Opinion
Case No. 19-00472-CV-W-BP
2023-03-27
Christopher Y. MEEK, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. KANSAS CITY LIFE INSURANCE COMPANY, Defendant.
Lindsay Todd Perkins, Patrick J. Stueve, Ethan M. Lange, Stueve Siegel Hanson, LLP, Kansas City, MO, David A. Hickey, Kansas City, MO, John J. Schirger, Joseph M. Feierabend, Matthew W. Lytle, Miller Schirger, LLC, Kansas City, MO, for Plaintiff. John W. Shaw, Lauren Tallent Rogers, Pro Hac Vice, Carson M. Hinderks, Berkowitz Oliver LLP, Kansas City, MO, Elizabeth Ann Russell Martin, Dentons U.S. LLP, Kansas City, MO, James M. Humphrey, Graves Garrett LLC, Kansas City, MO, Samuel J. Park, Pro Hac Vice, Alston & Bird, Los Angeles, CA, Adam Randall Fox, Pro Hac Vice, Hannah Makinde, Pro Hac Vice, Squire Patton Boggs (US) LLP, Los Angeles, CA, Traci Lynn Martinez, Squire Patton Boggs LLP, Columbus, OH, Daniel L. Delnero, Pro Hac Vice, James Randolph Evans, Pro Hac Vice, Squire Patton Boggs (US) LLP, Atlanta, GA, for Defendant.
Lindsay Todd Perkins, Patrick J. Stueve, Ethan M. Lange, Stueve Siegel Hanson, LLP, Kansas City, MO, David A. Hickey, Kansas City, MO, John J. Schirger, Joseph M. Feierabend, Matthew W. Lytle, Miller Schirger, LLC, Kansas City, MO, for Plaintiff. John W. Shaw, Lauren Tallent Rogers, Pro Hac Vice, Carson M. Hinderks, Berkowitz Oliver LLP, Kansas City, MO, Elizabeth Ann Russell Martin, Dentons U.S. LLP, Kansas City, MO, James M. Humphrey, Graves Garrett LLC, Kansas City, MO, Samuel J. Park, Pro Hac Vice, Alston & Bird, Los Angeles, CA, Adam Randall Fox, Pro Hac Vice, Hannah Makinde, Pro Hac Vice, Squire Patton Boggs (US) LLP, Los Angeles, CA, Traci Lynn Martinez, Squire Patton Boggs LLP, Columbus, OH, Daniel L. Delnero, Pro Hac Vice, James Randolph Evans, Pro Hac Vice, Squire Patton Boggs (US) LLP, Atlanta, GA, for Defendant. ORDER GRANTING IN PART AND DENYING IN PART (1) DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND (2) PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT BETH PHILLIPS, CHIEF JUDGE
Pending are Plaintiff's Motion for Partial Summary Judgment, (Doc. 183), and Defendant's Motion for Summary Judgment, (Doc. 190.) For the following reasons, each Motion is GRANTED IN PART AND DENIED IN PART.
I. BACKGROUND
Defendant Kansas City Life Insurance Company sells life insurance policies. Plaintiff Christopher Meek purchased one of Defendant's "universal life insurance" policies in 1984. These policies combine features of a standard life insurance policy and a savings account: the insured pays premiums each month and can collect interest on the accumulated premiums, which the policies refer to as the "Cash Value" or "Accumulated Value" of the insured's account. Defendant is also permitted to deduct certain monthly charges. At issue here are only two of those charges: the Cost of Insurance (occasionally, "COI") charge and the expense charge.
Under Plaintiff's policy, (the "Policy"), the COI charge depends on determination of the COI rate, and the COI rate is "determined" each month "based on the insured's sex, age and risk class." (Doc. 67-2, p. 5.) The Policy further explains the COI rate is "based on [Defendant's] expectations as to future mortality experience," subject to a maximum charge. (Id.) The maximum charge is shown in an accompanying table organized by age and sex. (Id.) The Court refers to the portions of the Policy referring to the COI as the "COI provisions."
The Court certified a class consisting of individuals who purchased various policies from Defendant. (Doc. 136.) The policies differ slightly but in ways that do not affect the discussion; the Court here focuses on Plaintiff's policy for ease of discussion and because he is the class representative.
The COI charge is equal to Q * (R - S), where "Q" is the COI rate, "R" is the insured's death benefit divided by a certain constant, and "S" is the Cash Value. (Doc. 67-2, p. 11.)
All page numbers are those generated by the Court's CM/ECF system and may not correspond to the documents' original pagination.
Elsewhere, the Policy contains a section entitled "Definition of Certain Terms." There, COI is defined as "the charge we make for providing pure insurance protection using the current cost of insurance rates for this policy. It does not include the cost of any additional benefits provided by riders." (Id., p. 6.) However, unlike the COI provisions, the definition does not specify any components of, or methods for calculating, the COI.
Finally, the policy permits a specified amount to be deducted as a "monthly expense charge." (Doc. 67-2, pp. 6, 11.) As its name suggests, this deduction occurs monthly.
Evidence in the Record indicates that when Defendant calculates the monthly COI, it considers factors other than age, sex, and risk class, and that many of those factors are unrelated to the insured's mortality risk. For instance:
The Court's omission of some facts cited by Plaintiff on this point is in the interest of brevity and should not be construed as a view (one way or the other) regarding their probative value.
• In a July 1988 statement to the New Jersey Department of Insurance, Defendant stated "[t]he current cost of insurance rates were set to cover our mortality experience and provide a margin for adverse experience and profit." (Doc 67-18, p. 7.)
• A guide for insurance agents published in December 1994 contains a series of questions and answers. One such exchange is relevant here:
3. Do the mortality rates or cost of insurance charges include some expense charge? If so, describe.
KCL: Yes, explicit charges, such as Universal Life cost of insurance rates, typically include amounts to cover expenses and taxes and provide some profit for the risk assumed.
In addition, the Court observes Defendant does not identify anything in the Record suggesting it considered only age, sex, and risk class in setting the COI rate.
(Doc. 215-7, p. 14.)
• In an undated memorandum prepared by Defendant, it states in part that the "cost of insurance rates will cover mortality as well as some expenses . . . ." (Doc. 215-8.)
• David Metzler (apparently, Defendant's Rule 30(b)(6) witness) conceded "the process for determining cost of insurance rates . . . includes . . . assumption[s] for expenses." (Doc. 68-2, pp. 209-10 (Metzler Dep., pp. 208-09).) He also explained the cost of insurance is designed to "result[ ] in . . . acceptable profit and risk anticipated from it." (Doc. 68-2, pp. 36-37 (Metzler Dep., pp. 35-36).)
• Mark Milton (Defendant's Senior Vice President) provided a Report in connection with this suit in which he explained "if the projected profitability or competitive positioning is too high or too low relative the desired level," then "[t]he COI rates are one of the design features that could be modified before further testing of the design." (Doc. 221-6, ¶ 38.)
As will be discussed in further detail, Defendant's primary arguments have been (1) it is allowed to consider factors other than age, sex, and risk class when setting the COI rate, (2) the statute of limitations on Plaintiff's claims has expired, and (3) under Plaintiff's theory he suffered no damages.
The Record also contains evidence that, when construed in Plaintiff's favor, suggests Defendant's internal calculations of mortality rates changed, but those changes were not incorporated into the COI calculations. For instance:
• Milton testified in 2000 Defendant's mortality assumptions changed, reflecting improved mortality rates. (Doc. 116-1, p. 43 (Milton Dep., Vol. I, pp. 162-63).)The evidence on this point is not uncontroverted, however. (See, e.g., Doc. 221-7, ¶¶ 44-48.)
• Metzler testified Defendant's mortality assumptions improved. (Doc. 68-2, p. 164 (Metzler Dep., p. 163).)
• Various internal documents prepared by Defendant reflect its changed mortality assumptions between 2006 and 2016. (E.g., Docs. 102-2, 215-9, 215-10, 215-11, and 215-12.)
• A 2010 report prepared by Defendant states "[i]ndustry mortality results have shown significant improvement over the past 25 years." (Doc. 68-6, p. 6.)
Again, the Court's failure to refer to any portion of the Record cited by Plaintiff on this point is in the interest of brevity and should not be construed as a view (one way or the other) regarding their probative value.
Plaintiff interprets the COI provisions to prohibit Defendant from basing the monthly COI rate on anything aside from the factors listed—the insured's age, sex, and risk class, which collectively determine Defendant's "expectations as to future mortality experience." He also interprets the specification of the monthly expense charge as precluding Defendant from recovering expenses through other charges (by, for instance, adding them to the COI). Finally, Plaintiff contends that when Defendant's mortality assumptions changed, it was obligated to apply those new mortality assumptions when calculating the COI. Accordingly, he brought this suit in June 2019, advancing five counts against Defendant on behalf of a putative class of insureds:
• Count I alleges Defendant breached the Policy by using a COI rate disconnected from the mortality factors discussed in the COI provisions;(See Doc. 8.)
• Count II alleges Defendant breached the Policy by deducting expense charges in excess of the amount allowed by the Policy;
• Count III alleges Defendant breached the Policy by failing to apply its updated mortality expectations when calculating the COI;
• Count IV asserts a conversion claim based on the above conduct; and
• Count V seeks declaratory and injunctive relief.
Now pending is Plaintiff's Motion for Partial Summary Judgment, (Doc. 183), and Defendant's Motion for Summary Judgment, (Doc. 190.) Each party opposes the other's Motion. (Docs. 195 & 198.) The Court resolves the parties' arguments below, setting out additional facts as needed.
II. DISCUSSION
"Summary judgment is proper only when 'there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.' " Dick v. Dickinson State Univ., 826 F.3d 1054, 1058 (8th Cir. 2016) (quoting FED. R. CIV. P. 56(c)). "A fact is material if it might affect the outcome of the suit," and a genuine dispute exists when "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id. at 1061 (quotations omitted). Thus, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Wierman v. Casey's Gen. Stores, 638 F.3d 984, 993 (8th Cir. 2011) (quotation omitted). In applying this standard, the Court must view the evidence in the light most favorable to the non-moving party, giving that party the benefit of all inferences that may be reasonably drawn from the evidence. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A party opposing a motion for summary judgment may not simply deny the allegations but must point to evidence in the Record demonstrating the existence of a factual dispute. FED. R. CIV. P. 56(c)(1); Conseco Life Ins. Co. v. Williams, 620 F.3d 902, 909-10 (8th Cir. 2010). With these principles in mind, the Court will turn to the parties' arguments.
A. Statute of Limitations
For ease of discussion, the Court begins with the parties' arguments regarding the statute of limitations, but it does so only in connection with the contract claims (Counts I - III). And in that regard, the Court does not fully agree with either party's interpretation of the law, but it agrees with Plaintiff that at least a portion of his contract claims are timely.
1 . Plaintiff's Claims Regarding Charges Incurred in the Five Years Prior to Suit are Timely
"A federal court sitting in diversity applies the statute-of-limitations rules of the forum." Great Plains Trust Co. v. Union Pac. R. Co., 492 F.3d 986, 992 (8th Cir. 2007). Missouri has a borrowing statute that provides a claim is barred if it would be "fully barred by the laws of the state . . . in which it originated . . . ." MO. REV. STAT. § 516.190. "Thus, if the foreign state's statute of limitations bars the action, then Missouri's borrowing statute acts to bar the action here as well." Ferrellgas, Inc. v. Edward A. Smith, P.C., 190 S.W.3d 615, 620 (Mo. Ct. App. 2006). To determine where a claim originated, Missouri utilizes the same test it uses to determine when a claim accrues. E.g., Thompson v. Crawford, 833 S.W.2d 868, 871 (Mo. 1992) (en banc). Under this test, "[a] cause of action originates under Missouri law at the place where plaintiff's alleged damages stemming from the pleaded cause of action are sustained and capable of ascertainment." Rajala v. Donnelly Meiners Jordan Kline, P.C., 193 F.3d 925, 928 (8th Cir. 1999). The Court previously indicated Plaintiff's claims originated in Kansas, (see Doc. 136, pp. 21, 23 n.10), so the Court must apply Kansas's statute of limitations.
Under Kansas law, a claim based on a written contract must be brought within five years after it accrues, KAN. STAT. § 60-511(1), and a claim "accrues when the contract is breached, irrespective of the plaintiff's knowledge or injury." Great Plains Trust, 492 F.3d at 993 (citing Pizel v. Zuspann, 247 Kan. 54, 795 P.2d 42, 54 (1990)); see also Dunn v. Dunn, 47 Kan.App.2d 619, 281 P.3d 540, 548 (2012) (a breach of contract claim "accrues at the time of the breach, regardless of when the breach is discovered or is discoverable"). Here, the contract was breached each time Defendant deducted an improperly calculated charge from Plaintiff's account; therefore, his contract claims are timely with respect to each improper charge imposed within five years of the filing of this lawsuit.
The parties argue for different accrual dates, but the Court disagrees with both. Defendant contends Plaintiff's claim accrued when Defendant first considered and used an improper COI calculation in 1984. However, Defendant did not breach the contract by simply calculating the COI; Plaintiff could not bring a claim until Defendant applied the improper COI in a transaction. Each improper charge was a separate transaction, each with its own limitation period. See, e.g., Head v. Knopp, 225 Kan. 45, 587 P.2d 867, 869 (1978) (wages due on a fixed weekly or monthly basis constitute separate obligations and limitation period accrues separately for each); Leonard v. Kleitz, 155 Kan. 626,127 P.2d 421, 422 (1942) (claim for failure to make installment payments accrues separately for each installment).
Defendant's comparison to Johnson v. Kansas Public Employees Retirement System is inapt. There, law enforcement officers were enrolled in a pension plan. 262 Kan. 185, 935 P.2d 1049, 1050-51 (1997). Later, the pension plan was abolished, and the plaintiffs were enrolled in the Kansas Public Employees Retirement System ("KPERS"), which entitled them to less benefits than they would have received under the prior pension plan. Id. at 1051-52. The plaintiffs argued they had a contractual right to the higher benefits promised under the abolished pension plan, and that their claim accrued separately for each lesser payment they received from KPERS. Id. at 1053. The Kansas Supreme Court held otherwise, explaining any contract was breached - and the cause of action accrued - when the pension plan was abolished. Id. Johnson did not involve a series of breaches, so the facts in Johnson are not comparable to the case at bar.
The Court also rejects Plaintiff's contention that it must apply Missouri's accrual rules—and not those of Kansas—to determine when his claim accrued. This argument depends entirely on the observation that Missouri uses the "capable of ascertainment" test to determine both (1) where a cause of action originates for purposes of the borrowing statute and (2) when a cause of action accrues for purposes of its statutes of limitation. As Plaintiff concedes, (Doc. 215, p. 34), Missouri law provides that this Court must apply the law of the state where the cause of action originates. Using Missouri law, the Court applied the capable of ascertainment test to determine Plaintiff's cause of action originated in Kansas—which means it must apply Kansas law to determine the applicable statute of limitation. Missouri law does not require (or permit) the Court to also apply Missouri law to determine when Plaintiff's cause of action accrued. Having determined Missouri's borrowing statute requires application of Kansas's statute of limitations, the Court must utilize all of Kansas's law related to the statute of limitations, including its accrual rules.
Prior cases confirm this is the proper approach; for instance, in Great Plains, the Eighth Circuit applied the "capable of ascertainment test" to determine the plaintiff's contract claim originated in Kansas, then applied Kansas law to determine when the claim accrued for purposes of the statute of limitations. 492 F.3d at 992-93. The Eighth Circuit utilized the same approach in Rajala, 193 F.3d at 928, as have Missouri courts. E.g., Alvarado v. H&R Block, Inc., 24 S.W.3d 236, 242-43 (Mo. Ct. App. 2000) (determining claim originated in California and then applying California law to determine when the claim commenced). This understanding is consistent with Missouri's general approach of adopting the entirety of the originating state's laws regarding its statute of limitations and not using a combination of the two. E.g., Thompson, 833 S.W.2d at 872-73 (declining to apply Missouri's tolling rules when Tennessee's statute of limitations applies). Finally, failing to apply Kansas's accrual rules would permit Plaintiff to pursue a claim even if the claim is barred in Kansas—which is precisely what Missouri's borrowing statute forbids.
Plaintiff's reliance on cases such as Wright v. Campbell, 277 S.W.3d 771 (Mo. Ct. App. 2009) and Day v. Devries & Assocs., P.C., 98 S.W.3d 92 (Mo. Ct. App. 2003) is misplaced because in those cases the Missouri Court of Appeals held the claims originated in Missouri, so Missouri's statute of limitations (and accrual rules) applied.
Plaintiff also argues the cash surrender value of his Policy constituted an "open account," and therefore his claims do not accrue until that account is "closed." See Sheldon Grain & Feed Co. v. Schuetz, 207 Kan. 108, 483 P.2d 1033, 1035 (1971) (discussing accrual rule for a suit on an open account). But an open account is essentially a running tab that continues so long as both parties wish it to continue and that can be terminated at any time by either party. See Spencer v. Sowers, 118 Kan. 259, 234 P. 972, 973 (1925). "Matters such as openness, currency, homogeneity and mutuality should be considered and given weight by the courts in identifying such an account." Sheldon Grain, 483 P.2d at 1037-38. Plaintiff contends this situation qualifies as an open account because the cash value of his investment is a product of the parties' agreement to keep track of the account, there are debits and credits, and the transactions are connected. (Doc. 215, p. 39.) This overly broad statement meets the dictionary definition of an "account," but it does not meet the definition of an open account under Kansas's law regarding the accrual of a claim. In particular, both parties do not have the unilateral right to terminate the account, and openness is lacking in that there are no terms of the "sale or sales . . . left open and undetermined." Sheldon Grain, 483 P.2d at 1038. Plaintiff's interpretation would make virtually any ongoing relationship an "open account."
2 . Equitable Estoppel
Plaintiff contends that if the statute of limitations curtails his claims to any extent, Defendant should be equitably estopped from asserting the statute of limitations as a defense. The Court's analysis of this issue relies heavily (and to a greater extent than the parties' discussions) on the Kansas Supreme Court's recent decision in L. Ruth Fawcett Trust v. Oil Producers Inc. of Kansas, 315 Kan. 259, 507 P.3d 1124 (2022) ("Ruth Fawcett Trust").
Thus, to the extent the parties draw different conclusions about Kansas law from decisions that predate Ruth Fawcett Trust, the Court will not discuss those arguments.
In that case, the plaintiffs were a class of mineral rights owners who had leased their rights to Oil Producers Incorporated of Kansas ("OPIK"). The lease required OPIK to pay a monthly royalty to the plaintiffs based on the amount of gas sold, but OPIK was allowed to deduct certain costs from those royalty payments. One of the claims asserted by the plaintiffs was a breach of contract claim alleging OPIK breached the leases by deducting conservation fees from the royalty payments for nineteen years preceding the lawsuit. 507 P.3d at 1132. The trial court held OPIK was equitably estopped from asserting a statute of limitations defense, and that decision was challenged. Id. at 1143.
In affirming the trial court's decision, the Kansas Supreme Court reiterated its holding from one of its prior cases that a party is equitably estopped from asserting the statute of limitations as a defense if,
by acts, representations, admissions, or silence when that other party had a duty to speak, [it] induced the party asserting estoppel to believe certain facts existed. The party asserting estoppel must also show that the party reasonably relied and acted upon such belief and would now be prejudiced if the other party were permitted to deny the existence of such facts.Id. at 1144 (quotation omitted). If the purported estoppel is based on silence, the party invoking estoppel must also demonstrate the other party had a duty to speak and had an intent to deceive; but, if the estoppel is not based on silence, there is no obligation to demonstrate an intent to deceive. Id. at 1146. "[T]he moving party need only show there was misrepresentation and that the party detrimentally relied on that misrepresentation." Id. at 1145.
Application of the doctrine involves questions of fact, and in Ruth Fawcett Trust the Kansas Supreme Court affirmed based on the following findings of the trial court:
(1) OPIK made an affirmative representation on the check stubs that induced the royalty owners into believing the conservation fees were state taxes when they were not; (2) the royalty owners relied on that misrepresentation because OPIK never provided them with any other information about the taxes owed, and OPIK admitted that it expected the owners to rely on the stubs; and (3) the Class would be prejudiced if OPIK were permitted to deny its deduction of Conservation Fees disguised as taxes.Id. at 1144 (quotation omitted).
The parties have not presented a clear framework for the Court to consider the issue. Equitable estoppel is discussed most fully in the context of Plaintiff's Motion for Summary Judgment, but it is not clear what act or acts Plaintiff relies on to support the estoppel—and relatedly, it is not clear whether the act or acts he relies on are omissions or representations. In his Suggestions in Support, Plaintiff refers to both omissions and representations interchangeably, and the representations he relies on appear to be the representations originally made when the Policy was issued, (Doc. 215, pp. 40-41), which is not the proper focus for estoppel. Plaintiff continues this approach in his Reply Suggestions (Doc. 219, pp. 74-75.) For its part, Defendant focuses exclusively on a "silence theory" and contends Plaintiff has not established it had a duty to provide information. (Doc. 222, pp. 13-14.) The Court cannot resolve the issue without a discussion of the proper framework from the parties.
The issue of reliance also cannot be discussed without first establishing what representations/omissions form the basis for the alleged estoppel. For instance, in Ruth Fawcett Trust, the trial court's findings on this element focused on monthly statements from OPIK and the plaintiffs' cashing of their monthly royalty checks. Id. at 1145. In this case, the parties do not discuss the underlying facts sufficiently to permit the Court to evaluate the issue of reliance.
3 . Conclusion Regarding Statute of Limitations
For these reasons, the Court determines Kansas's statute of limitations (and corresponding accrual rules) applies to Plaintiff's contract claims. The Court also concludes a separate breach occurred each time Defendant imposed an improper charge, so Plaintiff's claims are timely with respect to charges imposed within five years of filing suit. Finally, Defendant may be equitably estopped from asserting the statute of limitations as a defense, but neither party has presented sufficient arguments for the Court to make a definitive ruling.
The parties might also need to address whether equitable estoppel is a question for the Court or the jury. In Ruth Fawcett Trust, the trial court made the factual findings related to equitable estoppel, 507 P.3d at 1143, but it is not clear whether this was because courts typically decide matters of equity or because the entire case appears to have been resolved following a bench trial.
B. Breach of Contract (Counts I - III)
Under Kansas law, a breach of contract claim has the following elements: "(1) the existence of a contract between the parties; (2) sufficient consideration to support the contract; (3) the plaintiff's performance or willingness to perform in compliance with the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff caused by the breach." Stechschulte v. Jennings, 297 Kan. 2,298 P.3d 1083, 1098 (2013). The parties dispute whether there was a breach, but in so doing focus more on what the Policy required or prohibited than on what Defendant did or failed to do. Thus, as presented by the parties, the critical issue is ascertaining what the Policy requires and forbids.
Defendant also contends it is entitled to summary judgment because Plaintiff suffered no damages. This argument requires (1) resolving which party's expert is correct or (2) granting Defendant's request to strike Plaintiff's expert. The Court cannot do the former, and in a separate Order it declines to do the latter.
Resolving this issue requires first determining how the Policy is to be interpreted. "The language of a policy of insurance, like any other contract, must, if possible, be construed in such manner as to give effect to the intention of the parties." Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 840 P.2d 456, 459 (1992). A court must consider the entire agreement and determine the parties' intent based on the language, considering "the situation of the parties, the nature of the subject matter, and the purpose to be accomplished." O'Bryan v. Columbia Ins. Grp., 274 Kan. 572, 56 P.3d 789, 792 (2002). But, "[w]here the terms of a policy of insurance are ambiguous or uncertain, conflicting, or susceptible of more than one construction, the construction most favorable to the insured must prevail. Since the insurer prepares its own contracts, it has a duty to make the meaning clear." Catholic Diocese, 840 P.2d at 459. An "ambiguity arises only if the language at issue is subject to two or more reasonable interpretations and its proper meaning is uncertain." Speth v. State Farm Fire & Cas. Co., 272 Kan. 751, 35 P.3d 860, 862 (2001) (cleaned up); see also O'Bryan v. Columbia Ins. Grp., 274 Kan. 572, 56 P.3d 789, 792-93 (2002). If a provision is ambiguous, the Court must adopt the interpretation that would be adopted by "a reasonably prudent insured" and does not give weight to the insurer's intent. E.g., Cannon v. Farmers Ins. Co., 274 Kan. 166, 50 P.3d 48, 52 (2002); Liggatt v. Employers Mut. Cas. Co., 273 Kan. 915,46 P.3d 1120, 1126 (2002).
The Court rejects Defendant's argument a jury must resolve any ambiguities. It cites cases that do not involve insurance contracts, and the rule for resolving ambiguities in insurance contracts is different from the rule for other contracts in that the former requires adoption of the reasonable interpretation most favorable to the insured. See, e.g., Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 281 Kan. 844, 137 P.3d 486, 495 (2006); Fowler v. United Equitable Ins. Co., 200 Kan. 632, 438 P.2d 46, 48, 51-52 (1968).
1 . Count I —Calculation of the COI Rate
As explained earlier, the Policy provides the COI rate (which is necessary to determine the monthly COI charge) is "based on the insured's sex, age and risk class" and determined by Defendant's "expectations as to future mortality experience." In Count I, Plaintiff alleges Defendant breached the contract by considering non-mortality factors in determining the COI. As stated earlier, the Record contains facts demonstrating Defendant considered factors unrelated to mortality; the question is whether doing so violates the contract, and the Court concludes that it did.
The phrase "based on" is not defined in the Policy. However, an ordinary person would understand that when pricing is "based on" a list of factors, the pricing will be based on those factors and no others. E.g., Vogt v. State Farm Life Ins. Co., 963 F.3d 753, 763-64 (8th Cir. 2020); Yue v. Conseco Life Ins. Co., 2011 WL 210943, at *9 (C.D. Cal. Jan. 19, 2011). Defendant contends this interpretation inserts a word so that the phrase effectively becomes "based solely on." While true, Defendant's interpretation - based on the later description of COI as a "charge for pure insurance protection" - also adds words so that the phrase means "based on these factors and others." Plaintiff's interpretation is the better one; it is more natural and follows the rule of construction (expressio unius est exclusio alterius) that when a contract contains a list of items, unlisted items (particularly those of a different character from those on the list) are generally not included. E.g., Metropolitan Life Ins. Co. v. Strnad, 255 Kan. 657, 876 P.2d 1362, 1365-66 (1994).
The Court acknowledges Vogt and the other cases discussing this issue are not binding because they do not apply Kansas law. They are nonetheless persuasive, particularly given that Kansas law regarding insurance policy interpretation is substantially the same as the law of the other jurisdictions.
Here, the Policy states the COI rate is determined by Defendant based on its expectations as to future mortality experience and specifically includes age, sex, and risk class. An ordinary insured would not expect the COI to be based on other factors - or at least, would expect that other factors on which the COI rate is based would be related to Defendant's expectations regarding future mortality and included as part of the "rate class." The Policy's later description of the COI as intended to cover "pure insurance protection" does not alter this conclusion because that phrase is itself vague and Defendant does not explain why a reasonable insured would understand it to mean Defendant can consider expenses or other unlisted factors when determining the COI rate. Read in its entirety, a reasonable interpretation of the reference to "pure insurance protection" establishes the COI relates to the cost to pay the benefits due on the insured's death only (which is consistent with a limitation to sex, age, and risk class) and not anything else. Regardless, the Court need go no further than to conclude Plaintiff's interpretation is reasonable and Defendant's interpretation, at best, demonstrates the phrase is ambiguous. See Vogt, 963 F.3d at 764 ("[W]e conclude that the phrase 'based on' in the COI provision is at least ambiguous and thus must be construed against" the insurer.). Kansas law requires the Court to adopt the interpretation most favorable to Plaintiff. And there can be no serious doubt that an interpretation limiting what Defendant may consider is more favorable to Plaintiff than an interpretation containing no limits.
Defendant's ability to find cases rejecting this interpretation do not resolve the matter. In applying Missouri law (which is similar to Kansas law), the Eighth Circuit observed: "That several courts have examined the issue in very similar circumstances and have reached differing conclusions supports the conclusion that the phrase is ambiguous." Vogt, 963 F.3d at 764.
Defendant also argues Plaintiff's interpretation should be rejected because it impacts Defendant's solvency, which undermines the Policy's purpose of providing insurance and, thus, resolves any ambiguity in favor of the insured. Defendant, however, provides no support for the conclusion that the purpose of a contract can be used to resolve ambiguous language. The Court must consider the contract's purpose to ensure an interpretation is reasonable; for instance, it should not adopt a construction that transforms the Policy into something other than an insurance policy. But, at bottom, the Court must ascertain how a reasonable insured would interpret the Policy. A reasonable insured would not understand the description of the COI rate as including expenses, particularly given (1) expenses are covered in other provisions and (2) nothing in the COI rate suggests expenses are included. As the drafter of the Policy, Defendant was responsible for making it clear and must face the consequences for failing to do so, e.g., Bussman v. Safeco Ins. Co. of Am., 298 Kan. 700, 317 P.3d 70, 77 (2014); see also Vogt, 963 F.3d at 764; if it wanted the ability to include considerations other than those related to mortality expectations in the COI rate, the policy must say so.
Defendant also attacks Plaintiff's theory that, under the contract, Defendant is free to charge COI rates lower than its internal mortality assumptions, meaning that undercharges need not be subtracted from any damages calculation. Plaintiff does not address this issue. The Court has already held "the total damages Plaintiff calculates must include the time periods for which Defendant charged less than Plaintiff's projections." (Doc. 136, p. 9.) It further explained this is merely a result of using an expectation damages framework, which applies to breaches of contract. (Doc. 136, p. 9 (citing a Missouri case)); see also Louisburg Bldg. & Dev. Co. v. Albright, 45 Kan.App.2d 618, 252 P.3d 597, 612 (2011) (discussing expectation damages).
The policy does not permit Defendant to consider non-mortality factors in setting the COI rate, but the Record establishes that it did. Accordingly, Plaintiff is entitled to summary judgment with respect to liability on Count I.
2 . Count II —The Expense Charge
In Count II, Plaintiff alleges that by specifying the monthly expenses in a separate provision, the Policy does not permit Defendant to recover additional expenses (or additional amounts for expenses) in the COI. The distinction between Count I and Count II is not clear. Defendant suggests the counts are duplicative, (Doc. 222, pp. 27-28), and Plaintiff does not address this point or otherwise explain how the theories differ. (Doc. 219, p. 68.)
The Court previously described Plaintiff's theory as alleging Defendant breached the premium expense charge provision. (Doc. 136, pp. 3, 10-11.) Plaintiff now clarifies he claims Defendant breached the monthly expense charge provision. (Doc. 215, p. 29 n.8.)
On the merits, the Court agrees with Plaintiff: the Policy specifies the expenses Defendant may recover; it cannot pass on "additional expenses" by adding them to another charge (such as the COI). However, the damages for this claim would be recoverable under Count I as well. Under these circumstances, the appropriate course is not (as Defendant suggests) to dismiss Count II. Counts I and II are alternative theories for recovery of improper expense charges, and Plaintiff is entitled to summary judgment on both.
3 . Count III-Failure to Use Updated Data
As stated earlier, the Policy provides that "[m]onthly cost of insurance rates actually used will be determined by us based on our expectations as to future mortality experience," subject to the maximum rates on an accompanying chart. In Count III, the parties dispute the meaning of this phrase, and the heart of their dispute relates to whether Defendant must account for the fact that its "expectations as to future mortality experience" may change over time. The provision does not specify, or contain any language indicating, whether the applicable "expectations" upon which the COI rate is "based on" (1) are those existing at the time the Policy was issued and are therefore fixed during the Policy's existence, or (2) change as Defendant's expectations as to future mortality experience change. Both interpretations are plausible, which makes the clause ambiguous—and as explained above, the Court must adopt Plaintiff's interpretation because it is more favorable to him than Defendant's interpretation.
Defendant argues that, if it were required to implement updated rates, the maximum COI rates contained in the policy are rendered superfluous. This is untrue; the policy contemplates both (1) the possibility the COI rate may change and (2) the maximum COI that can be charged. If an internal mortality assumption results in a COI charge that exceeds the guaranteed maximum, the latter figure would be employed.
Defendant also argues (correctly) the Policy does not create an ongoing obligation to update mortality expectations. For instance, it does not establish when Defendant must update its expectations or how this must be done (except that, as discussed earlier, it cannot consider non-mortality factors in determining the rates). However, Plaintiff is not advocating for such an interpretation.
The parties also disagree what constitutes "expectations as to future mortality experience," although neither clearly explains what they believe the phrase means or how changes in those "expectations" are to be used to calculate the COI rate. This is critical because, without this information, the Court cannot determine what reasonable interpretations exist, much less which one is most favorable to policyholders. Moreover, with the Court having determined Defendant must rely on its current "expectations as to future mortality experience," that phrase must be understood before any factfinder can decide whether Defendant breached that obligation. Therefore, while the Court interprets the Policy as requiring Plaintiff to apply its then-current expectations as to future mortality experience when it calculated the monthly COI (because that interpretation is to Plaintiff's benefit), it can go no further at this time.
Having reviewed the parties' arguments and their experts' reports, and for the reasons expressed in the paragraph accompanied by this footnote, the Court does not know how Count III should be presented to the jury—particularly given that it is the Court's role to ascertain the Policy's meaning and the parties have not provided it with the means to do so. This is one of the issues the Court anticipates discussing with the parties in a telephone conference that will be scheduled soon.
C. Count IV —Conversion
Finally, Defendant argues that, under these facts, Kansas law does not permit a conversion claim. The Court agrees and therefore grants Defendant summary judgment on this issue.
Generally, conversion is "an unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or the exclusion of the owner's rights." Patrons State Bank & Trust Co. v. Shapiro, 215 Kan. 856, 528 P.2d 1198, 1203 (1974) (emphasis added). However, "[an] action will not lie for conversion of a mere debt or chose in action. Hence, where there is no obligation to return identical money, but only a relationship of debtor and creditor, an action for conversion of the funds representing the indebtedness will not lie against the debtor." Temmen v. Kent-Brown Chevrolet Co., 227 Kan. 45, 605 P.2d 95, 99 (1980); see also Moore v. State Bank of Burden, 240 Kan. 382, 729 P.2d 1205, 1210 (1986). Defendant is an insurance company and not a simple creditor or a bank, but the principle is still applicable: Defendant may have had an obligation to pay Plaintiff but was not required to pay with specific funds.
Plaintiff does not contest these general propositions, and the arguments he presents are not persuasive. He contends courts in other states have recognized insurance companies have an independent duty, answerable in tort, to not take money from customers' accounts without authorization. (Doc. 217, p. 79.) However, the Court must apply Kansas law, and there are no decisions from Kansas state courts allowing a claim for conversion in these circumstances. Relatedly, Plaintiff's reliance on the Eighth Circuit's decision in Vogt does not dictate a different outcome because it applied Missouri law, and Missouri—unlike Kansas—permits a conversion claim when money is placed in the custody of another for a specific purpose and then diverted to a different purpose. 963 F.3d at 774.
Plaintiff relies on In re Schupbach to support his assertion Kansas law is similar to Missouri law, but the Bankruptcy Court in that case relied on a decision from the Bankruptcy Court in the Western District of Texas and did not explain its conclusion that Kansas law would permit a conversion claim when "loan proceeds were used for purposes other than those for which they were loaned." 500 B.R. 22, 33 (Bankr. D. Kan. 2013). The Court does not find this case to be a persuasive statement regarding Kansas law.
Plaintiff also points to Kansas cases permitting a conversion claim if funds are paid and "segregated into a special account and designated to be kept separate," Moore, 729 P.2d at 1210, and argues Defendant "holds reserves in the exact amount of each policyholder's Cash Value." (Doc. 217, p. 80.) This fact, though, does not demonstrate Defendant maintains Plaintiff's funds in a segregated account.
Kansas does not permit a conversion claim in these circumstances. To the contrary, the Kansas Supreme Court has held a conversion claim is not viable to recover "an ordinary debt or account." Moore, 729 P.2d at 1210. Therefore, Defendant is entitled to summary judgment on Plaintiff's conversion claim.
The Court's analysis makes it unnecessary to consider Defendant's argument that Plaintiff does not have the right to immediate possession of the funds required to support a conversion claim. (Doc. 221, pp. 37-38.)
Count V only requests declaratory and injunctive relief. Defendant notes the Court did not certify this "theory" for a class action, (Doc. 136, p. 25), and declaratory and injunctive relief are remedies, not causes of action. Defendant is correct, and the Court will consider Count V as requesting equitable relief for Plaintiff only.
III. CONCLUSION
Plaintiff's Motion for Partial Summary Judgment, (Doc. 183), and Defendant's Motion for Summary Judgment, (Doc. 190), are GRANTED IN PART AND DENIED IN PART. More specifically, Plaintiff is granted summary judgment on Counts I, II and III, but only as to liability, Defendant is granted summary judgment on Count IV, and neither party's arguments regarding the statute of limitations is adopted. The issues of damages and equitable tolling of the statute of limitations remain to be resolved at trial.