Armour v. Transamerica Life Ins. Co., No. 10-2136-EFM, 2010 WL 4180459 (D. Kan. Oct 20, 2010).

As the old saying goes, life isn’t always fair, and sh** happens, just ask Mr. Armour who was forced to proceed with his class action in federal court because the Kansas district court denied his motion to remand the action to state court. 

The federal court held that courts are bound to accept the amount in controversy if the defendant provides underlying jurisdictional facts based on a fair reading of the complaint. 

The plaintiff, Thomas F. Armour, a resident of Kansas, brought a class action in state court against Transamerica Life Insurance Company, an Iowa corporation, which was earlier known as PFL Life Insurance Company, asserting damages for the defendant’s negligence, fraud, negligent misrepresentation, breach of duty of good faith and fair dealing, breach of contract, and unjust enrichment.

The plaintiff alleged that he and other class members purchased and renewed Long-Term Care (“LTC”) Insurance policies, which provided for nursing home confinement, from PFL and Transamerica. The plaintiff contended that he and other similarly situated individuals suffered damages due to material defects in the original pricing and actuarial assumptions. The plaintiff asserts that his total annual premium in 1996 was $1,143 and increased over the years to $2,579.52 in 2005. The plaintiff proposed to represent a class of all Kansas residents who purchased a LTC policy from Transamerica or its predecessor PFL.  

In the complaint, the plaintiff stated that he did not seek any form of “common” recovery, but rather an individual recovery not to exceed $75,000 for any class member, inclusive of interest and attorneys’ fees and all relief of any nature sought. 

Transamerica removed the action the district court pursuant to CAFA. 

The plaintiff moved to remand arguing that Transamerica failed to meet its burden in establishing that the requisite amount in controversy exceeded $5 million.    

As an initial matter, the court addressed whether the plaintiff specifically pled less than the jurisdictional amount. The court noted that although the plaintiff specifically averred in his complaint that the jurisdictional amount for each plaintiff was less than $75,000 and they were not seeking a common recovery, the plaintiff did not specifically reference the $5 million amount under CAFA. Because the plaintiff did not specifically allege that the class sought damages of less than $5 million, and because claims brought under CAFA shall be aggregated to determine whether the matter in controversy exceeds the sum or value of $5 million, it did not appear to the court that the plaintiff specifically limited his claim to less than the jurisdictional amount.  

The plaintiff first contended that Transamerica’s Notice of Removal was insufficient because Transamerica improperly modified the complaint by erroneously asserting that the controversy concerned all premium increases, rather than premium increases as a result of an actuarial defect.  

The court disagreed and found that a fair reading of the complaint put all premium increases at issue. Although the plaintiff referenced premium increases due to material defects in actuarial assumptions, these allegations were also interspersed with other allegations challenging premium increases because of low-ball pricing, high commissions, and inadequate underwriting. In addition, the plaintiff alleged damages because he was locked in a situation of paying ever-increasing policy premiums, and Transamerica would be unjustly enriched if it was allowed to retain the wrongfully increased premium amounts. Other allegations include that had the plaintiff known of the true facts, he would not have initially purchased or renewed these defective policies. The court thus found that it could not conclude that Transamerica erroneously read the complaint. 

In addition, although the plaintiff contended that only increases related to defective actuarial assumptions were at issue in the lawsuit, the court found that the plaintiff did not specifically identify these defective assumptions in the complaint.  

The plaintiff also asserted that Transamerica failed to submit admissible evidence on the amounts in controversy due to the operation of the actuarial assumptions. Because this argument was based on Transamerica’s alleged erroneous reading of the complaint, the Court remarked that the defendant understood the complaint to propose a class of “all Kansas residents who purchased an LTC policy sold by Transamerica or its predecessor PFL,” which was a fair reading of the complaint as that was specifically what the complaint proposed. 

Based on a fair reading of the complaint, the defendant identified the total number of in-force LTC policies owned by Kansas residents as 4,683, and the amount of premium increases, over the lifetime of these specific policies, as $6,441,652. Thus, the court concluded that the defendant established by a preponderance of the evidence the underlying jurisdictional facts that the amount in controversy may exceed $5 million in the aggregate.