Before Judges Havey, Keefe, and A.A. Rodr¡guez.
The opinion of the court was delivered by: Keefe, J.A.D.
Argued: February 22, 2000
On appeal from Superior Court of New Jersey, Law Division, Essex County.
We granted plaintiffs' motion for leave to appeal the Law Division's denial of their class certification motion. Plaintiffs' motion sought to certify a class of all New Jersey residents who purchased so-called "vanishing premium" whole life insurance policies from defendant Massachusetts Mutual Life Insurance Company (Mass Mutual) during the period of 1985 to 1989. The sole issue to be resolved on appeal is whether the Law Division erred in denying plaintiffs' motion on the ground that individualized issues of causation and reliance predominate over common issues of law and fact as to the members of the class.
Plaintiffs' complaint alleged various theories of recovery against Mass Mutual. By the time the subject motion was argued, however, plaintiffs' theories were reduced to their contention that Mass Mutual was liable for common law fraud and violation of the Consumer Fraud Act. N.J.S.A. 56:8-1 to -48. The motion judge denied class certification finding that, while plaintiffs met the requirements of R. 4:32-1(a), they failed to meet the predominance requirement of R. 4:32-1(b). We respectfully disagree with the motion judge's analysis and reverse the judgment under review.
The vanishing premium concept of whole life policies is not unique to Mass Mutual. Other insurance companies have employed the same concept. Mass Mutual refers to its product as an "N-Pay" policy. The concept is best described in its own literature as follows:
N-Pay is a strategy for shortening the number of years you have to pay out-of-pocket premiums to complete your permanent plan of life insurance protection.
The objective is to allow you to pay premiums out of pocket for a limited number of years only (until such time as dividends* can completely fund your plan).
The N-Pay period depends on dividend results, which are not guaranteed.*
In fact, the "N" in "N-Pay" stands for the earliest possible year after which the dividends and paid-up additions (based on our current dividend scale, which is not guaranteed) will pay future premiums while maintaining the full original face amount of the policy.
The asterisks appearing in the quote above direct the reader to the following note in fine print.
Dividends are based on current dividend schedule, not guaranteed. Dividends reflect current investment, mortality, expense and federal income tax experience of the Company. Changes in current experience can subject dividends to significant fluctuations.
Mass Mutual sells life insurance policies through general agents that are independent contractors. During the period of January 1985 through December 1989, it issued more than 8,250*fn1 policies to New Jersey residents through 840 licensed agents.
Plaintiff Paul Varacallo purchased "N-Pay" life insurance policies issued by Mass Mutual as early as 1983, insuring his life and the life of his wife Catherine and daughter Christine. The policies were purchased through Sidney Schnipper, an agent of Mass Mutual. In 1989, he purchased another "N-Pay" policy for his daughter Lisa through Norman Broad, a Mass Mutual agent, because Schnipper was about to retire and could no longer maintain Varacallo's account. Under the 1989 policy, it was projected that Varacallo would be required to pay an annual premium of $150 for thirteen years, at which time the obligation to pay the annual premium would expire. The "HYPOTHETICAL POLICY ILLUSTRATION" issued by Mass Mutual dated May 11, 1989, cautioned that "A DIVIDEND CHANGE MAY INCREASE THE NUMBER OF CASH PREMIUM PAYMENTS." (Emphasis added.) On the last page, the illustration explained:
ALL DIVIDENDS, INCLUDING THE FIRST, ARE BASED ON CURRENT DIVIDEND SCHEDULE, WHICH IS NOT GUARANTEED. SUBSEQUENT TRANSFER OF OWNERSHIP TO A QUALIFIED PENSION OR PROFIT SHARING PLAN MAY RESULT IN A CHANGE IN DIVIDENDS. DIVIDENDS REFLECT CURRENT INVESTMENT, MORTALITY, EXPENSE, AND FEDERAL INCOME TAX EXPERIENCE OF THE COMPANY. CHANGES IN CURRENT EXPERIENCE CAN SUBJECT DIVIDENDS TO SIGNIFICANT FLUCTUATIONS.
The language in Varacallo's illustration of May 1989 is exactly the same as the language contained in the individual illustrations for policyholders issued by Mass Mutual for use by its authorized agents in the years 1985, 1986, 1987, and 1988.
In March 1996, Varacallo requested and received from Mass Mutual an in-force policy illustration for Lisa's policy. The illustration informed Varacallo that the annual premium obligation would not be extinguished until the eighteenth year, rather than the thirteen years that had been originally projected. The in-force policy illustration contained the same language that "A DIVIDEND CHANGE MAY INCREASE THE NUMBER OF CASH PREMIUM PAYMENTS." But it also contained ...