Opinion
CASE NO. 19-80211-CV-MIDDLEBROOKS
01-17-2020
Douglas KUBER, individually, and Rebecca Kuber, as Trustees Under Douglas Kuber 2008 Family Trust, Plaintiffs/Counter-Defendants, v. BERKSHIRE LIFE INSURANCE COMPANY OF AMERICA, and the Guardian Life Insurance Company of America, Defendants/Counter-Plaintiffs.
Richard Mark Benrubi, Law Office of Richard M. Benrubi, P.A., West Palm Beach, FL, Darren Mitchell Goldman, Gary Charles Rosen, Becker & Poliakoff, P.A., Fort Lauderdale, FL, for Plaintiffs/Counter-Defendants. Douglas Kuber. Andrea E. Nieto, Kristina Beth Pett, McDowell Hetherington LLP, Boca Raton, FL, Thomas F.A. Hetherington, Pro Hac Vice, McDowell Hetherington, LLP, Houston, TX, for Defendants/Counter-Plaintiffs.
Richard Mark Benrubi, Law Office of Richard M. Benrubi, P.A., West Palm Beach, FL, Darren Mitchell Goldman, Gary Charles Rosen, Becker & Poliakoff, P.A., Fort Lauderdale, FL, for Plaintiffs/Counter-Defendants. Douglas Kuber.
Andrea E. Nieto, Kristina Beth Pett, McDowell Hetherington LLP, Boca Raton, FL, Thomas F.A. Hetherington, Pro Hac Vice, McDowell Hetherington, LLP, Houston, TX, for Defendants/Counter-Plaintiffs.
ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT AS TO GUARDIAN'S COUNTERCLAIMS AND KUBERS' MOTION TO DISMISS GUARDIAN'S COUNTERCLAIMS
Donald M. Middlebrooks, United States District Judge This Cause is before the Court upon the Parties' Cross-Motions for Summary Judgement as to Guardian Life Insurance Company of America's ("Guardian") Counterclaims (DE 91). Defendant/Counter Claimant Guardian moved for Summary Judgment on December 9, 2020. (DE 162). Plaintiffs/Counter-Defendants Douglas Kuber, individually, ("Douglas") and Rebecca Kuber ("Rebecca"), as Trustees Under Douglas Kuber 2008 Family Trust, ("the Kubers") responded in opposition on December 23, 2019. (DE 172). Guardian replied on December 30, 2019. (DE 174).
This Motion is filed by both Defendant Guardian and Defendant Berkshire Life Insurance Company of America. However, as Defendant Guardian filed separate Counterclaims, and as Plaintiff moved for Summary Judgment against each Defendant individually, I will consider only the arguments raised by Defendant Guardian in this Order. Arguments raised by Defendant Berkshire will be addressed in a separate Order.
Plaintiff Rachel Gross, as trustee under Douglas Kuber 2008 Family Trust is not named as a Counter Defendant.
In responding to this Motion, the Kubers neglected to respond to Guardian's Statement of Material Fact (DE 66). Plaintiffs argues that their failure to do so constitutes excusable neglect (DE 184), while Guardian argues that this neglect is not excusable (DE 185). As it would not change my ruling and as I am strongly inclined to address motions on the merits rather than due to procedural default, I will consider the Kubers' Response to Guardian's Material Facts.
The Kubers also moved for Summary Judgment as to Guardian's Counterclaims on December 9, 2019. (DE 167). Guardian responded on December 30, 2019. (DE 177). The Kubers replied on January 13, 2020.
The Kubers' Motion for Summary Judgment reiterates the arguments made in their Motion to Dismiss. Rather than addressing these arguments in two separate Orders, I address both here. Some of the Kubers' arguments are set forth more fully in their briefing on the Motion to Dismiss than in the briefing on the Summary Judgment motions. In ruling on summary judgment and on the Kubers' Motion to Dismiss, I have fully considered all of the arguments set forth in all of the parties' written submissions to the Court. For the following reasons, the Kubers' Motion for Summary Judgment, incorporating arguments from its Motion to Dismiss, is granted and Guardian's Motion for Summary Judgment is denied in part.
The Kubers filed their Motion to Dismiss Guardian's Counterclaims on November 7, 2019. (DE 125). Guardian responded on November 21, 2019. (DE 158). The Kubers replied on December 2, 2019. (DE 161).
I. BACKGROUND
Guardian argues, essentially, that the Kubers lied on their life insurance application, and that the policy should therefore be rescinded and other relief granted.
The Kubers' alleged falsifications arose from Douglas's illegal wire fraud enterprise. In 2006, Douglas formed Account Receivables Services, LLC (ARS) with Jonathan Rosenberg, his next-door neighbor in New Jersey. (DE 166 ¶ 3; DE 185 ¶ 3). ARS was an elaborate Ponzi Scheme. (Id. ). As indicated in his Judgment of Conviction, Douglas was engaged in this illegal enterprise until September of 2011. (12-cr-00494-JKB; DE 71). Douglas pleaded guilty to wire fraud and was sentenced to 48-months' imprisonment in 2012. (DE 166 ¶ 3; DE 185 ¶ 3).
From June 2007 through March 2009, Douglas made approximately $6,000,000.00 in illegal kickbacks in the Ponzi Scheme. (DE 166 ¶6; DE 185 ¶ 6). These kickbacks were paid, at least in substantial part, from Sanctuary Wealth Management, LLC ("Sanctuary"). (DE 166 ¶ 11; 185 ¶ 11). For example, on November 19, 2007, there was an email correspondence between Douglas and a Sanctuary employee where the employee states: "to clarify, do you want me to wire the entire sum of $85,000 to the account below?," and Douglas replies "Do not use any reference. We will know what it is for." (DE 122-9).
On November 6, 2009, while the fraud was ongoing, the Kubers applied to Guardian for a $7.5 Million Term Life Policy (the "term Policy") insuring Douglas's life. (DE 166 ¶ 10; DE 185 ¶ 10). The application states that Douglas's occupation is the "owner" of Sanctuary, which he described as a "debt collection service." (DE 122-10 at 22). Douglas stated on the application that his total assets were $10,000,000.00, his net worth was $7,000,000.00, and his earned income was $5,000,000.00. (DE 166 ¶ 11; DE 185 ¶ 11). Guardian issued the $7.5 Million Term Life Policy on November 18, 2009. (DE 166 ¶ 12; DE 185 ¶ 12). In 2012, this policy was converted from a Term Life Insurance Policy to a Whole Life Insurance Policy (#6639629) (the "Whole Life Policy") using a Term Conversion Exchange Application. (DE 166 ¶ 30; DE 185 ¶ 30). Guardian now argues that they would not have issued either policy had they known that Douglas was committing wire fraud and had earned a large part of his assets from that scheme. Guardian also argues that due to Mr. Kuber's fraud it was not required to waive premiums under the policy, which it did for several years while Douglas was allegedly disabled.
The Kubers entered into the Guardian contract in New Jersey (DE 1-1, ¶ 48), thus the contract is governed by New Jersey law. State Farm Mut. Auto. Ins. Co. v. Roach , 945 So. 2d 1160, 1163 (Fla. 2006).
II. LEGAL STANDARD
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Genuine disputes are those in which the evidence is such that a reasonable jury could return a verdict for the non-movant." Ellis v. England , 432 F.3d 1321, 1325-26 (11th Cir. 2005). "For factual issues to be considered genuine, they must have a real basis in the record." Id. at 1326 (internal citation omitted). "For instance, mere conclusions and unsupported factual allegations are legally insufficient to defeat a summary judgment motion." Id. (internal citation omitted). "Moreover, statements in affidavits that are based, in part, upon information and belief, cannot raise genuine issues of fact, and thus also cannot defeat a motion for summary judgment." Id. (internal citations omitted).
The movant "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R. Civ. P. 56(c)(1)(A) ). "When the nonmoving party has the burden of proof at trial, the moving party is not required to ‘support its motion with affidavits or other similar material negating the opponent's claim,’ in order to discharge this ‘initial responsibility.’ " United States v. Four Parcels of Real Prop. in Greene & Tuscaloosa Ctys. in State of Ala. , 941 F.2d 1428, 1437–38 (11th Cir. 1991). "Instead, the moving party simply may ‘show’—that is, point out to the district court—that there is an absence of evidence to support the nonmoving party's case." Id. at 1438 (citation omitted). "Alternatively, the moving party may support its motion for summary judgment with affirmative evidence demonstrating that the nonmoving party will be unable to prove its case at trial." Id. (citation omitted). "If the moving party shows the absence of a triable issue of fact by either method, the burden on summary judgment shifts to the nonmoving party, who must show that a genuine issue remains for trial." Id. (citation omitted). "If the nonmoving party fails to ‘make a sufficient showing on an essential element of her case with respect to which she has the burden of proof,’ the moving party is entitled to summary judgment." Id. (citation omitted). At the summary judgment stage, courts construe the facts in the light most favorable to the non-movant, and any doubts should be resolved against the moving party. Davis v. Williams , 451 F.3d 759, 761 (11th Cir. 2006) ; Adickes v. S.H. Kress & Co. , 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970).
III. DISCUSSION
a. Incontestability as to the Whole Life Policy in its Entirety
In this analysis, I will consider the arguments set forth in the Kubers' Motion to Dismiss (DE 125), where applicable.
The Kubers argue that this Policy is incontestable under New Jersey law. New Jersey Statute § 17B:25-4 states that "[t]here shall be a provision that [an insurance policy] ... shall be incontestable, except for nonpayment of premiums, after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue." This rule exists to "dispel the public's fear that insurers would not honor claims if the insured had made a technical mistake in the application," Paul Revere Life Ins. Co. v. Haas , 137 N.J. 190, 197, 644 A.2d 1098 (1994), and to "give the insured a sense of security after the stated period elapses." Johnson v. Metro. Life Ins. Co. , 53 N.J. 423, 442, 251 A.2d 257, 267 (1969).
This incontestability rule begs the question whether an insured can commit blatant insurance fraud in New Jersey and simply hope to avoid getting caught within two years. The New Jersey Legislature dealt with this issue by specifying a series of provisions which an insurer may choose to put in their contract. Each of these provisions offers a certain protection to the insurer by providing exceptions to the incontestability rule. The statute states that:
There shall be a provision as follows:
Time limit on certain defenses:
a. After 2 years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of such 2-year period.
...
b. No claim for loss incurred or disability (as defined in the policy) commencing after 2 years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on
the date of loss had existed prior to the effective date of coverage of this policy.
N.J. Stat. Ann. § 17B:26-5. Thus, New Jersey law gives insurers the option to include a provision which allows them to contest a policy at any point based on fraudulent misstatements or, alternatively, which tolls any incontestability provision if a disability arises before two years. To receive either of these protections, insurers must simply put this language in their insurance contracts.
Guardian did not opt to include either of these provisions in their Term or Whole Life Policies issued to Douglas Kuber. Instead, the general incontestability provisions for the Guardian Term and Whole Life Policies state that
The basic policy will be incontestable after it has been in force during the insured's lifetime for 2 years from the earliest of its issue date or the policy date, except for nonpayment of premiums. The contestable period of any additional benefit rider attached to this policy is stated in the rider.
Guardian opted to include a version of the second disability-tolling protection in its riders, such as the Waiver of Premium Rider discussed below, but did not include either protection in the overarching incontestability clause. Although Guardian opted not to avail itself of policy language which would have enabled it to void a fraudulently obtained policy, it now argues that it would be unfair to enforce the policy when the Kubers apparently lied on their policy application.
A similar situation arose in Paul Revere Life Ins. Co. v. Haas . There, the insurer chose to toll incontestability rather than exempting fraudulent claims. There, the New Jersey Supreme Court reasoned that
"[T]he statute gave [the insurer] the option of inserting in its policy a provision that would have excluded fraudulent misstatements from the protection of the incontestability clause. Such a provision would have allowed [the insurer] to void the policy for a fraudulent misstatement. [The insurer] chose, instead, for section 10.2a of its policy, a provision that tolled the incontestability clause for ‘any period during which the insured is disabled.’ Each of the optional statutory clauses provides certain benefits to the insurer, which must choose between a clause protecting it from fraudulent misstatements and one extending the incontestability period if the insured becomes disabled during that period.
Paul Revere Life Ins. Co. v. Haas , 137 N.J. 190, 199, 644 A.2d 1098 (1994). Thus, the Court concluded that the incontestability clause would bar an insurer's claim as to the validity of the contract. Id. at 202, 644 A.2d 1098.
Here, the Parties do not dispute that the Term Life Insurance Policy was entered into approximately ten years ago, and that it was converted to a Whole Life Insurance Policy approximately eight years ago. Therefore, regardless of whether the time period is measured from the Term or Whole life policies, the two-year contestability period has clearly elapsed. Accordingly, I find that Guardian is barred from contesting the validity of Douglas's policy as a whole.
As Guardian brings multiple claims seeking rescission, further clarification is needed as to these claims. It appears from the caselaw that the most common manner in which insurers seek to contest contract validity is through equitable fraud claims. See e.g., First Am. Title Ins. Co. v. Lawson , 177 N.J. 125, 135, 827 A.2d 230 (2003) ; Longobardi v. Chubb Ins. Co. of N.J. , 121 N.J. 530, 542, 582 A.2d 1257 (1990). However, there is nothing in New Jersey caselaw which suggests that incontestability bars only equitable fraud claims. Indeed, any cause of action which essentially amounts to a conclusion that the policy was entered into improperly and therefore should be rescinded would constitute a violation of the incontestability clause. Guardian seeks "rescission of the $7.5 Million Whole Life Policy, and a determination that the $7.5 Million Whole Life Policy is void ab initio" in Counts 1, 2, 3, 5, 6, 7, and 8. I find that regardless of the manner in which the cause of action in each Count is construed, it is not appropriate to seek this relief. Thus, this relief is barred by the incontestability clause, and judgment will be granted in favor of the Kubers' on those counterclaims.
b. Incontestability as to the Waiver of Premium Rider
The incontestability section of Douglas's Term and Whole Life Policies states that "[t]he contestable period of any additional benefit rider attached to this policy is stated in the rider." (DE 122-10 at 13). The Waiver of Premium rider in the Term and Whole Life Policies states that "[t]his rider will be incontestable after it has been in force during the insured's lifetime without the occurrence of total disability for 2 years from the earlier of the policy date or its issue date, except for nonpayment of premiums." (DE 122-10 at 18) (emphasis added). The Guardian policy defines total disability as "the inability due to bodily injury or disease to perform substantially all of the duties of an occupation for pay or profit." (Id. ).
Thus, to determine whether any genuine issue of material fact exists as to whether Douglas became totally disabled within two years of the issue date, I must determine whether the two years are measured from the issue date of the Term Policy or the Whole Life Policy. For the Term Policy, the issue date is November 26, 2009. (DE 122-10). The Term Insurance Conversion Rider of the Guardian Term Insurance Rider states that "[t]he periods of time specified in the ‘incontestability’ and ‘suicide’ provisions of this new policy will be determined from the original policy's issue date." (DE 65-2). This form then states that the operative issue date is November 18, 2009. (DE 65-2). As the Kubers contest Guardian's counterclaims based on the incontestability rule, I will construe the operative date in the light most favorable to Guardian and thus use the later November 26, 2009 date. Accordingly, the contestability period would end on November 26, 2011.
The next question, then, is whether a genuine issue of fact exists as to whether Douglas became totally disabled after November 26, 2011. In the Kubers' Statement of Undisputed Facts for a prior summary judgment motion, the Kubers state that "[a]s [Douglas's] depression and anxiety continued to increase, Dr. Helfmann advised [Douglas] to completely cease working, which [Douglas] did on September 18, 2012." (DE 118 ¶ 16). Guardian disputes this statement, pointing to a letter from Daniel J. Martin Ph.D., a clinical psychologist and consultant for Berkshire, in which Dr. Martin summarizes a conversation that he had with Dr. Helfman regarding Douglas. (DE 122-12 at 123). The letter states that Dr. Helfman began treating Douglas on August 17, 2011. At that time, Douglas was experiencing "mild to moderate" depression, was running a company and trying to transition back to his law practice. Thereafter, two events took place which "greatly affected his functioning." His wife asked for a divorce, and he got in "legal trouble" related to his business (this seems to refer to his wife fraud prosecution). By February and March 2012, "the patient eventually had suicidal thoughts" and was experiencing "deterioration." Most importantly, "Dr. Helfman believes that at this point in February/March 2012 [Douglas] was no longer able to function and was experiencing occupational impairment." (Id. ). Thus, to the extent that Guardian disputes that Douglas became totally disabled on September 18, 2012, it only cites record evidence to support backdating his date of total disability to earlier in 2012. The agreed facts therefore demonstrate that Douglas's date of total disability occurred after the two-year contestability period elapsed on November 26, 2011. Accordingly, Guardian is barred from contesting the validity of the Waiver of Premiums Rider.
Berkshire also disputed this statement.
As established in Paul Revere , "the incontestability clause relates only to the validity of the contract, and should not affect in any way whatsoever the construction of the terms thereof." 137 N.J. 190, 202, 644 A.2d 1098 (1994). Thus, Guardian may permissibly argue, for example, that Douglas did not meet the requirements of the Policy to have the premiums waived. Guardian is bound, however, by the determination that the Waiver of Premium Rider is valid. Thus, any arguments that the contract should be void for fraud, either legal or equitable, are barred. Indeed, as discussed above, Guardian could have chosen to include a provision that the policy was incontestable due to "misstatements, except fraudulent misstatements." N.J. Stat. Ann. § 17B:26-5. However, Guardian did not select this language. Therefore, the opposite must be true: this policy cannot be contested for any misstatement, including fraudulent misstatements.
In Counts 1-8, Guardian seeks "return of the $811,535.08 of premiums waived under the waiver of premium for disability provision." (DE 91). Fraud claims which seek damages in the form of the return of waived premiums are barred by the incontestability rule because they essentially amount to claims contesting the validity of the policy, just inversely stated. A Waiver of Premium Rider has effectively been rescinded if, despite disability, there is no obligation to waive premiums. The same would be true if Guardian had phrased their requested relief differently for the contract as a whole. Were Guardian to seek a finding that, due to fraud, it was not obligated to pay benefits under the life insurance policy upon Douglas's death, that would effectively be an argument for rescission because a life insurance contract is no longer in effect if there is no obligation to pay premiums. It is not the language that Guardian uses which matters, but rather the effect of the relief sought. Therefore, I consider the request to return waived premiums to effectively seek rescission of the Waiver of Premiums Rider.
Guardian brings a claim for Common Law and Equitable Fraud in Counts 1 and 2, a claim for Aiding and Abetting Common Law and Equitable Fraud in Count 3, and a claim for Violation of the New Jersey Insurance Fraud Act in Count 4. In each count Guardian seeks return of unpaid premiums due to fraud. These claims all require a finding that the Waiver of Premium rider is not valid due to fraud, and therefore they are barred by the incontestability provision.
Similarly, Guardian's Counterclaims in Counts 5 and 6 are for Negligent Misrepresentation, asserting that Douglas and Rebecca's "negligent misrepresentations and/or omissions of material facts caused Guardian to issue the $7.5 Million Term Life Policy to the detriment of Guardian" and thus "caused Guardian to waive premiums due under the $7.5 Million Whole Life Policy in total of $811,535.08." (DE 91 ¶ 220, 222; 243, 245). This is essentially a claim that the Kubers improperly entered into the contract and thus the Policy should not be enforceable. In Count 7, Guardian seeks a return of waived premiums under an Unjust Enrichment theory. Guardian argues that Rebecca benefitted as, due to her fraud, the $7.5 Million Whole Life Policy remained in force and, thus, premiums totaling $811,535.08 which were waived. In Count 8, Guardian seeks a return of premiums based upon the Kubers' alleged civil conspiracy to "file a fraudulent claim." (DE 91 ¶225). This conspiracy allegedly "caused Guardian to issue the $7.5 Million Term Life Policy, convert the $7.5 Million Term Life Policy to the $7.5 Million Whole Life Policy, and waive premiums for disability benefits totaling $811,535.08." Again, this is just another iteration of the overarching fraud theory, and is therefore subject to the incontestability rule. Finally, in Count 9, Guardian seeks a return of premiums based on the Kubers' "Insurance Fraud Scheme." As all of these Counts would require a finding that the Waiver of Premium Clause is not valid and thus that the unpaid premiums should be returned, they violate the incontestability provision.
This Count is erroneously labeled Count 7 again. However, it is the eighth count, and therefore I refer to it as such. Similarly, Guardian's RICO claim is mislabeled Count 8, when it is actually the ninth count.
In Count 8, Guardian seeks "damages," other than rescission and repayment of premiums, for Civil Conspiracy. (DE 91 at 49). In Count 9, Guardian seeks "three times the damages Guardian has sustained." (DE 91 at 51). These references to generalized damages are not enough to get around the incontestability rule. In both Counts, Guardian concludes that had the Kubers been honest and forthcoming, Guardian would have never issued these Policies, and thus never would have been injured. Therefore, the only alleged injury that Guardian suffered was entering into the Polices. As the Policies are indisputably valid, Guardian cannot have been injured.
c. Attorney's Fees and Costs
In each Count of its Counterclaims, Guardian seeks attorney's fees and costs. I find that it is more appropriate to address the issues of fees and costs at the termination of this lawsuit as a whole. Accordingly, I decline to address this issue at this juncture.
CONCLUSION
Upon careful consideration of the Parties' written submissions, the record, and applicable law pertaining to the claims at issue, it is hereby ORDERED AND ADJUDGED that:
1. Plaintiffs/Counter-Defendants Douglas and Rebecca Kuber's Motion for Summary Judgment (DE 167) is GRANTED .
2. Defendant/Counter-Plaintiff Guardian's Motion for Summary Judgment (DE 162) is DENIED IN PART . Specifically, it is denied as to the Counterclaims raised by Guardian.
3. Plaintiffs/Counter-Defendants Douglas and Rebecca Kuber's Motion to Dismiss Guardian's Counterclaims (DE 125) is DENIED AS MOOT .
I have yet to address the counter-claims raised by Berkshire.
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