# UnitedStates Cou rt of App eals

For the Seventh Circui t Chic ago, I lli nois 60604
Arg ued November 12, 2013 Deci ded December 13, 2013

Before

ILANA DIAM OND ROVNER, Circ uit Judge

DIANE S. S YKES, Circ uit Judge

THOMAS M. DURKI N, District Judge *

Nos. 13-1272 & 13-2366

MAI NHIA THAO, Plaintiff-Appellant,

v.

MIDLAND NATIONAL LIF E INSU RANCE COM PANY, Defen dant-Appellee. Appeals from the Uni ted S tate s Di stric t Court for t he Eastern Di stric t of Wi scons i n.

No. 2:09-cv-01158-LA
Lynn Adelman, Judge

.
O R D E R
Mai Nh i a Thao fi led thi s di ver si ty sui t for breach of contract ag ainst Mi dland National Li fe Insuranc e Company (“Midlan d”), from whi ch s he purchas ed a uni ver sal li fe insu rance poli cy. Thao contends that Midlan d has b reached the ter ms of the poli cy i n calculati ng the monthly cost of i nsu rance charge she i s ass essed: The poli cy states NON PRECEDENTIAL DISPOSITION To be ci ted only i n acc or dance w i th Fed. R. App. P. 32.1

Of the Nor thern Di stric t of Illinoi s, si tting by desi gnation. *Nos. 13-1272 & 13-2366 Page 2

that t he cost of i nsu rance rat e used to calcu late that charge wi ll be “bas ed on” fi ve speci fi ed factors, but i n practi ce Mi dland c onsi ders other unnamed f actor s in arrivi ng at that r ate. The di stric t court gr anted summ ary judgment t o Midland, c oncluding that t he poli cy’s “bas ed on” language did n ot limi t the ins urer t o the five named f actor s in calc ulati ng the cost o f insu rance rat e. Thao v. Midland Nat’l Life In s. Co. , 2013 WL 119871 (E.D. Wi s. Jan . 9, 2013). Along the way t o that judgment, t he court denied Thao’s two motions f or clas s certi fi cati on, R. 46; Thao v. Midland Nat’l Life In s. Co. , 2012 WL 1900114 (E.D. Wi s. May 24, 2012), and separately denied her motion to compel producti on of Midl and’s mortality data and, becaus e i t found Thao’s pursu i t of t he motion lac kin g sub stanti al justi fi cati on, awarded Midlan d i ts fees and c osts i n opposi ng the mot i on, Thao v. Midland Nat’l Life In s. Co. , 2012 WL 2924047 (E.D . Wi s. Ju ly 18, 2012). Thao appeals each of these three r ulings. Wi thout r eaching the class c ert i fi cati on i ssu e, we affi rm.

I.

We turn fi rst t o the mer i ts of Thao’s breach-of- contract clai m. That cl ai m, as w e have not ed, turns on the meani ng of the phrase “based on” as i t is used in the i nsu rance poli cy’s desc ripti on of how Midlan d wi ll calculate the cost of ins urance rate. The pro per constructi on of thatphrase presents a legal questi on as to whi ch our rev i ew i s de novo

. E.g. , Rexam Beverage Can Co. v. Bolger, 620 F.3d 718, 724 (7th Cir. 2010).

Wi scons in law gover ns Thao’s clai m. As the Wi scons i n Supreme Cour t has observe d, “An insu rance poli cy i s a contract and i s interpr eted by t he same rules gov ernin g contr act constructi on.” Blum v. 1st Auto & Cas. Ins. Co. , 786 N.W.2d 78, 83 (Wi s. 2010). A c ourt ’s pri mary o bjective i n construing a contr act i s to dete rmi ne and i mplement the i ntent o f the parties. E.g. , Firem an’s Fu nd Ins. C o. of W is. v. Bradley Corp. , 660 N.W.2d 666, 673 (Wi s. 2003). We m ust gi ve t he poli cy ter ms thei r o rdin ary meaning, e.g. , Tufail v. Midwest Hospitality, LLC, 833 N.W.2d 586, 592 (Wi s. 2013), that i s, the meaning that a r easonable person i n the posi tion of the i nsu red would give to t hose ter ms, e.g. , Schi nne r v. Gundru m , 833 N.W.2d 685, 703 (Wi s. 2013).

Under t he ter ms of the poli cy sold to Thao, she makes a monthly premiu m payment to Midl and whi ch, followi ng a deducti on for pr emi um load, i s deposi ted in to a poli cy fund . Midl and in turn makes a monthly deducti on from t he poli cy fund whi ch i s compri sed of three separat ely-calcu lated charges: (1) an “Expense Amoun t,” (2) the “Cost o f Insu rance,” and (3) a “Ri der Char ge.” Policy § 7.4, R. 1 at 31. It is the w ay inNos. 13-1272 & 13-2366 Page 3

whi ch Mi dland determi nes the sec ond of these charges, the cost o f insu rance, that for ms the basi s for Thao’s breach-of- contract clai m. Section 7.7 of Th ao’s policy pro vides :

COST OF INSUR ANCE RATES – The monthly Cost o f Insu rance Rates ... wi ll

never be more t han those showni n the Table of Gu arantee d Mont hly Cost o f Insurance Rates in the Schedule of Poli cy Benefi ts. We may declare Cost o f Insurance Rates that di ffer from tho se sh own in the Schedule of Poli cy Benefi ts. Cost o f Insu rance Rates are based o n the Issue Age, completed Poli cy Year s, Sex, Speci fi ed Amount, and Premi um Clas s of the Insured.
R. 1 at 32 (emphasi s su ppli ed). Thao interpr ets the language indi cati ng that t he cost of i nsu rance rat es (whi ch of c ourse are used to deter mine the monthly cost o f insu rance charge) wi ll be “bas ed on” the fi ve speci fi ed factors to mean that Midlan d wi ll consi der only t hese fac tor s in determining the cost o f insu rance charge that she w i ll be ass essed. 1 In fact, Mi dland prepares rat e tables that ar e or gani zed aro und these f actor s (these factors defi ne the ro ws an d column s in the tables), and in thi s way the spec i fi ed factors are used to det ermin e whi ch rate inthe re levant t able wi ll be us ed for a par ticular i nsu red. But the rate s themselves—the num bers i n each c ell of a table—are der i ved from computer models that M i dland’s ac tuaries u se to ev aluate the antic i pated costs and ri sks ass oci ated wi th the polici es that Midland offers; and these models are based

on a var i ety of factors ot her than the five factors named in sec tion 7.7 w hi ch affect both the in tended perfor manc e of a part i cular type o f poli cy as wellas Mi dland’s ab i li ty t o
cover i ts costs and to make a pro fi t. These fac tor s inclu de (a) the goals of a part i cular type o f poli cy (accumu lation of c ash value, for example); (b) esti mates of future condi tions or event s, inclu di ng the dis tr ibuti on of in sureds b y age at the t i me of poli cy i ssu e and underwri tin g class, the timing and amount of premi um payments, return on Midl and’s investments, reserv e requirements, c api tal re qui rements, lapse rates, surrender r ates at different po li cy durations, taxes, admini strat i ve costs, and ove rhead costs; and ( c) inputs s peci fi ed by Midlan d to cov er such c osts as sal es comm i ssi on rat es. Adjustments are also made, as various m odels are r un, to account for Midland’s profit goals and for t he market competi tiveness of rat es in partic ular cells of a table. Thao contends that this process amounts to a violati on of the po li cy’s “bas ed on” language,

There i s no su gge sti on that t he rate s as c alcul ated ex ceed those set fort h in the 1 Table of Gu arantee d Mont hly Cost o f Insu rance Rates in clud ed i n the Schedule of Poli cy Benefi ts.Nos. 13-1272 & 13-2366 Page 4

becau se in fac t Midland i s bas i ng the cost o f insu rance rat e on factor s other t han those i denti fi ed i n the policy.

Our o pini on to day in Norem v. Lin coln Ben efit Lif e Co. , No. 12-1816, sli p op. (7th Ci r. Dec. 13, 2013), resolves this i ssu e. Norem , whi ch involv es poli cy language mater i ally i denti cal to thatfound in Mi dland’s poli cy, holds that when the poli cy says that the monthly cost of ins urance rate wil l be “bas ed on” speci fi ed factors, i t does not mean that t he rate wi ll be bas ed exclusi vely on those factor s. Norem , sli p op at 7-8, 9-10, 12-13. Rather , i t si gni fi es that the named factors wi ll have a si gni fi cant, foundati onal ro le i n deter mining the r ate. Id. at 7-8. And, i n fac t, they do. As menti oned, i t is these factors 2

aro und whi ch the rate t ables that Mid land prepares are o rg ani zed and i t is these factors whi ch i denti fy the part i cular rate in a table that wi ll apply to an ind i vidu al i nsu red. Put another way, i t is these named fac tor s wh i ch s erv e to both di fferentiate one i nsu red from anot her and i nsu re t hat si mi larly situated insu reds wi ll be treat ed ali ke in the amounts they are charged for the cost of in surance. By contrast, the o ther, unid entifi ed factors that M i dland c onsi ders i n settin g the cost o f insu rance rat e have less to do with the characteristi cs of the indi vidu al i nsu red and muchmore t o do with the broader financi al ris ks, perfor manc e, and goals of Midlan d’s bu siness as a for-profit li fe i nsu rance company and w i th the t ype of policy the i nsu red has chosen. Wh en the policy states that t he rate used to calcu late the cost o f insu rance charge that wi ll be ass essed to the in sured wi ll be bas ed on the fi ve speci fi ed factors, i t ther efore accurately describes the way inwhi ch these nam ed factors are e ssen tial in determining a part i cular insu red’s cost of i nsu rance rat e.

We add that t hi s non-exclu si ve understandin g of the ter m “bas ed on” i s consi stent wi th secti on 7.8 of the M i dland poli cy.

DECLARED RATE S AND CHAR GES – We may declare Cost o f Insurance Rates, Expense Amount, Premium Loads an d Inter est Rates that differ fro m those stated inthe Poli cy. Changes in the Cost o f Insurance Rates, Expense Amount, Premium Loads, an d Inter est Rates wi ll be bas ed upon chan ges i n future expectations for such elements as i nvestment ear nings, mortality, per si stency, and expenses. Ch anges in

Although Norem appli es Illinoi s lawin construing the policy language, there is 2 no mater i al di fference between Wi scons i n law an d Illi noi s lawas to the basi c rules of contract interpre tation.Nos. 13-1272 & 13-2366 Page 5

the declared Cost o f Insu rance Rates and Expense Amount wi ll vary by the Issue Age, Poli cy Anni ver sary, S ex, S peci fi ed Amount, and Premi um Class of the Insu red.

R. 1 at 32. Thi s language, beyond confi rmi ng Midlan d’s authority to change the cost of i nsu rance rat e, reinf or ces the points we have been making about the r ole of t he speci fi ed factors. By nami ng some of the ot her factor s that changes in the cost of i nsu rance rat e wi ll be “bas ed upon,” sec tion 7.8 makes c lear t hat the factor s i denti fi ed i n secti on 7.7 are no t the sole factor s that affect calculati on of the cost o f insu rance rat e. At the same ti me, sec tion 7.8, in stati ng that changes i n the cost of i nsu rance rat e wi ll vary wi th such fac tor s as the i ssu e age, sex, po li cy amount, and premi um c lass of the i nsu red, r ei nforces the way in whi ch the fac tor s that di fferentiate one i nsu red fro m another play a deter minati ve r ole inquanti fyi ng costs for an indi vidu al i nsu red.

In short, t he di stric t court proper ly gr anted summ ary judgment t o Midland on Thao’s breach of c ontr act clai m. For all of the reasons set for th i n Norem and that we have added here, t he poli cy language di d not lim i t Midland’s calc ulati on of the cost o f i nsu rance rat e to the factor s expressly i denti fi ed i n sec tion 7.7. To the exte nt that Thao challen ges the dis tr i ct court’s deni al of leave t o amend her complaint i n order to r e-cas t her breach of contr act clai m, the challen ge necessari ly fai ls, as any amendment would have been futi le.

II.

Thao has als o challenged the di stric t court ’s refusal to certify a clas s. In i ts opin i on denyin g the second of Thao’s two motions for classcertifi cati on, the court acknowledged that t here was a legal questi on common to all putative class members—the meaning of the po li cy’s “bas ed on” language—but nonetheless conclu ded that Thao did not hav e a clai m that was c ommon to all class m embers. The court not ed that alt hough Thao’s theor y of how the cost o f insu rance rat e should b e calc ulated would lower rat es for policyholder s in ini tial p olicy ye ars, i t would potent i ally raise them f or poli cyholders i n later y ears; and many poli cyholders mi ght prefer t o pay higher rat es in early y ears i n exchange for lo wer rat es later in thei r lives. Consequently, “the class that Thao seeks to r epresent doe s not compris e policyholder s wi th a common grievance agai nst Mi dland.” 2012 WL 1900114, at *10.
Although Thao has appealed the di stric t court ’s adverse class- certifi cati on deci si on, we ass ume that she intended her appeal on this poin t to be condi tional on herNos. 13-1272 & 13-2366 Page 6

suc cess on the merits of her breach of contract clai m. Becau se Thao has lost on the merits, rever sal of the di stric t court ’s clas s certi fi cati on deci si on would only work to t he di sadvantage o f other clas s members. For i ts part, M i dland has expr essed n o in ter est i n clas s certi fi cati on and i nstead has d efended the di stric t court ’s deci si on not t o cert i fy a clas s. Th e i ssu e of class certifi cati on i s therefor e moot for all in tents and purposes, and we need not address i t. See Bren gettsy v. LTV Steel (Repu blic) Hourly Pen sion Plan , 241 F.3d 609, 612 (7th Cir. 2001) ( ci tin g Aiello v. Providian Fin . Corp. , 239 F.3d 876, 881 (7th Ci r. 2001), and Amati v. City of W oodstock , 176 F.3d 952, 957 (7th Cir. 1999))

.
III.

Fin ally, we turn to the di stric t court ’s deni al of Thao’s moti on to compel and the i mposi tion of san cti ons pursuan t to Feder al Rule of Ci vil P ro cedure 37(a)( 5)(B) . As we have not ed, Thao sought to compel Mi dland to pro duce two categor i es of docum ents: (a) those reflecti ng Midlan d’s mortality expectat i ons, whi ch i t used in calculating cost of i nsu rance rat es; and (b) those sh owi ng Midlan d’s actual, h i stor i cal mortality exper i ence. The di stric t court deni ed the motion to compel, re asoning as to t he fi rst categ or y that Midl and had, as i t contended, alre ady pro duced to Thao i ts mort ali ty e xpectations, 2012 WL 2924047, at *1, and reasoning as to the second categor y that Midl and’s hi stor i cal mort ali ty e xper i ence was i rr elevant t o the iss ues rai sed in the case and was u nli kely t o lead to t he di scovery of any mater i al evidenc e, id. , at *2. Because the court found Thao’s motion to compel was n ot substanti ally justifi ed, i t or dered Thao to compens ate Midl and for the costs i t had i ncu rr ed i n opposi ng the mot i on, i nclu di ng i ts atto rney fees. Id. We rev i ew both the deni al of the motion to compel and the deci si on to i mpose Rule 37 sanc tions for abuse of di screti on. See Scott v. Chuhak & Tecson, P.C. , 725 F.3d 772, 784 (7th Ci r. 2013) (deni al of motion to compel); Wellness In t’l Network, Ltd. v. Sharif , 727 F.3d 751, 778-79 (7th Ci r. 2013) (Rule 37 sanc tions )(c i tin g, inter alia , Nat’l Hockey League v. Metro . Hockey Club, Inc. , 427 U.S. 639, 642, 96 S . Ct. 2778, 2780 (1976)).

The di stric t court di d not abuse i ts di screti on here. WhatThao prin ci pally sought by way of her mot i on to compel was documentati on reflecting Mi dland’s es tim ates of future death rat es among particu lar gr oups of people ov er a g i ven per i od of time; these esti mated death rat es are re ferre d to as pricing-mort ali ty r ates. These rates naturally play a ro le i n Mi dland’s c alcul ation of the cost of i nsu rance rat e. As Thao construed the li fe insu rance poli cy, the mor tality esti mates, as c or relat ed wi th the factor s nam ed i n secti on 7.7, should exclus i vely deter mine the cost of in surance charge. S he wanted Midl and to pr oduce i ts mort ali ty e sti mates for purposes of showing that if these esti mates were used to the ex clus i on of ot her, unnamed f actor s in determining the costNos. 13-1272 & 13-2366 Page 7

of i nsu rance rat e, the r ate charge d to po li cyholders would be lower. The di stric t court di d not dis pute the r elevance of the estimates f or thi s purpose, bu t in stead conclu ded that M i dland had al ready produced them to Thao. Thao’s counsel as serted t hat they had not been produced, ci tin g the dis tr i ct court’s ear li er o bservation that a column of fi gures labeled “Pri cing Mo rt ali ty,” fo und in a set of Excel “COI S olve r” spreadsheets that M i dland’s ac tuaries u sed to dete rmi ne the cost of in surance rates resembled bu t di d not match Midl and’s ac tual morality expectat i ons; to t hat ext ent, the label i n the spreadsheets was mi sleading. See 2012 WL 1900114, at *6 & n.7. Howeve r, t he court found that Midlan d had separately pr oduced, in addi tion to these spreadsheets, tables contai ning the company’s actual pri cing-mort ali ty r ates—i n other words, rat es reflectin g its true mort ali ty e xpectations. Th ao’s contention that Midland h ad not produced i ts mort ali ty e sti mates thus w as “bas ed on either a mi sun derstandi ng or a deliberate distort i on of the r ecord.” 2012 WL 2924047, at * 1.
Thao’s appeal fai ls to address the di sti ncti on that bo th Midlan d and the di stric t court dr ew between the spreadsheets, whi ch adm i tte dly di d not contain Mi dland’s actual mortality estim ates, and the pric i ng-mort ali ty t ables whi ch di d contai n those esti mates. She si mply i nvok es, as s he di d below, the di stric t court ’s observat i on that t he columnlabeled “pri cing mort ali ty” in the spreadsheets di d not actually r eflect Midl and’s mortality esti mates. Thi s does not answer Mi dland’s representation that, separately from the spreadsheets, i t had already produced i ts actual mortality estim ates, nor do es i t demonstrat e err or i n the di stric t court ’s finding that t he esti mates had been produced. Thao therefo re g i ves us no reason to di sturb the deci si on to deny her mot i on to compel.

As we have noted, Thao also asked the court to compel Midland to produce i ts hi stor i cal mortality data. Thao has not meani ngfully addressed the di stric t court ’s finding that t hese data were i rr elevant t o the clai m sh e was m akin g in thi s cas e. She has there fore g i ven us no reason to questi on the court ’s rationale in thi s regar d. Nor has she demonstrate d that her motion was “‘justifi ed to a deg ree t hat would sati sfy a reasonable person,’” such that the di stric t court clearly er red when i t im posed Rule 37 sanc tions

. See Un ited States v. Pecore, 664 F.3d 1125, 1137 (7th Cir. 2011) ( quoting Pierce v. Underwood, 487 U.S. 552, 565, 108 S . Ct. 2541, 2550 (1988)).

For the sake of completeness, we note that apar t fro m her challenge to the i mposi tion of Rule 37 s ancti ons, Thao has not challenged the amount of t he costs and fees that the court ulti mately awarded t o Midland. B ecaus e we find no abus e ofNos. 13-1272 & 13-2366 Page 8

di screti on i n the di stric t court ’s deci si on to i mpose san cti ons, the award ther efore stands.

IV.

For the for ego i ng reasons, we AFF IRM the gr ant of summ ary judgment t o defendant-appell ee Midlan d, the deni al of plainti ff- appellant Thao’s moti on to compel, and the i mposi tion of Rule 37 s ancti ons against Thao for pursuing the mot i on to compel.