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In re National Life Insurance Co.

United States District Court, D. Vermont

September 19, 2014

IN RE: NATIONAL LIFE INSURANCE CO

OPINION AND ORDER

WILLIAM K. SESSIONS III, District Judge.

National Life Insurance Co. ("National Life") has filed a motion for specific enforcement of this Court's 1998 final order and judgment approving a settlement agreement in the above-captioned class action. National Life is asking the Court to enjoin the prosecution of a lawsuit brought by Betty Hucke to recover proceeds from a life insurance policy purchased by her now-deceased husband. National Life contends that Mrs. Hucke was a party to the class action and the 1998 settlement agreement, that her claims were released pursuant to the Court's final order and judgment, and that her lawsuit is therefore barred. Mrs. Hucke's case is currently pending in the United States District Court for the Western District of Missouri.

For the reasons set forth below, the motion to enforce is DENIED.[1]

Factual and Procedural Background

In 1997, a group of National Life policyholders filed this class action claiming unlawful practices relating to the sale of life insurance policies. The suit claimed that National Life had induced the purchase of policies through misrepresentations and material omissions concerning the number of cash premium payments that a policyholder would have to make, and the cash value and other benefits that a policyholder would realize. The class plaintiffs alleged that in addition to misrepresenting this information, National Life "approved, prepared and/or permitted the dissemination of" sales materials that were based upon interest rate and cash value projections it knew to be unreasonable and unsustainable. Finally, the suit alleged that National Life engaged in a sales scheme whereby it financed the purchase of new policies by "churning or stripping" value from existing policies and using the proceeds to purchase the new policies. This practice of "churning" allegedly generated large commissions for National Life's agents, and "substantial sales loads" for National Life itself. ECF No. 127 at 21-24.

In June 1998, the parties settled the class action suit. Counsel for the parties entered into a settlement agreement, and payments were subsequently made to class members. The class action, and the resulting settlement, covered policies issued between January 1, 1982 and December 31, 1997. The settlement included a release applicable to "any and all causes of action, claims, damages, equitable, legal and administrative relief, interest, demands or rights, of any kind or nature whatsoever... that have been, could have been, may be or could be alleged or asserted now or in the future by... any Class Member." ECF No. 143-1 at 12. The release defines "Released Transactions" as "the marketing, solicitation, application, underwriting, acceptance, sale, purchase, operation, performance, retention, administration, servicing or replacement" of policies. Id. at 11. The settlement agreement was incorporated into a final order and judgment signed by the Court, with the Court retaining jurisdiction over "all matters relating to administration, consummation, enforcement and interpretation of the Settlement Agreement and of this Final Order and Judgment." Id. at 8.

Dr. Samuel Hucke and his wife Betty purchased four life insurance polices, two for Dr. Hucke and two for Mrs. Hucke, between 1990 and 1993. Dr. Hucke's policies consisted of two universal life insurance policies numbered VL0039748 ("Policy 748") and VL0052646 ("Policy 646"). After Dr. Hucke died in 2012, National Life sent proceeds to Betty Hucke on Policy 646 in the amount of $138, 358.62. Policy 748 insured Dr. Hucke for $150, 000, with Betty Hucke as the beneficiary. To date, National Life has not paid any proceeds on Policy 748.

The summary of coverage for Policy 748 described it as a "flexible premium adjustable benefit life insurance policy." ECF No. 146 at 34. The policy itself provided that the minimum monthly payment "will keep the policy in force to the next Monthly Policy Date" during "the first and second Policy Years." ECF No. 146-2 at 39. The summary of coverage quoted the minimum monthly premium as $116.24.

National Life claims that Policy 748 lapsed shortly prior to Dr. Hucke's death because of overdue premium payments. In support, National Life has submitted a series of correspondence sent to Dr. Hucke between 2008 and 2012 notifying him that "your contract does not have sufficient value to pay the cost presently due" and that premium payments were due within 30 days in order to maintain coverage. ECF No. 156-1 at 6-18. While several of the allegedly-overdue payments were made and the policy reinstated on those occasions, in July 2012 National Life informed Dr. Hucke that a payment of $1, 132.26 was due on or prior to August 3, 2012 in order to maintain coverage. Id. at 18. On August 10, 2012, National Life informed Dr. Hucke that it had not received the required payment and that "there is presently no coverage provided." Id. at 20. Dr. Hucke died on August 24, 2012.

Mrs. Hucke contends that Dr. Hucke paid, and in fact overpaid, the premiums due on his policy through the date of his death. The First Amended Complaint alleges that as part of his insurance application, Dr. Hucke requested that all premiums be taken from his bank account as part of National Life's Check-O-Matic system. National Life allegedly informed the Huckes that in additional to regular payments through Check-O-Matic, it would also withdraw a special draft as needed to bring the policy current. In 2004, National Life confirmed that a premium payment of $116.25 would be automatically deducted "to pay the premium due" on Policy 748. ECF No. 143-3 at 15.

Mrs. Hucke claims that in 2008 National Life "inexplicably" removed Policy 748 from the Check-O-Matic program, and began sending the aforementioned delinquency notices. She further claims that memoranda from National Life to Dr. Hucke's agent between 2008 and 2012 confirmed that the annual premium was approximately $1, 395, or $116.25 per month. Based upon a constant monthly premium payment of $116.25 per month, Mrs. Hucke argues the Dr. Hucke made timely payments through the time of his death, and that in some policy years he actually overpaid. ECF No. 146 at 1-2.

In April 2014, Mrs. Hucke filed suit against National Life in Missouri state court seeking payment on Policy 748. The action was subsequently removed to the United States District Court for the Western District of Missouri. The First Amended Complaint brings causes of action for breach of contract, and in the alternative, "[e]ven assuming that [Dr. Hucke] and/or [Mrs. Hucke] were delinquent on their premium payments (which Plaintiff denies), " for estoppel based upon National Life's alleged course of dealing. ECF No. 143-2 at 11. Mrs. Hucke also argues that, assuming a lapse, Dr. Hucke died within the policy's 61-day grace period. ECF No. 143-3 at 20-21.

National Life's motion before this Court argues that Mrs. Hucke's suit is barred by the 1998 class action settlement and this Court's final order and judgment. National Life characterizes Mrs. Hucke's claim as alleging a failure to assess the correct premium, and argues that such a claim pertains to the operation, administration, or servicing of a covered policy and is therefore barred. National Life also submits that Mrs. Hucke's claim is "the very essence of a vanishing premium' allegation and lies at the heart of the claims released by the Settlement." ECF No. 143 at 10. The release defines a "vanishing premium" as

(a) a concept under which an insurance policy's premiums or charges may be paid out of its then-current and anticipated accumulated values, or cash values or dividends, as those charges or premiums become due, (b) a concept under which a single out-of-pocket premium payment or a fixed number of out-of-pocket premium payments - based on nonguaranteed assumptions about interest crediting rates and policy charges or dividends - may suffice to cover all policy premiums and/or charges in excess of interest credited and may keep coverage in force throughout the insured's life, or for a specified period, without ...

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