Opinion ID: 2222253
Heading Depth: 1
Heading Rank: 4

Heading: Class Certification of Vanishing Premium Cases, Generally.

Text: Federal courts have addressed the issue of class certification in vanishing premium cases over the past several years. An examination of these cases and the general trend in the federal (and, to a certain extent, state) courts give us a general framework from which to begin our analysis of the issue before us. A vanishing premium policy is one where, after a certain number of premium payments, the policy itself generates sufficient income through dividends and interest to pay any additional premiums due. In other words, premiums paid in the initial years of a policy are supposed to generate sufficient value to pay all future premiums due in later years, so that future premiums, in essence, vanish. The assumption that premiums will vanish depends on, among other factors, mortality experience, expenses, dividends, and associated interest rates. A change in any of these variables can affect the date by which premiums will vanish. Parkhill v. Minn. Mut. Life Ins. Co., 188 F.R.D. 332, 335 n. 2 (D.Minn.1999). These types of policies became popular in the early 1980s, when interest rates hit record highs. See generally Daniel R. Fischel and Robert S. Stillman, The Law and Economics of Vanishing Premium Life Insurance, 22 Del. J. Corp. L. 1, 3-8 (1997) (explaining the economics of the vanishing premium problem). As one writer indicates, plaintiffs have generally been unsuccessful in certification motions involving vanishing premium cases based primarily on the issue of predominance of common issues to individual ones. See generally James R. Carroll, Recent Developments in Vanishing Premium, SF81 ALI-ABA 1 (2001) (collecting cases) [hereinafter Carroll]. Carroll cites three cases that have established a body of precedent that is almost always followed in the adjudication of motions to certify class actions. Id. at 2. They include Cohn, 189 F.R.D. at 211, 218 (class certification denied as to claims for breach of contract, negligence, fraud, negligent misrepresentation, unjust enrichment and violations of the Connecticut unfair trade practices statute); Parkhill, 188 F.R.D. at 340-45 (class certification denied as to claims for breach of contract and violations of Minnesota consumer protection statutes); and Jackson National, 183 F.R.D. at 219, 220-23 (class action certification denied as to claims for fraud, negligent supervision, breach of contract, unjust enrichment and statutory violations). In each of these cases the court found that the claims all required case-specific individualized showings of the alleged misrepresentations of the agent and the alleged reasonable reliance of the policyholder. See Cohn, 189 F.R.D. at 218; Parkhill, 188 F.R.D. at 342-45; Jackson Nat'l, 183 F.R.D. at 220-23. In Cohn, the plaintiffs asserted the predominance requirement was met because the written illustrations produced by Connecticut Mutual and distributed to the company's network of agents, or printed by the agents themselves using software provided by the company, were identical in all material respects in each of the transactions at issue.... [A]s a result of Connecticut Mutual's centralized training program, the sales presentations used by the sales people in each transaction were uniformly misleading. The evidence concerning these allegedly uniform illustrations and sales presentations, the underlying training programs, and the state of mind of Connecticut Mutual in orchestrating the alleged scheme, and the legal determinations that will be based on this body of evidence,... constitute the core of the controversy regarding each class member. Cohn, 189 F.R.D. at 212. Rejecting the contention that the predominance requirement was met, the court concluded: [T]he predominance requirement is not satisfied. Though there are issues common to the members of the proposed class, including in particular the actions and state of mind of Connecticut Mutual in pursuing the vanishing premium marketing strategy, these common questions are overshadowed by individualized issues such as the nature of the oral representations or disclosures made by the agent or broker at the point of sale, the nature of any questions asked by the consumer, the content of any written illustrations or disclosures given to the consumer, the degree of care exercised by the consumer in reviewing any written illustrations and the policy instrument, the portions of the offer that were attractive to the consumer, the degree of the consumer's financial sophistication and his or her understanding of the product. These individualized issues, which are essential to the determination of the claims of each class member, predominate over questions common to the class. Id. at 218. In Jackson National, the court noted the following relevant facts: Jackson National did not generally communicate directly with prospective consumers or policyholders. Communications were made primarily by independent insurance brokers; brokers who were not subject to and did not follow uniform policies regarding distribution of policy illustrations.... Neither were brokers required to follow uniform sales scripts.... [T]his freedom led to great variance in representations made by brokers; some explaining away and others even exacerbating any misleading tendencies the policy illustrations may have had. Jackson Nat'l, 183 F.R.D. at 221. The court concluded that a determination of whether and which illustrations were given to class members, and of the nature of oral representations made to them at the point of sale, ... are matters requiring individualized fact development. Id. In addition, the materiality of the allegedly misleading illustrations and plaintiffs' reliance on them were fact issues requiring individualized treatment. Id. Other federal courts have reached similar conclusions. See, e.g., In re LifeUSA Holding Inc., 242 F.3d 136, 145-48 (3d Cir.2001) (class certified by district court based on pre-sale actions of LifeUSA was an abuse of discretion because commonality, predominance, and superiority requirements were not met); Keyes v. Guardian Life Ins. of Am., 194 F.R.D. 253, 257 (S.D.Miss.2000) (class certification of action alleging fraud in the sale of vanishing premium policies denied because facts did not support finding that defendant's policies were sold in a sufficiently uniform manner so as to justify a finding that common issues predominate); Rothwell, 191 F.R.D. at 30-31 (motion to certify vanishing premium subclass denied where even if plaintiffs were able to prove at trial that Chubb trained its agents to use the policy illustrations in a misleading manner, it still would not eliminate the need for a `mini-trial' on each class member's claim to determine the nature of the representations that were made in that case and resolution of fraud-based claims would require proof both that Chubb's agents made misrepresentations and that the individual class members reasonably relied on those representations in purchasing their insurance policies). Against this backdrop, we proceed to our analysis and our determination of the merits.