Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04517/USCOURTS-cand-3_06-cv-04517-2/pdf.json

Parties Involved:
Unum Life Insurance Company of America
Defendant
Unumprovident Corporation
Defendant
Randall M. West
Plaintiff

Document Text:

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 Plaintiff attached copies of the policies as exhibits to the operative complaint. For

convenience, this order cites the policies attached to defendants’ motion because those exhibits are

Bates-stamped.

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States District C

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For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RANDALL M. WEST, D.O.,

Plaintiffs,

 v.

UNUMPROVIDENT CORPORATION, et al.,

Defendants.

 /

No. C 06-4517 SI

ORDER GRANTING DEFENDANTS’

MOTION TO DISMISS FIFTH, SIXTH

AND SEVENTH CAUSES OF ACTION

Defendants have filed a motion to dismiss plaintiff’s fifth, sixth and seventh causes of action.

Pursuant to Civil Local Rule 7-1(b), the Court has determined that the matter is appropriate for

resolution without oral argument. For the reasons set forth below, the Court GRANTS defendants’

motion.

BACKGROUND

Plaintiff Randall M. West purchased two long term disability policies from defendant Unum Life

Insurance Company of America (“Unum”) in 1994. See Second Amended Complaint (“SAC”) ¶ 26.

Each policy provides for a Maximum Disability Benefit of $5,000 per month. See Def’s Motion, Ex.

A at 3, 22.1 The policies allowed for, but plaintiff did not purchase, an optional “Benefit Indexing

Provision,” which would increase the Maximum Disability Benefit on an annual basis to keep up with

inflation. The policies also allowed for, and plaintiff did purchase, a Cost of Living Adjustment

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(“COLA”) rider for each policy, for which he paid an additional premium. SAC ¶¶ 88, 91. The COLA

riders became effective on the same day the policies went into effect in April and May 1994. Id. ¶¶ 89,

91; Def’s Motion, Ex. A at 14, 33. 

In 2001, plaintiff suffered injuries to his knee and shoulder, and he underwent multiple surgeries

in 2001 and 2002. SAC ¶¶ 30-32. Plaintiff filed an application for disability benefits, and began

receiving benefits in March 2001. Id. ¶ 33. On the one year anniversary of his disability, plaintiff

received his COLA benefits on both policies. Id. ¶ 90. 

 Plaintiff alleges, on behalf of himself and a class of individuals who purchased “own-occupation

disability income policies containing [COLA riders] in the state of California” that defendants were

required to begin making automatic cost of living adjustments to the Maximum Disability Benefit

immediately after the COLA riders went into effect, rather than on the one year anniversary of disability.

Plaintiff has alleged class claims for intentional/fraudulent and negligent misrepresentation (fifth cause

of action); breach of the covenant of good faith and fair dealing, insurance bad faith (sixth cause of

action); and breach of contract (seventh cause of action). Defendants have moved to dismiss these

claims. Plaintiff also alleges four individual claims that are not the subject of the instant motion.

 

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it

fails to state a claim upon which relief can be granted. The question presented by a motion to dismiss

is not whether the plaintiff will prevail in the action, but whether the plaintiff is entitled to offer evidence

in support of the claim. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds

by Davis v. Scherer, 468 U.S. 183 (1984). However, “conclusory allegations of law and unwarranted

inferences are insufficient to defeat a motion to dismiss.” Simpson v. AOL Time Warner, 355 F.3d 1179,

1183 (9th Cir. 2006). In reviewing a motion to dismiss, a court may consider certain materials, such as

documents attached to the complaint, without converting the motion to dismiss into a motion for

summary judgment. See United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

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 Plaintiff also asserts that the Court is limited to reviewing the allegations in plaintiff’s

complaint, and that plaintiff’s allegations state a claim. However, plaintiff attached the policies to the

complaint, and thus the Court may consider those documents in connection with defendants’ motion.

See Ritchie, 342 F.3d at 908; see also Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.

2001). Moreover, defendants’ motion presents a pure question of law regarding contract interpretation,

and thus is appropriate for adjudication.

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DISCUSSION

Defendants contend that plaintiff’s fifth, sixth and seventh causes of action fail as a matter of law

because plaintiff’s interpretation of the COLA riders is contradicted by the plain language of the COLA

riders. The COLA riders provide:

COST OF LIVING ADJUSTMENT

On each anniversary of the first date of a period of disability which began while this rider

was in effect, we will increase the Maximum Disability Benefit by multiplying the

Maximum Disability Benefit in effect on the first day of the disability by the CPI-U

factor to determine the new Maximum Disability Benefit if:

1. you are disabled;

2. the disability is caused by an injury that occurs, or a sickness that begins, after

this rider became effective; and

3. the policy anniversary when your age is 65 has not occurred.

Def’s Motion, Ex. A at 14 & 33. The CPI-U factor is defined as “during each year of disability, the ratio

of the Current Index to the Base Index,” subject to certain maximum limitations. Id. “Base Index” is

defined as “the last CPI-U index published in the calendar year before disability begins,” and “Current

Index” is defined as “the last CPI-U index published in the calendar year before each payment is made.”

Id. 

Defendants contend that the COLA riders provide that it is a claimant’s disability and the

commencement of disability benefits that trigger application of the cost of living adjustment, and that

the amount of the cost of living adjustment is tied to the CPI-U indices that are in effect once a claimant

becomes disabled and in the year immediately prior thereto. Plaintiff, in contrast, contends that because

the COLA riders became “effective” on the same date that his policies went into effect, he was entitled

to begin receiving cost of living adjustments to the Maximum Disability Benefit available under his

policies immediately upon his purchase of the policies in April and May 1994.2 Plaintiff’s fifth, sixth

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 The “Benefit Indexing Provision” states, inter alia, “On each annual review date until the

policy anniversary when your age is 55, you will automatically have the opportunity to increase the

Maximum Disability Benefit by the Indexed Amount provided that you are not then disabled and you

have not refused the opportunity to increase your coverage in two consecutive years.” Id. at 10, 29. The

“Indexed Amount” is defined as a percent change in the CPI-U in the previous two years, or a percentage

of the current Maximum Disability Benefit. Id.

4

 In a footnote, defendants state that a preliminary issue in this case is whether California or

Washington law should apply to plaintiff’s claims and the construction of the COLA riders, in light of

the fact that plaintiff purchased the policies in Washington and then moved to California and began

receiving benefits. For purposes of the motion, however, “[d]efendants assume that California law and

Washington law regarding the interpretation of contracts are materially similar, and therefore cite to

California law for the sake of convenience.” Def’s Motion at 6 n.3. Plaintiff’s opposition does not

specifically address the choice of law issue, and also cites California law. Accordingly, for purposes of

the instant motion, the Court applies California law regarding the interpretation of contracts. The Court

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and seventh causes of action are all based upon this interpretation of the COLA riders. See SAC ¶¶ 89-

91 (misrepresentation); ¶¶ 100-04 (bad faith); ¶¶ 110-14 (breach of contract).

The Court concludes that defendants’ interpretation of the COLA riders is correct. The COLA

riders state that the Maximum Disability Benefit will be increased “[o]n each anniversary of the first date

of a period of disability which began while this rider was in effect.” Id. Thus, the plain language of the

COLA riders provide that adjustments will begin only after the claimant becomes disabled. Plaintiff’s

assertion that the cost of living adjustments should have been applied at the time the riders became

“effective” is flatly contradicted by the COLA riders, and indeed, plaintiff does not cite any language

in the riders or the policies in support of his interpretation. 

The “Benefit Indexing Provision” of the policies provides further support for defendants’

interpretation of the COLA riders. That provision allows insureds to purchase, prior to their disability

and for an additional premium, increases to the Maximum Disability Benefit on an annual basis to keep

up with inflation. See Def’s Motion, Ex. A at 10, 29.3 Plaintiff’s interpretation of the COLA riders

would render the Benefit Indexing Provision duplicative: insureds would have no need to avail

themselves of this provision to increase the Maximum Disability Benefit if the cost of living adjustments

were automatically applied upon purchase of a COLA rider. See Boghos v. Certain Underwriters at

Lloyd’s of London, 36 Cal. 4th 1415, 1421 (1996) (noting the general rule of contract interpretation

which “disfavor[s] constructions of contractual provisions that would render other provisions

surplusage”).4

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28 makes no finding regarding which law should apply to the balance of plaintiff’s claims.

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Plaintiff contends that various provisions of the COLA riders would be superfluous under

defendants’ interpretation. Plaintiff cites language providing that “[t]he adjusted Maximum Disability

Benefit can not exceed two times the Maximum Disability Benefit which was in effect on the first day

of that period of disability,” id. at 14 and 33, and argues that “[i]f, as defendants assert, the COLA will

not adjust the $10,000.00 Benefit until the insured is first disabled, the Maximum Disability Benefit ‘in

effect on the first day of that period of disability’ will always be the same, i.e. $10,000.00.” Pl’s Oppo.

at 4 (quoting rider language). However, as defendants correctly note, plaintiff’s argument ignores the

Benefit Indexing Provision, which allows an insured to increase the Maximum Disability Benefit at the

annual renewal of a policy. Contrary to plaintiff’s assertions, the Maximum Disability Benefit need not

“always be the same,” and thus the language “in effect on the first day of that period of disability” is not

superfluous. 

Plaintiff also contends that defendants’ interpretation would render superfluous the “Right to

Purchase Increases” provision of the COLA riders, which follows the “Cost of Living Adjustment”

provision. The “Right to Purchase Increases” provision states;

While this rider is in effect, you may purchase additional coverage if:

1. the Maximum Disability Benefit has been adjusted as provided above;

2. you are not disabled;

3. you are able to work full time in your regular occupation; and

4. you apply within 90 days after the disability ceases and before the policy

anniversary when your age is 60.

Def’s Motion, Ex. A at 15, 34. The provision further provides that “[t]he maximum amount of additional

coverage will be the difference between the Maximum Disability Benefit as increased by the Cost of

Living Adjustment when the disability ended and the Maximum Disability Benefit in effect when the

disability began.” Id. Plaintiff argues that under defendants’ interpretation, there will never be a time

when an insured is both not disabled and the Maximum Disability Benefit will have been adjusted.

Plaintiff’s contention lacks merit. The COLA riders state that the Maximum Disability Benefit

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for a disabled insured is automatically adjusted “on each anniversary of the first date of a period of

disability which began while this rider was in effect.” Id. at 14, 33. The “Right to Purchase Increases”

provision applies (1) after an insured has become disabled and received cost of living adjustments as set

forth in the “Cost of Living Adjustment” provision of the rider; (2) the insured is no longer disabled; (3)

the insured is able to work full time in his or her regular occupation; and (4) the insured meets other

timeliness and age requirements. 

In sum, the fifth, sixth and seventh causes of action are all based on the same flawed

interpretation of the COLA riders. Plaintiff could not cure these deficiencies by amendment, and indeed

plaintiff does not request leave to amend. Accordingly, the Court GRANTS defendants’ motion to

dismiss these claims without leave to amend.

CONCLUSION

For the foregoing reasons, the Court hereby GRANTS defendants’ motion to dismiss plaintiffs’

fifth, sixth and seventh causes of action without leave amend. (Docket No. 11).

IT IS SO ORDERED.

Dated: January 8, 2007 

SUSAN ILLSTON

United States District Judge

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