2008 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 3-11-2008 

# Al vare z v . Ins C o of N Ame r P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 07-1102

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2008

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

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w . vi ll anova . e du . Re c omme nde d C it at ion " Alvar ez v . In s C o of N Ame r " (2008). 2008 D e cisio n s . P ape r 1460. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2008/1460NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT N o. 07- 1102 RO BE RT AL VAR E Z , I NDI VI DUAL L Y, AND ON BEHALF OF AL L OT HERS S I M I L AR L Y S I T UAT E D, A ppel l ant

v. I NS UR ANC E CO M P ANY OF NOR T H AMER I CA ; CI GNA CORP ORATI ON, d /b / a CI GNA GROUP I NSURANCE APP EAL F ROM THE UNI TE D ST ATE S DI S TRI CT C OURT F O R T H E E A S T E R N D IS T R IC T O F P E N N S Y L V A N IA

( D . C . C i vi l N o. 06- cv- 04326) D istric t Ju d g e : T h e H o n o ra b le S tew a rt D a lze ll Subm i t t ed U nderT hi r d C i r cui tL A R 34. 1( a)

J anuary14, 2008 B efor e: B A R R Y , C H A G A R E S and R O T H , C i r cui tJ udges

( Fi l ed: M ar ch 11, 2008 ) OP I NI ONC I G N A fi l ed a mot i on t o quas h t he s um m ons on the gr ounds thati ti s notan i ns ur ance 1 companyand had no s t ake i n t he pol i cy . T he D i s tr i ctC ourtdeni ed the mot i on as m oot a f te r d is m is s in g A lv a re z ’s c o m p la in t. W e w ill r e f e r o n ly to IN A a s th e in s u re r. 2 B A R R Y , C i r cui tJ udge A ppel l ant , R obertA l var ez, appea l s the D ece m ber12, 2006 or derof the D i s tr i ct C o u rt d is m is s in g h is c o m p la in t. W e w ill a f f ir m . I. A l var ez pur chas ed, eff

ect i ve A pr i l 1, 1992, l ong t erm car e ( “LT C ”) i ns ur ance fr om the I ns ur ance C om panyof N or th A m er i ca ( “I N A ”) , a s ubs i di aryof C I G N A C orpor at i on ( “C I G N A ”) , w hi ch had be en s el l i ng L T C i ns ur ance s i nce 1988. U nderthe mast erpol i cy 1 i ssued byIN A , “[p]rem i um s ar e subjectt o ch ang e atanyt i m e aft er paym ent of the fir st pr emi um ” and, i n addi t i on t o s t at e ar ea r at i ng cl as s i fi cat i ons , “[r ] at es ar e bas ed on at t ai ned age o n d at e of is sue and this base do es not chang e w i th ag e. ” (A pp . 89 . ) A s a r es ul t , the pr emi um s varyfr om i ndi vi dual t o i ndi vi dual . A r i dert o the mast erpol i cy i ncl udes a pr ovi s i on w i th t he hea di ng, “G uar ant eed Renew abl e, ” w hi ch pr ovi des that

“ [ a ]n in su re d ’s c o v e ra g e w ill a u to m a tica llyb e re n e w e d p ro v id e d th e re q u ire d p re m iu m is pai d and bene fi t s have notbeen e xhaus t ed. ” ( A pp. 106. ) Pr i ort o the t i m e w hen A l var ez pur chas ed hi s pol i cy , he r ece i ved pr om ot i onal m at er i al s , w hi ch pr ovi ded, [y ] ourcover age w i l l s t ayi n eff ectas l ong as y ou cont i nue t o pay pr emi um s . T he C om panycannott erm i nat e y ourcover age f oranyother r eas on. Y ourpr emi um s ar e bas ed on y ourage a tthe t i m e of pur chas e and w i l l no tbe ad

j ust ed u nles s the C om pan yi ncreases r at es for the clas s as a gr oup.Si m i l ars t at ement s aboutpr emi um i ncr eas es and des cr i pt i ons of the G uar ant eed 2 R e n e w a b le p ro v is io n a re a ls o f o u n d o n A lv a re z ’s a p p lic a tio n f o rm a n d c e rt if

ic a te . T hi s i s an 80% i ncr eas e. I N A poi nt s outthatthi s i s an ave r age a nnual i ncr eas e of 3 5. 02 % on a com po un d b asi s over the tw el ve y ear peri od pri or t o the i ncrease. IN A al so in d ic a te d th a t it in te n d e d to in c re a s e th e p re m iu m b ya n o th e r 8 0 % in th e n e x t tw o y e a rs . T hi s act i on w as or i gi nal l ybr oughti n the U ni t ed St at es D i s tr i ctC our tforthe D i s tr i ctof 4 C ol um bi a and, on A ugus t21, 2006, w as tr ans ferr ed t o the East ern D i s tr i ctof P e n n s y lv a n ia . 3 (A p p . 1 2 2 .) T h e p ro m o tio n a l m a te ri a ls d e s c ri b e d IN A a s “ ra te d ‘A ’ ( E x c e lle n t) b yA .M .

2 B est, an ind ep en d en t i n su ran ce rati n g serv ice.” (A p p . 1 2 5 . ) L a t e ri n 1 9 9 2 , I NA c e a s e d wr i t i n g c o v e r a g e u n d e rth e ma s t e rp o l i c y , a n a c tk n o wn as “ clos ing the b lock , ” thu s ca p p ing the p o o l of insu red s fro m w h ich to su p p o rtfu ture c laim s. A lv a re z ’s 1 9 9 2 a n n u a l p re m iu m w a s $ 1 ,1 8 8 , an d w a s ra ise d f o r th e f irst tim e in 2004, i ncr eas i ng t o $2, 138. 3 A l var ez f

i l ed cl ai m s foractual fr aud, cons truct i ve fr aud, unl aw ful tr ade pr act i ces u n d er the D istri ct of

C o lum b ia’s C o n su m er P rotec ti o n P roc ed u re A ct (“D C C P P A ”), br eac h of the i m pl i ed cove nantof good fa i th and fa i rdeal i ng, and puni t i ve damages on b e h a l f o f h i ms e l f a n d a c l a s s o f

o th e rp u r c h a s e r s o f

L T C i n s u r a n c e u n d e rwr i t t e n b yI NA. 4 T he D i stri ctC ou rtdis m i ssed the co ntr actand pu nit i ve d am age clai m s becau se there w as a cl earcontr actual r i ghtt o r ai s e pr emi um s , and bec aus e I N A coul d notvi ol at e an i m pl i ed covena ntbyexer ci s i ng an expl i ci t l yr es erved r i ght . A ft err eques t i ng s uppl ement al b rie f in g o n th e iss u e o f

w h e th e r IN A h a d a d u tyu n d e r D istric t o f C o lu m b ia la w to d i s c l o s e f

u tu r e p r e mi u m i n c r e a s e s , th e Co u r td i s mi s s e d th e f r a u d c l a i m, f

i n d i n g th a tI NA4

had no s uch duty . T he C our tr ej ect ed A l var ez’ s cl ai m of cons truct i ve fr aud bec aus e no re latio n sh ip o f

tru st o r c o n f

id e n c e e x iste d b e tw e e n th e p a rties a t th e tim e IN A a lleg e d ly fr audul ent l yi nduced A l var ez t o ent eri nt o the r el at i ons hi p. Fi nal l y , the C our tdi s m i s s ed A l var ez’ s cl ai m underthe D C C PPA beca us e the s ame l egal s t andar d thatappl i ed t o the f ra u d c la im a p p lie d to it. II. T h e D i s tr i c tC o u r te x e r c i s e d j u r i s d i c t i o n p u r s u a n tt o 2 8 U . S . C . § 1 3 3 2 ( d ) . We e x e rc ise a p p e llate ju risd ictio n p u rsu a n t to 2 8 U .S .C . § 1 2 9 1 . O u r re v iew o f a m o tio n to dis m i ss i s pl enary . S and s v. M cC orm i ck, 50 2 F . 3d 26 3, 26 7 (3d C i r. 20 07 ). W e m ust acc eptas true al l al l egat i ons of the compl ai ntand cons true al l r eas onabl e i nfer ence s t hat can be dr aw n ther efr om i n the l i ghtm os tfavor abl e t o the pl ai nt i ff. J or dan v. Fox, R oths chi l d, O ’ B r i en & Fr ankel , 20 F. 3d 1250, 1261 ( 3d C i r . 1994) . A court“nee d not c re d it a c o m p lain t’s ‘b a ld a ss e rtio n s’ o r ‘le g a l co n c lu sio n s’ w h e n d e c id in g a m o tio n to di s m i s s . ” M or s e v. L ow erM er i on Sch. D i s t . , 132 F. 3d 902, 906 ( 3d C i r . 1997) . T he D i s tr i ctC our tfound, and the part i es agr ee, thatthe s ubs t ant i ve l aw of the D i s tr i ctof C o lu m b ia a p p lie s . III . A l varez argues, fi rs t , that I N A m ade f al se r epresent at i on s t o h i m on his pu rchase a n d o n e a c h re n e w a l o f

h is p o licyb yo m itt in g th a t (1 ) th e p o licyw a s in iti a lly underpr i ced, ( 2) the ac tuar i al as s um pt i ons and l aps e r at es w er e uns ound, ( 3) the or i gi nal pr emi um w oul d notbe s uffi ci entt o s uppor tfutur e cl ai m s , ( 4) i tpl anned on s eeki ng aA l var ez a l s o ar gues thatthe D i s tr i ctC our tcons i der ed addi t i onal i nform at i on not 5 cont ai ned i n the pl eadi ngs and thatthe mot i on s houl d have be en conve r t ed i nt o a mot i on f o rs u mm a r yj u d g me n tu n d e rRu l e 1 2 ( d ) o f th e F e d e r a l Ru l e s o f

Ci v i l P r o c e d u r e . I NA su b m itt e d th e m a ste r in su ra n c e p o licy , p ro m o tio n a l m a ter ials , an d a n a f f id a v it estab li sh ing the righ t t o raise p rem ium s. T h ese m aterial s w ere integ ral t o , an d w ere s peci fi cal l yr el i ed upon i n, the compl ai nt . I n r e B ur l i ngt on C oatFact orySec. L i t i g. , 114 F . 3 d 1 4 1 0 , 1 4 2 6 (3d C ir . 1 9 9 7 ). 5 s er i es of pr emi um i ncr eas es , ( 5) cl os i ng the LT C bl ock w oul d l ead t o fi nanci al l os s es , ( 6) i ti nt ended t o r ai s e pr emi um s t o exorbi t antr at es t o obt ai n w i ndfal l pr ofi t s byfor ci ng i ns ur eds t o dr op the pol i cyther ebyavoi di ng futur e cl ai m s , and ( 7) i ti nt ended t o pas s any r i s k of l os s due t o the def ect i ve underpr i ci ng of the pol i cyt o hi m i n the form of hi gher prem i um s. 5 T o es t abl i s h a fr aud cl ai m , a pl ai nt i ff musts how , bycl earand convi nci ng e v id e n c e , “(1 ) a f

a lse re p re se n tatio n , (2 ) in re f e re n c e to [ a ] m a ter ial f

a c t, (3 ) m a d e w ith know l edge of

i t s fal s i ty , ( 4) w i th the i nt entt o dece i ve, and ( 5) act i on i s t aken i n r el i ance upon the r epr es ent at i on. ” B ennettv. K i ggi ns , 377 A . 2d 57, 59 ( D . C . 1977) . A l though th e e le m e n ts o f

f ra u d m u s t b e p le a d e d w ith p a rt ic u la ri ty, in te n t m a yb e a lle g e d g e n e ra lly. Fed. R . C i v. P. 9( b) . A partym us tal l ege f act s “w hi ch w i l l enabl e the courtt o dr aw an in f e re n c e o f f ra u d ,” a n d a lleg a tio n s in th e f o rm o f c o n c lu sio n s o r im p e rm iss ib le s p e c u la tio n a s to th e e x is te n c e o f f ra u d a re in s u f

f ic ie n t. B e n n e tt, 3 7 7 A .2 d a t 5 9 -6 0 . N o n d is c lo s u re m a ya ls o c o n s titu te f ra u d , b u t o n ly w h e n th e re is a d u ty to s p e a k . L oughl i n v. U ni t ed St at es , 209 F. Supp. 2d 165, 173 ( D . D . C . 2002) ( vaca t ed on other gr ounds ) ( ci t i ng K api l off v. A bi ngt on Pl aza C orp. , 59 A . 2d 516, 517 ( D . C . 1948) ) . Such6

a d u tyarises w h en a p arti al disclo su re is m isl ea d ing , o r i f a co n fid en ti al or f idu ciary r el at i ons hi p exi s t s . K api l off, 59 A . 2d at518. I n V a. A cad. of C l i ni cal Psy chol ogi s t s v. G r oup H os pi t al i zat i on & M ed. Ser vs . , I nc. , 878 A . 2d 1226, 1232 ( D . C . 2005) , a ca s e the D i stri ctC ou rtfou nd part i cular l ypersuasi ve, plai nti ffs al l eged com m on l aw fraud ag ai nst th e irb e n e f

its a d m in is tr a to r b a s e d u p o n m is re p re s e n ta tio n s a b o u t th e irh e a lth c o v e ra g e . Pr i ort o appl y i ng forcover age unde rthe pl an, pl ai nt i ffs r ece i ved a be nefi t s bookl et cont ai ni ng a di r ect oryof the pane l of m ent al heal th pr ovi der s avai l abl e i n the netw or k, butw er e nott ol d t hatther e w as a pl an t o cutr ei m bur s ementr at es t o pr ovi der s by30- 40% , w hi ch r es ul t ed i n 10% of the pr ovi der s l eavi ng the netw or k. Pl ai nt i ffs al l eged fra u d u lent m isr ep rese n tat ion o n the p art of the a d m inistrator f

o r fa il u re to inf

o rm p ro v id e rs o f

th e u p c o m in g ra te c u t. T he V i r gi ni a A cade m ycourthel d thatthe bookl etcont ai ned no obl i gat i on or i m pl i ed pr om i s e t o pr ovi de a pa r t i cul arpanel of a pa r t i cul ars i ze, and thati ti ncl uded a di s cl ai m eras t o i t s curr ency . T he admi ni s tr at orw as aw ar e thatthe cuti n r ei m bur s ement r at es w oul d have a m arked nega t i ve cons equenc e on the pr ovi derpanel , that“i tw as goi ng t o be a s hock forpr ovi der s , ” and thatther e w oul d be “a l otof cl ean- up w or k t o do. ” I d. at 1237 n. 15. T hi s aw ar enes s , how ever , coul d notr eas onabl ybe found “ t o have mandat ed di s cl os ur e of thati nform at i on t o [pl ai nt i ffs ] i n part i cul ars o as t o be dee m ed t o have engage d i n fr audul entm i s r epr es ent at i on. ” I d. at1237. T he composi t i on and s i ze of t he pr ovi derpanel , the courtconcl uded, had not“s o m arkedl ychange [d] thata br eac h of contr actcoul d fai r l ybe i nferr ed . . . . ” I d.7

A l var ez c l ai m s thatI N A ’ s r epr es ent at i ons thatthe pol i cyw as “G uar ant eed R enew abl e” f

orl i fe, thatpr emi um s “may ” cha nge, and thatthe pr emi um s had bee n e x p e rtlyp ric e d , w e re “ h a lf -tru th s” a n d m isle a d in g b e c a u se th e yd id n o t tell th e w h o le sto ry , n a m e ly , tha t th e p o licyw a s a c tu a ria llyu n so u n d a n d th a t th e p re m iu m s w o u ld i ncr eas e. N ei therthe pol i cynorthe pr om ot i onal m at er i al s cont ai ned anyfal s e or m i s l eadi ng r epr es ent at i ons , and I N A di d nothave a nydutyt o di s cl os e the pos s i bi l i tyof f u tu re p re m iu m in c re a s e s o r t h e u n d e rl y in g a c tu a ri a l a s s u m p tio n s f o r t h a t p o s s ib ility. F o ro n e th i n g , th e p o l i c ye x p l i c i t l yr e s e r v e d th e r i g h tt o r a i s e p r e mi u ms a ta n yt i me a f ter p a ym e n t o f

th e f irst p re m iu m . In th e sa m e w a yth a t th e b e n e f its b o o k let in V irg in ia A c a d e m yd id n o t g u a ra n tee th e siz e o f th e p ro v id e r p a n e l an d th u s n o su c h p ro m ise c o u ld be i m pl i ed, no r epr es ent at i on w as m ade thatthe r i ghtt o r ai s e pr emi um s w oul d notbe exer ci s ed orthatther e w as no pl an t o do s o i n the futur e. M or eover , the onl yl i m i t at i on on thatr i ghtw as thatpr emi um s m us tbe r ai s ed on a c l as s , notan i ndi vi dual , bas i s , and thattheycoul d notbe r ai s ed unt i l aft erpaym entof the fi r s tpr emi um . E ven i f I N A knew thatpr emi um s w oul d i ncr eas e, the pol i cyexpl i ci t l yauthor i zed s uch an i ncr eas e and A l var ez c annots er i ous l ycl ai m t o have be en mi s l ed i nt o bel i evi ng thatthatw oul d never h a p p e n . Second, contr aryt o A l var ez’ s i nt erpr et at i on, the pol i cyw as guar ant eed r enew abl e, notguar ant eed a ffor dabl e. T he guar ant eed r enew abl e cl aus e meantthatI N A coul d not canc el a mem ber ’ s pol i cyuni l at er al l yforanyr eas on, unl es s the mem berfai l ed t o payt he pr emi um . T hi s guar ant eed the r i ghtt o r enew the pol i cy , notthe fi nanci al abi l i tyt o r enewA lth o u g h th e p ro m o tio n a l m a ter ials sta ted th a t IN A w a s ra ted “ ‘A ’ (E x c e llen t)” , this 6 w as an appa r ent l yacc ur at e s t at ementof the curr entr at i ng atthatt i m e, and a de s cr i pt i on of w hatthe A . M . B es tr at i ng m eas ur ed. 8 th e p o licy , an d d id n o t im p lyth a t p re m iu m s w o u ld n e v e r in c re a se , o r th a t th e yw o u ld o n ly in c re a s e b ya lim ite d , a f f o rd a b le a m o u n t. Fi nal l y , nei therthe pol i cynorthe pr om ot i onal m at er i al s r epr es ent ed ori m pl i ed thatexpertactuar i es cal cul at ed the pr emi um s , nordi d theycont ai n r epr es ent at i ons re g a rd in g th e u n d e rly in g m e th o d o lo g yf o r c a lcu latin g p re m iu m s. T h e p o licym e re ly s t at ed that“[r ] at es ar e bas ed on att ai ned age on dat e of i s s ue and thi s bas e does not change w i th age. ” Si m i l ar l y , the pol i cydi d notcont ai n anyr epr es ent at i ons , ei ther ex p li cito r i m p li cit , reg ard ing the f inan cial sou n d n ess o f th e c alcu lat ion s, o r fu ture proj ect i on s for prem i um cal culat i on s. 6 B uteven i f ther e w as a mi s r epr es ent at i on, and w e emphas i ze thatw e s ee none , A l varez has no tshow n thathe rel i ed o n an ysuch m i sr epresent at i on . T o est abli sh r el i ance , he w as r equi r ed t o s how thatthe r epr es ent at i on pl ay ed a s ubs t ant i al part , and ther efor e w as a s ubs t ant i al fac t or , i n i nfl uenci ng hi s deci s i on. V a. A cad. of C l i ni cal Psy chol ogi s t s , 878 A . 2d at1238. A l l A l var ez of fer s i s hi s s t at ementthathe w oul d not have pur chas ed the pol i cyhad he know n aboutthe futur e pr emi um i ncr eas es . W e have d if f icu ltyu n d e rsta n d in g h o w h e c a n c laim to h a v e re lied o n a p ro v isio n th a t ex p licitly a llo w s s u c h in c re a s e s to b e lie v e th a t p re m iu m s w o u ld n e v e r i n c re a s e .9

T o su c c e e d in a c o n stru c tiv e f ra u d c laim , a p lain tiff

m u st d e m o n stra te th a t a c o n f id e n tia l r e la tio n s h ip e x is ts b e tw e e n th e p a rt ie s . W ith e rs p o o n v . P h ilip M o rr is , In c ., 964 F. Supp. 455, 461 ( D . D . C . 1997) . A confi dent i al r el at i ons hi p i s char act er i zed a s one w her e one pa r tyi s abl e t o “exe r ci s e extr aor di naryi nfl uence overthe other . ” I d. A l var ez a rg u e s th a t th e re is a c o n f id e n tial re latio n sh ip b e tw e e n a n in su ra n c e c o m p a n ya n d its in su re d su c h th a t th e re is a d u tyo n th e p a rt o f th e in su ra n c e c o m p a n yto d isc lo se a ll m aterial fa cts, an d cit es M essin a v . N ati o n w ide M u t. Ins. C o . , 9 9 8 F . 2 d 2 (D . C . C ir . 1993) ( percur i am). A l var ez’ s r el i ance on M es s i na i s m i s pl ace d. M es s i na dea l tw i th a bad fa i th deni al of an i ns ur ance cl ai m w her e, bydefi ni t i on, the part i es w er e i n a contr actual r el at i ons hi p unl i ke her e w her e A l var ez’ s cl ai m i s thathe w as defr auded pr i or to th e tim e th a t th e re w a s a c o n tra c tu a l re latio n sh ip , i. e . h e c laim s th a t h e w a s f ra u d u len tly i nduced t o ent eri nt o t hatr el at i ons hi p. T her e w as s i m pl yno confi dent i al r el at i ons hi p at the t i m e of the al l egedl yi nduci ng conductand, i n the abs ence of a c onfi dent i al re la tio n s h ip , th e c o n s tru c tiv e f ra u d c la im m u s t f

a il. A l var ez’ s D C C PPA cl ai m fai l s forthe s ame r eas on thathi s fr aud cl ai m fai l ed, i . e. h e h a s n o t s h o w n a n yf

a ls e re p re s e n ta tio n b yIN A .

I V. Forthe for egoi ng r eas ons , w e w i l l aff i r m the D ece m ber12, 2006 or derof the D is tr ic t C o u rt .