Opinion ID: 2222253
Heading Depth: 2
Heading Rank: 1

Heading: Breach of contract. As to this claim, the district court concluded individual questions of fact and law predominate the questions common to the class:

Text: As to plaintiffs' claim for breach of contract (Count II), because there is no evidence of company wide deception or that the agents uniformly employed the illustrations in the sales calls, the issue of whether the illustrations became part of the insurance contract becomes a question individualized for each putative plaintiff. The plaintiffs contend that this ruling is incorrect because the plaintiffs' breach of contract claim is predicated neither on the existence of company wide deception nor the use of illustrations in sales calls [or] whether the illustrations become part of the insurance contract. Rather, the plaintiffs contend, their breach of contract claim is based solely on the issue of whether the defendants knowingly created the reasonable expectation in connection with the policies purchased by the plaintiffs and the class that premiums would vanish and/or the policy would be fully paid up and/or that no additional costs would be incurred in excess of the specified number or amount of payments or years. The plaintiffs complain that although they discussed their reasonable expectations theory in their resistance to the defendants' motion to decertify the class, the district court failed to discuss it. Farm Bureau counters by noting that from the beginning the plaintiffs have focused on the common course of deception pursued by Farm Bureau against all policyholders rather than on the expectations of the policyholders themselves. The reasonable expectations theory, Farm Bureau asserts, was first raised in the plaintiffs' resistance to the motion to decertify. (Actually the record shows the plaintiffs first raised the issue in its reply to Farm Bureau's resistance to the plaintiffs' motion to certify.) According to Farm Bureau, the shift in theory resulted because the plaintiffs were forced to create some sort of argument in support of their breach of contract claims, particularly after the district court expressed at the first hearing reservations about whether claims which incorporated the illustrationsall of which bore written disclaimerscould really support a finding against Farm Bureau. Additionally, Farm Bureau contends the doctrine of reasonable expectations simply does not apply in this case. We too have serious doubt that the doctrine of reasonable expectations applies in these circumstances. We have applied the doctrine to insurance coverage cases to avoid the frustration of an insured's expectations notwithstanding policy language that appears to negate coverage. It is a narrow doctrine that is primarily employed when the insurance coverage provided eviscerates terms explicitly agreed to or is manifestly inconsistent with the purpose of the transaction for which the insurance was purchased. Monroe County v. Int'l Ins. Co., 609 N.W.2d 522, 526 (Iowa 2000) (emphasis added). The doctrine is inapplicable if (1) an ordinary layperson would not misunderstand the policy's coverage as to this occurrence, and (2) there were no other circumstances attributable to the insurer at the time the policy was negotiated and issued that would foster coverage expectations. Such circumstances may be shown if the policy exclusion: (a) is bizarre or oppressive, (b) eviscerates terms explicitly agreed to, or (c) eliminates the dominant purpose of the transaction. Zaragoza v. West Bend Mut. Ins. Co., 549 N.W.2d 510, 515 (Iowa 1996) (citations omitted) (emphasis added). The doctrine applies only to representations made by the insurer at the time of policy negotiation and issuance. Id. Additionally, this requirement emphasizes the reliance interest upon which the doctrine is founded. Id. at 516. Here the issue is not whether insurance coverage exists under the policy. Rather, the issue the plaintiffs are raising relates to the premium and dividend provisions of the policy. We hesitate to expand the doctrine to this situation, where coverage under the policy provisions is not in issue. We agree with Farm Bureau that even were we to apply the doctrine of reasonable expectations outside the realm of coverage cases, there was no evidence that that the wording of the policies was bizarre or oppressive, or that there was an agreement to a term which is eviscerated by the policies, or that the dominant purpose of the policiesto provide monetary relief to the beneficiary of the deceased insuredwas somehow eliminated. Moreover, even if the doctrine were to apply, the plaintiffs face an insurmountable reliance issue. The party asserting the doctrine of reasonable expectations must show not only the expectations, but also that they were relied upon by the insurance purchaser in deciding to buy the policy. Id. The reliance showing requires an inquiry into each individual class members' experience in purchasing insurance, as we will discuss further in the context of the plaintiffs' negligent misrepresentation, common law fraud, and fraudulent inducement claims. To determine the reasonable expectations of any given class member, the individual inquiries surrounding each class members' purchase of insurance would predominate over any common issues. For all of these reasons, we conclude the district court did not abuse its discretion in concluding that individual questions predominate common questions on this issue. B. Breach of implied covenant of good faith and fair dealing. Related to their breach of contract claim, the plaintiffs contend Farm Bureau breached its implied covenant of good faith and fair dealing when it failed to allocate hundreds of millions of dollars of surplus every year during the class period to the ambiguous contracts purchased by the plaintiffs and the class to meet their `limited pay/vanishing premiums' expectations created by Farm Bureau. Farm Bureau correctly asserts the good faith and fair dealing theory emerged for the first time in the plaintiffs' resistance to the motion to decertify. Farm Bureau also asserts the theory only applies in the context of a bad faith claim for an insurance company's failure to indemnify and defend its insured. The district court did not specifically address this claim in its decertification ruling. However, as with the reasonable expectations claim, we likewise conclude the implied covenant claim has no application in these circumstances. A covenant is implied in an insurance contract that neither party will do anything to injure the rights of the other in receiving the benefits of the agreement. Kooyman v. Farm Bureau Mut. Ins. Co., 315 N.W.2d 30, 33 (Iowa 1982). We have permitted claims against insurance companies for breach of the implied covenant of good faith by recognizing the tort of bad faith in third-party and first-party situations. Johnson v. Farm Bureau Mut. Ins. Co., 533 N.W.2d 203, 207 (Iowa 1995). The tort of bad faith arises in situations where the insurer has denied benefits or has refused to settle a third-party's claim against the insured within the policy limits. See, e.g., Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 396 (Iowa 2001) (To establish a first-party bad-faith claim, `a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.' (Citations omitted.) (Emphasis added.)); North Iowa State Bank v. Allied Mut. Ins. Co., 471 N.W.2d 824, 828 (Iowa 1991) (noting that the court has recognized a bad-faith cause of action in an insurer's representation of an insured in a third-party liability claim, and that an insurer may be responsible for the tort of bad faith in first-party situations in which the dispute involves the insured's right to recover under the policy). The plaintiffs have neither alleged in their petition nor in subsequent filings that they are relying on bad faith. Furthermore, the tort of bad faith simply has no application in the circumstances of this case. C. Breach of fiduciary duty. The district court did rule on this issue: Finally, in regard to plaintiffs' claim for breach of fiduciary duty (Count V), plaintiffs have again failed to establish beyond mere speculation that there are common questions of law and fact for the entire class. First, the relationship between insurance sales agents and customer does not, by its very nature, appear to necessarily give rise to a fiduciary relationship. Second, because the relationship between insurance agents and their clients is not necessarily a fiduciary relationship, the determination of whether a fiduciary relationship exists must be based upon the particular facts and circumstances of each individual case. Thus, the individual questions predominate the common questions in regards to plaintiffs' claim of breach of fiduciary relationship. (Citations omitted.) The plaintiffs contend this ruling is not supported by the record. They further contend a fiduciary relationship may exist on a class-wide basis where, as here, the company selling the insurance is not just an insurance company, but a genuinely unique organization akin to a family. The plaintiffs cite to Farm Bureau's admission that it owed its customers reasonable duties of disclosure and care, and testimony of Farm Bureau's executive vice president regarding the duties of loyalty, honesty, and integrity owed by Farm Bureau to its customers. Farm Bureau, not surprisingly, contends the district court was correct in its ruling on this issue. For reasons that follow, we agree. A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation. Kurth v. Van Horn, 380 N.W.2d 693, 695 (Iowa 1986) (quoting Restatement (Second) of Torts § 874 comment a, at 300 (1979)). Some relationships, such as those between an attorney and client, guardian and ward, principal and agent, and executor and heir, necessarily give rise to a fiduciary relationship. Id. at 696. Indicia of a fiduciary relationship include the acting of one person for another; the having and the exercising of influence over one person by another; the reposing of confidence by one person in another; the dominance of one person by another; the inequality of the parties; and the dependence of one person upon another. Id. (citation omitted). Because the circumstances giving rise to a fiduciary duty are so diverse, any such relationship must be evaluated on the facts and circumstances of each individual case. Id. In Rothwell, a vanishing premium case, the plaintiffs claimed the defendant insurance company and its agents breached their fiduciary duty by encouraging plaintiffs to replace their preexisting policies when it was not beneficial to their interests. 191 F.R.D. at 32. The court denied class certification, explaining the fiduciary duty claim as follows: In order to succeed with [the breach of fiduciary duty] claim, each plaintiff would need to prove: (1) the existence of a fiduciary relationship; and (2) that the policy replacement was not beneficial to his or her interests. Both showings, however, necessitate individualized inquiries that render certification inappropriate. Determining whether Chubb owed a fiduciary duty to each plaintiff would require a fact-intensive inquiry into the nature of the relationship between policyholder and agent. Id. (citations omitted); see also Kaser v. Swann, 141 F.R.D. 337, 341 (M.D.Fla. 1991) (To show the existence of a fiduciary relationship the members of the class would have to prove that an exchange of trust and confidence occurred between each plaintiff and the [defendant]. This would require testimony from every [plaintiff] and, as such makes this case unsuited for class certification.) Because the existence of a fiduciary relationship here depends on the facts and circumstances of each individual case, we conclude the district court did not abuse its discretion in concluding that individual questions predominate common questions on this issue. D. Negligent misrepresentation, common law fraud, and fraudulent inducement. As to these claims, the district court concluded: In regard to the plaintiffs' claims for negligent misrepresentation, fraud, and fraudulent inducement (Counts I, III, IV), questions of justifiable reliance become unique to each putative plaintiff. The fact issue of what individual agents may have represented to putative plaintiffs predominate questions common to the class. In other words, the true focus appears to be placed upon the representations made by individual agents rather than the representations (e.g., through sales material and agent training) made by Farm Bureau as a whole. Further, without some evidence beyond mere speculation that Farm Bureau engaged in a uniform practice of misrepresentations or omissions, this Court does not believe the entire class is entitled to a presumption of reliance. (Citations omitted.) The plaintiffs challenge the district court's conclusion that questions of justifiable reliance become unique to each putative plaintiff and that what individual agents may have represented to putative plaintiffs predominate questions common to the class. In support of their challenge, the plaintiffs make the following argument. Farm Bureau's agents were as much in the dark as the plaintiffs about the company's approval of false and misleading teaser rates and illustration rates and the substantial probability that such rates might never be paid. Additionally, there is no evidence that Farm Bureau ever advised its agents of these facts. In short, if Farm Bureau failed to disclose these facts to its agents, then its agents could only fail to disclose these same facts in their sales presentations to the plaintiffs and the class. Therefore, individual presentations by agents to plaintiffs and the class are not relevant to the common issues here. Because material omissions are involved, the plaintiffs and the class are entitled to a presumption of reliance. The plaintiffs' common law fraud, negligent misrepresentation and fraudulent inducement claims have one element in common: justifiable reliance. See McGough v. Gabus, 526 N.W.2d 328, 331 (Iowa 1995) (common law fraud); Barske v. Rockwell Int'l Corp., 514 N.W.2d 917, 924 (Iowa 1994) (negligent misrepresentation); Lamasters v. Springer, 251 Iowa 69, 72, 76, 99 N.W.2d 300, 302, 304 (1959) (fraudulent inducement). The plaintiffs apparently concede this proposition but steadfastly stand on their presumption of reliance theory grounded on material omissions. Several vanishing premium cases have addressed the presumption of reliance issue. Those that have refused to apply the presumption did so because the evidence failed to establish essentially uniform misrepresentations. See, e.g., Keyes, 194 F.R.D. at 255-57 (plaintiffs alleged that all class members were victims of standardized misrepresentations and omissions when defendant used its software to create the uniform illustrations; court held that presumption of reliance not appropriate where the individual plaintiffs did not receive the same mix of informationsome agents used the illustrations and others did not and there was no standardized sales pitch); Cohn, 189 F.R.D. at 216-17 (plaintiffs asserted defendant's training video discouraged agents from disclosing possibility that dividend rates could decline in the future; court rejected plaintiff's presumption of reliance argument because there was no evidence that all the agents saw the video and then made uniformly deceptive sales presentations); Jackson Nat'l, 183 F.R.D. at 221 (plaintiffs asserted vanishing premium illustrations premised on unsupported and unsustainable interest crediting rate assumptions were centrally prepared in the home office and distributed to brokers; court held presumption of reliance not appropriate where brokers were not subject to and did not follow uniform policies regarding distribution of policy illustrations and brokers were not required to follow uniform scripts; therefore information contained in the illustrations was conveyed to consumers, if at all, in the context of varying oral representations). See also Cope, 696 N.E.2d at 1004 ([A]lthough having some common core, a fraud case may be unsuited for treatment of a class action if there was material variation in the representations made or in the kinds or degrees of reliance by the person to whom they were addressed. (quoting 1966 Advisory Committee Notes to Fed.R.Civ.P. 23(b)(3)) (emphasis added)). The plaintiffs have cited several vanishing premium cases that have applied a presumption of reliance where management allegedly made material nondisclosures. See, e.g., In re Great S. Life Ins. Co. Sales Practices Litig., 192 F.R.D. 212, 219-20 (N.D.Tex.2000); Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J.Super. 31, 752 A.2d 807, 814-18 (App.Div.2000). However, as one court in a vanishing premium case has observed on this issue, the plaintiffs here have cited no case in which reliance was presumed when individual plaintiffs did not necessarily receive the same mix of information. See Keyes, 194 F.R.D. at 257 n. 5; cf. Kramersmeier, 440 N.W.2d at 878-79 (district court ruling granting class action certification affirmed where bond purchasers alleged losses they suffered were attributable to material misrepresentations contained in the prospectus published in connection with the bond offering, and a failure to disclose certain material facts; common questions of law and fact concerning whether the prospectus, as the common source of information provided by defendant, misled the plaintiffs and other bond purchasers in alleged violation of statutory and common law). The complaint files here reveal the individualized nature of the sales presentations by Farm Bureau agents. For example, one client complained he purchased a second policy based on an agent's representation that he was offering a special policy to a select group. Another agent wrote no premiums due on a client's policy sheet, and sent a note congratulating the client on the purchase and stating no premiums were due. Even the facts surrounding plaintiffs' purchase of insurance reveals the individualized nature of their claimsnone of them recall receiving an illustration from their agent, Merrill Perry, before their purchase of insurance. In addition, Farm Bureau did not require agents to use materials provided by Farm Bureau for use in making sales. Therefore even assuming the nondisclosures as the plaintiffs allege, there is simply no evidence that the agents made uniform presentations, used scripts provided by Farm Bureau, and used the illustrations in all cases. Presumption of reliance would be inappropriate here because common facts, if any, do not predominate over individual facts that must be developed to determine the reliance issue. We conclude the district court did not abuse its discretion when it (1) refused to apply a presumption of reliance to the fraud claims and (2) concluded that individual questions predominate common questions on this issue. The district court summed up its reasons for finding that individual questions of law and fact predominate common questions this way: In reaching this conclusion, this court is abundantly aware of its prohibition against examining the merits of plaintiffs' claims. However, after nearly a full year of discovery, plaintiffs cannot direct this court to any piece of evidence to support their theory of uniform deception. Without more than mere speculation, this court believes that a trial as a class action would spend more time delving into individual questions of fact (e.g. what individual agents represented to the putative plaintiffs, whether the agents employed illustrations in their sales meetings with putative plaintiffs, whether putative plaintiffs reasonably relied upon misrepresentations) than examining questions common to the entire class. We agree with this assessment and therefore conclude the district court did not abuse its discretion when it granted Farm Bureau's motion to decertify the class.