Armour v. Transamerica Life Ins. Co., No. 11-2034-KHV, 2011 WL 1699281 (D. Kan. May 4, 2011).
A District Court in Kansas held that under a fair reading of the complaint, a defendant may establish the amount in controversy by relying on calculations based on allegations in the complaint, as well as plaintiff’s informal estimates of the amount at issue.
The plaintiff brought a putative class action in state court asserting claims for negligence, fraud, negligent misrepresentations, breach of duty of good faith and fair dealing, breach of contract and unjust enrichment against the defendant, Transamerica Life Insurance Company. You know, the people with the pointy building in San Francisco.
The plaintiff and putative class members purchased and renewed Long-Term Care (“LTC”) insurance policies from the defendant. The petition defined the class as “all Kansas residents who purchased an LTC policy sold by Transamerica or its predecessor PFL.” The plaintiff contended that when the defendant sold the policies, it knew that the premiums were based on actuarial defects and that it planned to shift the cost of these defects to the policyholders by raising premiums.
The petition stated that it sought damages only for premium increases due to a “known actuarial defect,” which means “an unreasonable actuarial assumption” that defendant relied on to “increase premium rates.” The petition stated that the total amount of increases in premiums on the LTC policies at issue in this lawsuit was $6,441,652, and that the total amount of increases in premiums on the LTC policies at issue in this lawsuit was approximately $2.5 million–the amount of premium increases that the plaintiff alleged were attributable to the known actuarial defects.
The defendant removed the case to the federal court under CAFA. The plaintiff moved to remand, which the District Court denied.
The defendant, producing the affidavit of its Senior Vice President and Chief Actuary argued that the plaintiff’s purported limitation of damages to $2.5 million was no limitation at all, and that it put more than $33 million of premium increases in play. The Notice of removal stated that Kansas residents owned, a total of 4,407 LTC policies issued by the defendant, and as of December 31, 2010, the defendant had collected $33,656,813 attributable to rate increases, and that as of December 31, 2009, the Kansas Department of Insurance (“DOI”) had approved premium rate increases of approximately $6,441,652 per year on the LTC policies in question.
The Court observed that fair reading showed that the petition claimed damages for relevant premium increases, i.e. increases due to known actuarial defects over the life of the policies in question, not just the increases from a single year. The petition alleged that the “total amount of increases in premiums on the LTC policies at issue in this lawsuit was $6,441,652.” No other allegation confined the plaintiff’s damages to premium increases in just one year. Thus, the question before the Court was how much of the total premium increases the petition put at issue.
The defendant contended that the petition put at issue all premium increases on the LTC policies at issue– more than $33 million.
The plaintiff disagreed and argued that because the petition was limited to premium increases due to known actuarial defects, it put at issue only $2.5 million. The plaintiff asserted that “any adult reasonably well-acquainted with the English language sharing defendant’s views should turn in their (sic) literacy card and enroll in an elementary English reading class.”
Disagreeing with the plaintiffs, the Court suggested that “any lawyer who engages in such rhetoric should turn in his or her bar card and enroll in charm school.”
The Court remarked that the plaintiff was “attempting to have it both ways” by pleading an amount below the requisite amount in controversy while leaving the door open for the class to seek damages above the jurisdictional amount. Even though the plaintiff limited his claims to damages for premium increases attributable to known actuarial defects, the petition left open the opportunity for plaintiff to assert that all premium increases were due to known actuarial defects. Thus, the Court concluded that the plaintiff’s purported limitation on the amount at issue was no limitation at all.
The Court found that the two statements in the petition were telling. First, the petition stated that “this class action lawsuit expressly excludes those portions, if any, of a premium increase arising from sound actuarial principles, including the actuarial impact of inflation,” and second, there “may be other reasons for increasing premium rates” — reasons unrelated to known actuarial defects. The petition did not rule out the fact that all the premium increases related to the policies at issue were due to known actuarial defects. The only concrete example that the plaintiff gave of a “legitimate and supportable” basis for increasing premiums was inflation, but it was unclear whether inflation was included in the $33 million amount or how much of the increases were due to inflation. Thus, petition was fairly read as placing all premium increases at issue, and the defendant had established them to be greater than $33 million.
The Court remarked that even if the defendant’s position required an overly technical reading of the petition and placed too much emphasis on the two provisions discussed above, the defendant asserted an alternative fair reading of the petition. The Court stated that a defendant may establish the amount in controversy by relying on calculations based on allegations in the petition as well as plaintiff’s informal estimates of the amount at issue. The defendant noted that the plaintiff based his estimation of damages on the annual amount of premium increases on the LTC policies at issue, not the total amount. The Court found that in light of the defendant’s evidence, this was a fair reading of the petition.
Specifically, petition first alleged that the total amount of premium increases on the LTC policies at issue was $6,441,652. It then alleged that the total amount of increases in premiums on the LTC policies at issue was approximately $2.5 million. To calculate the $2.5 million, the plaintiff presumably estimated that a portion of the total premium increases were “legitimate and supportable,” and then subtracted those increases from $6,441,652.
According to the plaintiff’s calculations, it estimated that roughly 38.81 per cent of the total premium increases were due to known actuarial defects. The defendant’s declaration, however, established that the total amount of premium increases on the LTC policies at issue was $33,656,813– not $6,441,652. The $6,441,652 figure which the plaintiff used is the amount of premium increases attributable to the policies at issue each year.
As the petition fairly placed at issue the relevant premium increases over the life of the policies at issue–not just the single-year amount, the Court found that even if the plaintiff was correct and his petition placed at issue only 38.81 per cent of the total premium increases, the amount at issue would still be $13,062,182, which is clearly greater than the $5 million jurisdictional threshold under CAFA.
Accordingly, the Court concluded that based on a fair reading of the petition, the defendant had established that the aggregate amount in controversy may exceed $5 million, and thus denied the motion to remand.