseco assumed the contract, it would contain the same terms as the original contract between Haley and Conseco. As one federal district court has explained,
When another insurance company assumes the insurer's obligations, the original insurer is not relieved of its liability to the insured without the consent of the insured to substitute another insurer. The policyholder may elect whether to repudiate or accept the reinsurance agreement. Although an assumption agreement is not binding on a policyholder, once he has accepted it he is bound by its terms. He cannot accept those portions that are advantageous while rejecting the remainder, but must accept or repudiate the agreement in its entirety.
Security Ben. Life Ins. Co. v. F.D.I.C., 804 F. Supp. 217, 226 (D.Kan. 1992); see also 14 Holmes' Appleman on Insurance 2d § 109.16 (emphasis supplied). Thus, plaintiff could either accept the transfer on the original terms or reject it. Id. If she rejected it, AIG would have remained the insurer, but it would not be liable because the policy's terms were not met, as explained above. Acceptance, however, means accepting all terms. Id.
The Court notes that plaintiff cites no cases to support her contention that an assumption agreement such as this leads to a novation which in turn requires a rewriting of the entire policy, and the Court has not located any cases which support this contention. Indeed, on these facts, one suspects that if the transfer to Conseco created a new contract, such that Conseco could have sought to raise the premiums or alter the terms, plaintiff and others like her would argue that these terms were locked in by the original contracts. In sum, then, the Court finds no basis to conclude that the transfer from AIG to Conseco, even assuming it worked a novation, modified the terms of the policy so as to remove the hospitalization requirement.
c. The effect of policy number changes
Plaintiff's final argument is that when she requested a copy of her policy after losing her copy in the flood, she was provided a policy with a different form number than that which she purchased. Even assuming this is true, plaintiff does not explain why this should be seen as working a new contract, nor does she cite any authority to support it. In the absence of any such authority or explanation, the Court rejects this theory. Having rejected all of plaintiff's attempts to show a modification of the policy, the Court concludes that the original terms of the policy never changed.
2. Impossibility
As explained in the preceding section, the Court has concluded that the hospitalization requirement remained in effect despite the changes in the law. Anticipating that this might be the case, plaintiff has offered one theory to excuse her noncompliance, arguing that hospitalization was impossible because the flood prevented her from seeing her doctor in Grand Forks and thus from being admitted to the hospital. The Court takes judicial notice of the fact that, during the relevant time period, the well-known flood of 1997 devastated Grand Forks, requiring a general evacuation and closing the hospital. Defendants argue, however, that plaintiff could have seen a doctor in Fargo and obtained admission to a hospital there.
One asserting factual impossibility as a defense to a contact must establish both that she cannot perform the contract and that performance could not be completed by anyone. Tallackson Potato Co. v. MTK Potato Co., 278 N.W.2d 417, 424 (N.D. 1979). It is evident that plaintiff has not pled facts which would enable her to prevail on this claim. She has not explained, or attempted to explain, why she could not have been hospitalized in Fargo or another community, and she has suggested no reason to believe that seeing a doctor in Fargo was impossible for her, and it was certainly not impossible for everyone. Id. Therefore, the Court rejects this theory.
In summary, the Court concludes that the changes to the long-term care insurance law in 1987 did not affect plaintiff's preexisting insurance policy. Therefore, the policy's prior hospitalization requirement remained in effect as a condition to the receipt of benefits. Plaintiff's effort to avoid the condition on the basis of impossibility fails. Thus, plaintiff's contract claims are DISMISSED as against both defendants.
C. Tort claims
Plaintiff's fraud claims, for which she seeks to certify a class, have two main conceptual bases. First, she argues that AIG/Conseco breached a duty to inform her of the change in the law, and that failing to so inform her is fraud. Second, she argues that AIG/Conseco made material misrepresentations to her. The Court concludes that the first theory must fail, and plaintiff will therefore be barred from establishing liability on the grounds that defendants failed to inform her of the legal change. The Court concludes, however, that plaintiff's active misrepresentation theory can survive the motion to dismiss.
First, the Court must reject plaintiff's theory that defendant had an affirmative duty to inform her of the change in the law, and that failure to so inform her was fraud. Plaintiff cites only two cases as support for her theory, neither of which proves the duty plaintiff urges. First, she cites an order by this Court in a different case, Hanson, et al. v. Acceleration Life Ins. Co., et al., A3-97-152 (Memorandum and Order May 16, 1999). According to plaintiff, this case found that "the special duties found under N.D. Cent. Code § 26.1-29-13 between parties to an insurance contract create liability under the constructive fraud statutes." (Pl.'s Resp. at 8-9.) However, Hanson is distinguishable from the instant case.
In Hanson, plaintiffs contended that defendants concealed from them certain material facts involving marketing, pricing, and underwriting of certain insurance policies. See Hanson, A3-97-152, Memorandum and Order at 3. In rejecting summary judgment, this Court held that the duty to disclose codified at N.D. Cent. Code sec. 26.1-29-13 could trigger liability under the constructive fraud statutes, if facts were proven to support the claim. Id. at 13. Notably, however, Hanson involved facts allegedly misrepresented or withheld at the time of contracting, not after a law changed. Id. Thus, reading Hanson as the blanket rule plaintiff seems to want is inappropriate.
Nor does sec. 26.1-29-13, which plaintiff cites and which the Court cited in Hanson, establish the duty for which plaintiff argues. This section generally imposes a duty on parties to an insurance contract to disclose in good faith facts material to the contract. § 26.1-29-13. However, it extends this rule only to facts "which the other party has not the means of ascertaining and as to which the party makes no warranty." Id. Here, it can scarcely be argued that plaintiff "had not the means of ascertaining" that the law had changed; this argument would fly in the face of "the time-honored principle that all persons are presumed to know the law." Tooley v. Alm, 515 N.W.2d 137, 142 (N.D. 1994). The Court clearly will not assume a person is incapable of discovering the law. Thus, neither sec. 26.1-29-13 nor Hanson create the duty plaintiff wishes to impose.
The second case plaintiff cites to support her affirmative duty theory is Krueger v. St. Joseph's Hospital, 305 N.W.2d 18, 25 (N.D. 1981), which stands for the general principal that fiduciaries are under a duty to disclose material facts. The problem with this citation is that, as defendant points out, insurers and insureds are generally not viewed as fiduciaries. See generally Couch on Insurance 3d § 40:7; see also Douglas R. Richmond, "Trust Me: Insurers are not Fiduciaries to their Insureds," 88 Ky. L.J. 1 (1999-2000) (collecting and citing cases). Thus, to the extent that plaintiff's theory depends on a fiduciary relationship, and to the extent Krueger is cited to support this premise, the Court rejects it. The Court also finds no other basis to believe that defendants had any duty affirmatively to inform plaintiff of the change in the law, and thus rejects plaintiff's effort to prove fraud on this ground.
Plaintiff has also claimed, however, that the defendants misrepresented facts to her. Though these claims are somewhat ambiguous, they are sufficient to survive the motion to dismiss, allowing for further discovery. Therefore, the motion to dismiss these claims is DENIED, and these claims may go forward to discovery and further proceedings.III. Conclusion
For the reasons set forth above, the contract claims of plaintiff's complaint are DISMISSED as to both defendants. The fraud claims may go forward, subject to the limitations above.
IT IS SO ORDERED.