2. Hess's Other Claims
Hess's allegations that he was fraudulently induced to purchase
the policy because of Himelman's misrepresentation is the heart
of the case. The fact that as a matter of law he could not
reasonably have relied on such a representation defeats his
various fraud counts. His other counts are equally lacking in
It is undisputed that at all times Himelman was acting as an
agent for NWM, N.J.S.A. 17:22A-2(f) and not as a broker
representing Hess, N.J.S.A. 17:22A-2(g). Hess met with Himelman
only two or three times while purchasing the NWM policy. Hess
approached other agents and acknowledged that Himelman was NWM's
agent and representative. While both agents and brokers owe a
duty "to exercise good faith and reasonable skills in advising
insureds," the agent owes a fiduciary duty to the insurance
company its employer, not to the insured. Weinisch v. Sawyer,
123 N.J. 333, 343, 587 A.2d 615 (1991).
Hess seeks to escape the conclusion that Himelman, as an agent
of NWM, did not have a fiduciary duty to Hess, on the ground that
Himelman was an NWM insured, relying on Harvester Chem. v. Aetna
Cas. & Sur., 277 N.J. Super. 421, 429, 649 A.2d 1296 (App. Div. 199
4), cert. denied, 139 N.J. 441, 655 A.2d 443 (1995) (quoting
Bowler v. Fidelity and Cas. Co. of New York, 53 N.J. 313,
250 A.2d 580) and Pickett v. Lloyds, 252 N.J. Super. 477, 489,
600 A.2d 148 (App. Div. 1991), aff'd, 131 N.J. 457, 621 A.2d 445
(1993) cases. Himelman's ownership of an NWM policy is irrelevant
and these cases dealt with the duties of an insurance company
when administering and paying claims under an existing policy.
That is far different from the duties owed during an arms length
transaction between an agent for an insurance company and an
applicant for insurance, e.g. Weisblatt v. Minnesota Mut. Life
Ins. Co. 4 F. Supp.2d 371 (E.D.Pa. 1998). Hess's fiduciary duty
claim lacks merit.
Turning to Hess's contract claim, the policy itself contains
unambiguous terms with respect to all relevant issues. The parole
evidence rule precludes evidence of Himelman's alleged promise.
Filmlife, Inc. v. Mal "Z" Ena, Inc., 251 N.J. Super. 570, 573,
598 A.2d 1234 (App. Div. 1991). The fraud in the inducement
exception to the parole evidence rule is unavailable in the
circumstances of this case, where as a matter of law Hess could
not reasonably have relied on the alleged Himelman promise.
Hess has not opposed NWM's motion to dismiss his claim of
negligent training and supervision. The undisputed facts negate
Hess's claim that Himelman did not adequately explain the risk of
cashing out the existing New Jersey Life policy. Himelman is not
charged with any misinformation about replacing one policy with
another. Hess was provided the Important Notice Regarding
Replacement of Life Insurance, a form required and approved by
the New Jersey Department of Insurance. The Notice provided in
great detail the risks associated with replacing one policy with
another. Hess received and read the Replacement Notice.
The claims for unjust enrichment and imposition of a
constructive trust have no basis in light of the failure of the
Thus summary judgment for NWM on all of Hess's claims must be
granted on the merits.
3. Statute of Limitations
The longest statute of limitations applicable under New Jersey
law in this case is six years. New Jersey applies a discovery
rule to the effect that "in an appropriate case, a cause of
action will not accrue until the injured party discovers or by
exercise of reasonable diligence and intelligence should have
discovered, facts which form the basis of a cause of action."
County of Morris v. Fauver, 296 N.J. Super. 26, 30 n. 3,
685 A.2d 1342 (App. Div. 1996).
Hess filed this action in October 1997. The claims are based on
an oral promise or representation Himelman was alleged to have
made in 1988 that a single payment of $146,000 would purchase
$500,000 of paid up insurance. Hess asserts that the first notice
he had that the policy would operate to require him to make more
out-of-pocket payments was when in 1997 he received NWM's notice
that his policy would not generate sufficient dividends to
continue to pay the premiums.
Undisputed facts establish that Hess either discovered or by
the exercise of reasonable diligence and intelligence should have
discovered facts which formed the basis of his cause of action no
later then the delivery date of the policy. All the Short Pay
illustrations that Himelman provided Hess recited that the
illustrations (including the ten years Short Pay illustration)
were based on current dividends which were not guaranteed and
could rise or fall. If they fell substantially ten premium
payments would be insufficient for the policy to achieve Short
Pay status. Before issuance of the policy Himelman wrote to Hess
to inform him that $146,000 would not be sufficient to pay ten
years of premiums for a $500,000 policy. Any reasonable consumer
would have reason to know after receiving these communications
that any promise of $500,000 of paid up insurance for $146,000
was false. The clincher was the policy itself, which in many
sections negated the existence of a $500,000 paid up policy.
A suit on the alleged oral promise instituted nine years after
Hess knew or had reason to know of the falsity of the promise is
barred by the statute of limitations.
D. Wallace B. McGahan
1. Fraud Claims
In his original complaint and in the consolidated complaint
McGahan charged that he and prospective class members were misled
by illustrations and other materials "which specifically use the
terminology, `paid up' and specifically showed that premium
payments would cease after a specific period of time." When asked
on deposition how NWM had committed fraud against him, McGahan
replied, "[t]hey said that the policy would be paid up in eight
years for myself and in ten years on my daughters, and this is
not the case."
In his opposition brief McGahan has abandoned the term "paid
up." He now asserts that the policies would not become paid up
after the eight and ten year periods. Rather, after these periods
premiums would continue but they would be paid by NWM, i.e. he
was "guaranteed" that he would never have to make another premium
after those periods.
In Counts I, II, and III, McGahan asserts claims against NWM
for fraud, fraudulent inducement, and negligent
misrepresentation. Alabama has codified its common law of fraud
into a statutory scheme that establishes a cause of action for
"legal fraud." Ala.Code §§ 6-5-104 (1975); First Alabama Bank of
Montgomery v. First State Ins. Co., 899 F.2d 1045, 1055 (11th
Cir. 1990). This statutory scheme encompasses all of McGahan's
claims in Counts I, II, and III. The Alabama statute
distinguishes between fraudulent misrepresentation and fraudulent
suppression. Ala.Code § 6-5-101 (misrepresentation), § 6-5-102
(suppression) (1975). The elements of a fraudulent
misrepresentation claim are: i) a misrepresentation of a material
fact, ii) made willfully to deceive, recklessly, without
knowledge, or mistakenly, iii) which was reasonably relied on by
the plaintiff under the circumstances, and iv) which caused
damage as a proximate consequence. Foremost Ins. Co. v. Parham,
693 So.2d 409, 422 (Ala. 1997). The elements of a fraudulent
suppression claim are: i) a duty to disclose, ii) suppression of
material facts, iii) knowledge of the facts and their
materiality, iv) action by the plaintiff in reasonable reliance
on the suppression, and v) damages resulting from the reliance.
Wolff v. Allstate Life Ins. Co., 985 F.2d 1524, 1529 (11th Cir.
1993) (citing Hardy v. Blue Cross & Blue Shield of Alabama,
585 So.2d 29, 32 (Ala. 1991)).
"Under Alabama law, in order to maintain any claim for fraud,
it is essential that there be a material misrepresentation or a
concealment of fact that is reasonably relied upon by the
complaining party to his detriment." United Merchants & Mfrs. v.
Sanders, 508 So.2d 689, 692 (Ala. 1987). If a plaintiff has
"even reason to doubt the truth of a representation. . . .
reliance is not reasonable." Patterson v. United Companies
Lending Corp., 4 F. Supp.2d 1349, 1353 (M.D.Ala. 1998).
Alabama's reasonable reliance standard imposes a "general duty
on the part of a person to read the documents received in
connection with a particular transaction." Foremost, 693 So.2d
at 421; see also Vance v. Huff, 568 So.2d 745, 751 (Ala. 1990).
Under this rule, "the trial court can enter judgment as a matter
of law in a fraud case where the undisputed evidence indicates
that the party or parties claiming fraud in a particular
transaction were fully capable of reading and understanding their
documents, but nonetheless made a deliberate decision to ignore
written contract terms." Foremost, 693 So.2d at 421. "If the
circumstances are such that a reasonably prudent person who
exercised ordinary care would have discovered the true facts, the
plaintiffs should not recover." Bedwell Lumber Co. v. T & T
Corp. 386 So.2d 413, 415 (Ala. 1980).
Courts applying Alabama law have dismissed claims of
misrepresentation in cases where the plaintiff received documents
that called into question the validity of the representations of
a sales agent:
[I]t is unreasonable to rely on oral statement when
one is in possession of written documents that would
put one on notice as to the validity of oral
statements. By the same token, the written document
put the party to whom oral representations were made
in a position to discover the falsity of those
representations, thereby putting him on notice as a
matter of law that a fraud may have been committed.
Cherokee Farms, Inc. v. Fireman's Fund Ins. Co., 526 So.2d 871,
877 (Ala. 1988) (citations omitted).