Opinion ID: 2781495
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Heading: The Premium Bonus

Text: Harrington claims that the promise in the Annuity of a “10% premium bonus” was fraudulent because EquiTrust failed to disclose that it does not invest any additional money in the market when crediting the bonus to an annuitant’s account, and eventually “recoups” the bonus by crediting lower index credits to the Annuity than it might have in an annuity contract without the bonus feature. Harrington also argues that the “10% bonus” is illusory, because the ultimate increase over time in the accumulation value from the bonus 8 HARRINGTON V. EQUITRUST LIFE INS. CO. might be less than increases that would occur for an annuity which provided higher returns. We begin from the settled premise that a seller generally has no duty to disclose internal pricing policies or its method for valuing what it sells. Thus, in Thorman v. American Seafoods Co., we held that there was no fraudulent concealment by a fishing company that did not disclose its methodology for determining wages because, in the absence of a fiduciary relationship or a statutory duty, the company’s “silence or passive conduct does not constitute fraudulent concealment.” 421 F.3d 1090, 1095 (9th Cir. 2005) (quoting Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1416 (9th Cir. 1987)). Courts in other circuits agree. See, e.g., Langford v. Rite Aid of Ala., Inc., 231 F.3d 1308, 1313–14 (11th Cir. 2000) (“As a general matter of federal law, retailers are under no obligation to disclose their pricing structure to consumers.”); Bonilla v. Volvo Car Corp., 150 F.3d 62, 71 (1st Cir. 1998); Katzman v. Victoria’s Secret Catalogue, 167 F.R.D. 649, 656 (S.D.N.Y. 1996), aff’d, 113 F.3d 1229 (2d Cir. 1997) (unpublished). Harrington does not allege that EquiTrust was a fiduciary or that some statute required the disclosure of its internal pricing policies. In the absence of such a relationship, there is no duty to disclose that the Annuity may provide lower index credits than might have been available in an alternative product without the bonus feature. See Cal. Architectural, 818 F.2d at 1472.4 4 A number of district courts have reached the same conclusion in evaluating comparable annuities. See, e.g., Kennedy v. Jackson Nat’l Life Ins. Co., No. C 07–0371 CW, 2010 WL 4123994, at –13 (N.D. Cal. Oct. 6, 2010); Cirzoveto v. AIG Annuity Ins. Co., 625 F. Supp. 2d 623, HARRINGTON V. EQUITRUST LIFE INS. CO. 9 Of course, even absent a duty to disclose, a seller can be liable for affirmatively misrepresenting its product. See Lustiger v. United States, 386 F.2d 132, 136 (9th Cir. 1967); see also Benny, 786 F.2d at 1418. Thus, if an annuity company promises a bonus, but does not deliver as advertised, there can be actionable misrepresentation.5 But it is uncontested here that EquiTrust delivered precisely what it promised. The 10% bonus was accurately described in the Annuity materials and properly credited to Harrington’s account. The bonus increased Harrington’s accumulation value without requiring him to deposit additional funds, allowing him to withdraw more money without penalty than otherwise would have been possible. The promise of a “bonus” was thus not, as Harrington claims, illusory. See Kennedy v. Jackson Nat’l Life Ins. Co., No. C 07–0371 CW, 2010 WL 4123994, at  (N.D. Cal. Oct. 6, 2010) (finding that added liquidity is a bonus). Nor is it clear that Harrington would have been better off absent the bonus feature. If the index credits were regularly low, Harrington’s investment would outperform a non-bonus annuity that 628–31 (W.D. Tenn. 2009); Phillips v. Am. Int’l Grp., Inc., 498 F. Supp. 2d 690, 696–98 (S.D.N.Y. 2007); Delaney v. Am. Express Co., Civ. No. 06–5134 (JAP), 2007 WL 1420766, at –6 (D.N.J. May 11, 2007); Sayer v. Lincoln Nat’l Life Ins. Co., No. 7:05–CV–1423–RDP, 2006 WL 6253201, at –10 (N.D. Ala. Oct. 12, 2006). 5 See, e.g., In re Nat’l W. Life Ins. Deferred Annuities Litig., No. 05cv1018 AJB (WVG), 2012 WL 440820, at –5 (S.D. Cal. Feb. 10, 2012); Negrete v. Allianz Life Ins. Co. of N. Am., Nos. CV 05–6838 CAS (MANx), CV 05–8908 CAS (MANx), 2011 WL 4852314, at –14 (C.D. Cal. Oct. 13, 2011); Iorio v. Allianz Life Ins. Co. of N. Am., No. 05CV633 JLS (CAB), 2008 WL 8929013, at –12, –16 (S.D. Cal. July 8, 2008). 10 HARRINGTON V. EQUITRUST LIFE INS. CO. provided the possibility of higher credits.6 The district court thus correctly concluded that use of the term “bonus” was not fraudulent. Compare, e.g., Cirzoveto v. AIG Annuity Ins. Co., 625 F. Supp. 2d 623, 627 (W.D. Tenn. 2009) (finding no breach of contract for a “bonus” annuity that offered, and provided, an increased rate of interest in the first year), with Iorio v. Allianz Life Ins. Co. of N. Am., No. 05CV633 JLS (CAB), 2008 WL 8929013, at  (S.D. Cal. July 8, 2008) (finding actionable an affirmative misrepresentation about an “immediate” bonus that was not available for years).