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Beverly Clark, Jesse J. Paul, Warren Gold, Linda M. Cusanelli v. the Prudential Insurance

February 5, 2013


The opinion of the court was delivered by: Debevoise, Senior District Judge



This case concerns allegations of deception and bad faith against a health insurance company, The Prudential Insurance Company of America ("Prudential"). Plaintiffs Beverly Clark, Jesse J. Paul, Warren Gold, Linda M. Cusanelli, Carole L. Walcher, and Terri L. Drogell (collectively, "Plaintiffs") have filed a putative class action complaint against Prudential. Before the Court are two motions: Plaintiffs' motion for class certification, and Prudential's motion for summary judgment on behalf of four of the six named plaintiffs based on the statute of limitations.

The heart of the complaint is that Prudential stopped selling a previous health insurance policy to new customers ("closing the block"), knowing that this would result in a prohibitive increase in premium rates. Plaintiffs content that Prudential had falsely misrepresented to its policy holders that the only reason for increased premiums would be increasing age of the insured and rising medical costs and failed to disclose that a major reason for the premium increases was the closing of the block.

For the reasons set forth below, Plaintiffs' motion for class certification is DENIED. Prudential's separate motion for summary judgment, addressed independently below for the sake of judicial efficiency, is GRANTED with respect to Ms. Clark and Ms. Drogell, and DENIED with respect to Ms. Cusanelli and Mr. Gold.


II. Background

A. Procedural History

B. Factual History

1. The CHIP Policy

2. Summary of CHIP's Timeline

3. Prudential's Communications to CHIP policyholders

4. CHIP policyholders and premium rates over time

5. General Claims Asserted

6. Class Representatives

a. Beverly Clark

b. Jesse J. Paul

c. Warren Gold

d. Linda M. Cusanelli

e. Carole L. Walcher

f. Terri L. Drogell

7. Expert Reports and Damages

a. Plaintiffs' Expert

b. Prudential's Experts

c. Proposed Adjustments

8. Objections to Evidence

a. Salinas Declaration, offered by Prudential to show representatives' oral communications with policyholders

b. Certain Opinions of Prudential's Expert Wildsmith in his Expert Report, offered by Prudential to show the experienced loss-ratio

c. Challenged Hearsay Evidence

d. Contested Opinions in Prudential's Experts' Declarations

e. Objections to Expert Opinion in Testimony based on Lack of Foundation

f. Objections to Supposed Inadmissible Legal Argument Submitted by Prudential's Experts Strombom and Wildsmith

III. Motion for Class Certification

A. The Class, Subclasses, and Associated Claims

1. The Original Class and Subclasses

2. The Revised Proposal

B. Standard of Review

C. Discussion

1. Common Law Fraud

2. California-Specific Claims

a. "Unlawful" business acts and the Implied Covenant of Good Faith & Fair Dealing Claim

b. "Unfair" business acts

c. "Fraudulent" practices

IV. Motion for Summary Judgment

A. Standard of Review

B. Discussion

1. Inquiry notice

2. Relevant statutes of limitations

3. Application to the named plaintiffs

a. Ms. Clark

b. Ms. Cusanelli

c. Mr. Gold

d. Ms. Drogell

V. Conclusion


The facts of this case and procedural history are discussed at great length in several prior opinions dated September 14, 2009 (ECF 39), September 9, 2010 (ECF 98), March 15, 2011 (Doc No. 156), and May 13, 2011 (ECF 170). Plaintiffs are six former customers of Prudential who purchased health insurance plans marketed under the name Coordinated Health Insurance Program ("CHIP").

Plaintiffs filed a motion for class certification on February 22, 2012, on behalf of roughly 17,000 current and former CHIP policyholders spanning four states, California, Indiana, Ohio, and Texas, under various state laws. The proposed class consists of individuals who paid one or more CHIP major medical premiums based on a rate increase effective on or after March 1, 1982. Plaintiffs seek recovery for Prudential's failure to disclose that it stopped selling CHIP to new policyholders, and the consequences thereof to existing policyholders, namely severe premium increases and the risk of being locked-out of other policies and locked-in to CHIP due to the development of a serious chronic condition. Plaintiffs claim that this omission prevented class members from making the rational choice to switch to an alternate policy, and it gave the lie to Prudential's representations that premium increases would be based only on medical cost inflation, increases in policyholder age, and between 1985 to 1990 high claim cost.

Prudential filed the second motion herein considered for summary judgment on July 13, 2012. Prudential essentially raises a statute of limitations defense, arguing that four of the named plaintiffs had knowledge of the underlying material facts and the time has run to bring their claims.

With regard to the handling of the two motions, the Court is informed by the reasoning set forth in Achem Prods. V. Windsor, 521 U.S. 591 (1997). Therein, the Supreme Court noted that because resolution of the class certification issues "is logically antecedent to the existence of Article III issues, it is appropriate to reach them first." Id. at 612-613. Thus, the Supreme Court was "follow[ing] the path taken by the [Third Circuit] Court of Appeals" in "declin[ing] to reach these [standing] issues because they would not exist but for the [class action] certification." Id. Therefore, the discussion below first addresses the first motion submitted before the Court and corresponding files and responses including an objection to evidence proffered by Prudential in opposition to the motion, and a brief submitted with the consent of Court which outlines a revised proposal for subclasses. Once issues related to class certification are resolved, the Court will address the second motion, with respect to summary judgment.

A.Procedural History

In the original Complaint, the two original plaintiffs, Ms. Clark and Mr. Paul, asserted three causes of action for: (1) violation of the New Jersey Consumer Fraud Act, N.J. Stat. Ann. 56:8-1 et. seq., ("NJCFA"); (2) breach of fiduciary duty; and (3) breach of the duty of good faith and fair dealing. Prudential moved to dismiss the individual plaintiffs' claims. In an Opinion and Order dated September 14, 2009, the Court granted the motion in part, dismissing all claims except for Ms. Clark's claim for breach of the implied covenant of good faith and fair dealing.*fn1

Clark v. Prudential Ins. Co. of Am., Civ. No. 08-6197, 2009 U.S. Dist. LEXIS 84093 (D.N.J. Sept. 14, 2009) (ECF 40) ("2009 Op.").*fn2

Subsequently, on October 30, 2009, Ms. Clark filed an Amended Complaint, asserting claims for unfair competition and breach of the duty of good faith and fair dealing against Prudential under California law. Thereafter, the parties stipulated that Ms. Clark and Mr. Paul would file a Second Amended Complaint with additional claims for common law fraudulent misrepresentation and fraudulent omission. The Second Amended Complaint ("2AC") was filed on November 12, 2009. It was shortly followed by a motion to dismiss on December 3, 2009.

The motion was partially briefed, and the parties stipulated that the Plaintiffs could file a Third Amended Complaint ("3AC"), adding Marc H. Litwack as a new plaintiff. The parties agreed that the Court would address, during a single motion hearing, the issues raised in both the motions to dismiss the 2AC and the 3AC. As a result of amendments and stipulation the following five claims for relief were pleaded: 1) fraudulent misrepresentations (by Clark, Litwack and Paul); 2) fraudulent omissions (by Clark, Litwack and Paul); 3) breach of duty of good faith and fair dealing (by Clark and Litwack); 4) violation of California Unfair Competition Law (by Clark); and 5) violation of New Jersey Consumer Fraud Act (by Litwack).

In an opinion dated September 9, 2010, this Court dismissed Mr. Litwack's claims with prejudice as barred by the filed rate doctrine as applied under New Jersey law. The September 9, 2010 opinion also dismissed Ms. Clark's requests for injunctive relief and treble damages under California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200, et seq., and dismissed Mr. Paul's misrepresentation claim only to the extent that it is based on the renewal provision. The Court held that for statute of limitation purposes, the discovery rule is applicable to UCL claims, and that Ms. Clark had sufficiently pled that she had exercised reasonable diligence and yet was unable to discover the death spiral and its consequences until 2005 at the earliest.*fn3 The Court denied Prudential's motion to dismiss all California causes of action for fraudulent omission, unfair competition, and good faith and fair dealing.

On November 9, 2010, Plaintiffs filed a Fourth Amended Complaint ("4AC"). The 4AC asserted four claims: 1) fraudulent misrepresentation on behalf of a Multi-State Fraud Class; 2) fraudulent omission on behalf of a Multi-State Fraud Class; 3) breach of good faith and fair dealing on behalf of a California Subclass; 4) violation of California Unfair Competition Law on behalf of a California Subclass. The proposed class definition was "all persons living in California, Indiana, New York, Ohio or Texas who renewed a CHIP after Prudential closed the block." Warren Gold and Linda Cusanelli were added as Plaintiffs.

Thereafter on December 16, 2010, Prudential filed a motion to dismiss or strike portions of the 4AC, arguing inter alia that a recent decision rendered by the California Court of Appeal mandated dismissal of the California causes of action and that the New York, Ohio, and Texas class claims were untenable under the filed rate doctrine. Before this motion could be argued, Plaintiffs and Prudential entered into a stipulation under which Plaintiffs would file a Fifth Amended Complaint ("5AC"). The 5AC added claims by Plaintiffs Carole L. Walcher and Terri

L. Drogell. The Parties stipulated that this Court's ruling on the pending motion would apply with the same force as to the allegations of the 5AC, and that the pending motion would also be considered a motion to dismiss Ms. Drogell's claims as barred by the filed rate doctrine.

On March 15, 2011, the Court rendered an opinion which denied Prudential's motion to dismiss the California causes of action premised on duty to disclose, and granted Prudential's motion to strike the New York claims based on the filed rate doctrine, but denied the motion to strike the Ohio and Texas claims based on the filed rate doctrine. (ECF 156.)

The operative complaint is the Fifth Amended Complaint ("5AC"), submitted on February 16, 2011, which alleges four causes of action raised by six plaintiffs who purchased their health insurance plans in California, Indiana, Ohio, and Texas. The 5AC alleges (1) fraudulent misrepresentation, on behalf of a Multi-State Fraud Class; (2) fraudulent omissions, on behalf of a Multi-State Fraud Class; (3) breach of the duty of good faith and fair dealing, on behalf of a California Subclass; and (4) violation of California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200, et seq., on behalf of a California Subclass. (ECF 140.) The prayer for relief includes a) an Order determining that the action may be maintained as a class action and providing class certification; b) compensatory damages according to proof at trial; c) punitive or exemplary damages; d) restoration of all money or property which may have been acquired by Prudential by means of unfair competition; e) reasonable attorneys fees, and all costs and disbursements including, without limitation, filing fees and reasonable costs of suit; and f) such other further relief as this Court deems just and proper. (Id.)

This case has also been heavily litigated in discovery. Most recently, on May 13, 2011, the Court reversed the Magistrate Judge's March 1, 2011 discovery order denying Plaintiff's challenge to the confidentiality designation of fifteen documents.

B.Factual History*fn4

1.The CHIP Policy

The CHIP policy is a form of individual health insurance, distinct from group health insurance. "One of the goals of CHIP was to show there was no need for national health insurance, that is, that health insurance could be provided by the private sector. Despite good intentions, the design included [ ] major flaws." (Chud Decl., Ex. 2, CHIP Business Plan Memorandum, PRU-BC-00001287).

CHIP has particularly rich benefits. (See id.) In addition to posing no lifetime limit on benefits, policyholders under age 65 had no dollar cap on benefits, and CHIP included complete choice of medical providers and unlimited coverage for private duty nursing. The only limit is $20,000 on mental health benefits. Additionally, the contract included no prevention of duplication of benefits, for example if a CHIP policyholder later purchased another additional health coverage policy, s/he could receive benefits on both.

The terms of CHIP permitted purchasers to continue to renew the policies indefinitely at their election and as such, Prudential strictly limited its own right to discontinue the CHIP policy. Specifically, Prudential maintained the right to discontinue the policy only upon canceling all CHIP policies in the state of the policyholder's residence.*fn5 CHIP provides major medical benefits. A limited benefit plan was also offered, which served as a supplemental insurance policy. For example, when a CHIP policyholder became eligible for Medicare at 65, CHIP coverage changed to limited medical coverage, for which benefits and premiums were much less than those for major medical coverage.

To some degree, CHIP is used as a bridge program to employer-sponsored coverage or Medicare as individuals approach 65. A 1975 study led Prudential to stop accepting applications from persons who were unemployed, in a present job for less than six months, or from students within twelve months of graduation. (Id.) Thus, a new short-term policy, called Temporary Medical Protection, was introduced in 1979 as an alternative to cover applicants needing short-term coverage. (Id.) Additionally, once policyholders reached the age of 65, their CHIP policies were automatically converted to limited medical expense policies. These limited medical expense policies are supplemental to Medicare, the primary source of health insurance coverage. Unlike the major medical policies, the limited medical policies had a lifetime limit of $10,000 for most covered expenses.

2.Summary of CHIP's Timeline

Prudential sold CHIP throughout the United States from 1973 through 1981. On December 17, 1981, Prudential "closed the block," or stopped selling CHIP to new customers. Thus, sales to new policyholders, which were down from previous years but still totaled 80,000 in 1981, virtually ceased.*fn6 This action for class certification is on behalf of roughly 17,000 CHIP policyholders spanning four states, who paid one or more CHIP premiums based on a rate increase effective on or after March 1, 1982, the effective date of the first CHIP premium rate increase following block closure.

Premiums started to increase immediately following block closure, and within five years of the block closure, by 1986, fewer than 10% of the CHIP policies remained.

Starting in 1990, Prudential limited premiums through rate capping of 10% every year. Prudential instituted the cap to minimize constructive cancellation lawsuits that arose in 1986 for premiums raised to a point where the insured could not afford them and thus his or her policy was forced to lapse. (Chud Decl., Ex. 2, PRU-BC-00001288.) Prudential lifted the subsidy cap in 2001, and the increased premiums were then directly ascribed to whatever CHIP policyholders remained.

3.Prudential's Communications to CHIP policyholders

The nature and breadth of the communications being at issue, the following is an overview of the main written communications sent to CHIP policyholders. First, Prudential sent a form letter known as a "welcome letter" to every CHIP policyholder at or about the time of policy issuance advising that premium increases would be based solely on increases in age and medical cost inflation.*fn7

Subsequent to the block closure, Prudential sent annual notices of premium increases to CHIP policyholders whose policies were still in force. These notices did not advise policyholders that premium increases were being affected by the closed block.

In 1985, Prudential began sending to all CHIP policyholders whose policies were still in force annual "notice of rerate" form letters that preceded each premium increase at the policy anniversary. Plaintiffs argue that these uniform letters (the "three reason" letter) falsely advised that the only reasons for policyholders' premium increases were increase in age, high cost of medical care, which referred to medical cost inflation; and high claim cost.

In 1989, Prudential modified the annual "notice of rerate" form letter to drop the reference to high claim costs, such that the new letter advised that the only reasons for premium increases were increase in age and high cost of medical care (the "two reason" letter). Prudential continued sending this form letter to all policyholders until early 2001.

None of these annual notices mentioned the Plaintiffs' contested reason for premium increases -- the block closure, the death spiral and its inevitable creation of absurdly high premiums, or its lock-out/lock-in consequences whereby new customers are locked-out and sick customers are locked-in due to development of a pre-existing condition and inability to secure alternate health insurance accordingly.

In addition to the welcome letter, the three-reason letter, and the two-reason letter, on May 12, 1995, Prudential sent a letter to California policyholders referencing California Assembly Bill 1743. (See Chud Decl., Ex. 21.)*fn8 *fn9

Individual policyholders also discussed CHIP premiums with Prudential representatives via telephone. While the form letters described above were sent with uniformity to all policyholders, policyholders also had the option of calling Prudential representatives for further inquiry or assistance. Indeed, policyholders were directly invited to do so via the three-reason and two-reason letters. (Chud Decl., Exs 14, 15.) Oral communications with named Plaintiffs are detailed further below. For example, Ms. Clark's bookkeeper called Prudential in 1993 and learned that CHIP was closed. (Clark Dep. at 93:24 -- 95:18, 121:5-121.) Additionally, a Prudential representative advised Ms. Cusanelli in 2005 that CHIP was a "closed block of business" and that premiums were set based on "the claims that are being paid out." (Cusanelli 2005 Tscpt at 3:22, 4:22-5:2, 6:6-10, 7:11-10.) Similarly, Mr. Gold learned from a call to Prudential in 2004 that CHIP was a "closed block of business." (Gold 2004 Tscpt at 7:3-18.) Last, Ms. Walcher's financial advisor called Prudential on her behalf and learned that CHIP was a "closed book of business." (Walcher Dep. at 27:11-28:10.) Of note, recordings exist for most calls made since 2002, however only incomplete records exist for calls made before that time. (See Hudson Decl., Apps. A, B, & C.)

The block closure was also publicized in widely-distributed newspaper reports beginning in December 1981. For example, on December 18, 1981, the Wall Street Journal ran an article of Prudential's suspension of CHIP sales due to rising medical costs. (Chud Decl., Ex. 68.) The same day, the Newark, NJ Star-Ledger stated the same and quoted a company statement that "[b]ecause of the comprehensiveness of its benefits, the CHIP policy has been particularly

Event Nationwide California Indiana Ohio Texas 1975 CHIP first sold on market 229,648 15,588 11,225 9,415 3,315 1981 Block Closed on 12/17/81 261,489 23,331 11,883 10,394 5,354 1982 The first premium increase is effective on 3/1/82 152,875 11,878 6,369 5,512 2,919 1985 Three-reason Letter first sent 37,582 2,495 1,291 909 686 1989 Two-reason Letter first sent 15,012 961 578 392 294

susceptible to rapidly escalating medical care costs[.]" (Id., Ex. 69.) The following day, on December 19, 1981, the Washington Post covered the item as well. That article included a statement by executive vice president of Prudential John K Kittredge that the company "was a victim of what actuaries call 'adverse selection' -- that those most likely to use a benefit are the only ones to buy it. As the costs of premiums rose to keep pace with medical expenses . . . the customers who bought the policies tended to be those most likely to need medical care, and the cost of their care was not offset by premiums from healthier customers." (Id., 70.) Similarly, the Dow Jones News Service ran an article that day in the Chicago Tribune entitled "Prudential Hits Cost, Drops Health Policies." (Id., 71.) Further, articles by Jane Bryant Quinn addressed the issue in the LA Times Syndicate, Newsweek, and the Chicago Tribune in February 1982, February 1993, and February 1996 respectively. The latter two articles were entitled "Insurance: The Death Spiral," and "Death-spiral Insurance Pricing Is Sickening." (Id., 72 -- 74.)

4.CHIP policyholders and premium rates over time

CHIP policyholders dwindled over time. As mentioned above, within five years of the block closure, fewer than 10% of the CHIP policies remained. By 2001, when Prudential stopped capping premium increases at 10%, 99% of the proposed class had already dropped the CHIP policy. The chart below illustrates the number of policyholders by state over years material to this action.

Number of CHIP Policies by State over Time 1990 Prudential's premium capping goes into effect 13,431 846 529 353 260 2000 3,918 223 151 97 82 2001 Premium cap is lifted; Two-reason Letter no longer sent. 3,376 195 119 70 54 2002 3,042 203 130 81 69 2005 1,515 115 56 33 17 2006 1,076 77 37 24 12 2007 850 62 21 18 10 2008 681 46 18 15 8 2009 N/A N/A 15 12

(See Chud Decl., Ex. 75

The above chart is constructed based on the record. (See id.) The figures indicate that within one year of the block closure, CHIP policyholders dropped 41.5% nationally; 49% in California;

46.4% in Indiana; 46.9% in Ohio; and 45.5% in Texas. A small proportion of the policyholders remained upon distribution of the three and two reason letters in 1985 and 1989 respectively:

14.4% and 5.7% nationally; 10.7% and 4.1% in California; 10.9% and 4.9% in Indiana; 8.7% and 3.8% in Ohio; and 12.8% and 5.5% in Texas. By 2001 when the premium cap was lifted, an even smaller proportion of the population remained since the block closure: nationally (1.3%); California (0.8%); Indiana (1%); Ohio (0.7%); Texas (1%).

The majority of nationwide CHIP policyholders are enrolled in limited medical coverage policies. At the time the CHIP block was closed in 1981, of the 261,489 CHIP policies in force, approximately 38% (or 97,971) were major medical policies and 63% (or 163,518) were limited medical coverage policies. Limited medical policyholders currently constitute more than 70% of all CHIP policyholders.

Plaintiffs' Complaint alleges that "Prudential knew that the block closure would inevitably cause premiums to increase to affordable levels." (5AC ¶ 5.) As an example of the inevitable "extremely large premium increases," Plaintiffs recite the individual class representatives' premium increases after 2000. (Id.) As a result of Prudential's conduct, Plaintiffs allege that they "suffered injury and damages, including higher premiums than would have been otherwise paid and medical costs for conditions that would have been covered by other insurance if the ramifications of the block closure had been disclosed." (Id. at ¶ 9.) Further details of specific premium rises, caps, and effects after the cap was lifted, are briefed at length below with regard to the individual class representatives.

5.General Claims Asserted

Plaintiffs allege that beginning in 1985, when the three-reason letter was first sent, Prudential began misrepresenting the reason for premium increases -- the late-1981 block closure and its inevitable death spiral. Plaintiffs claim that once Prudential ceased selling CHIP policies, it destabilized the risk pool for existing policyholders, rendering it a virtual certainty that premiums would spiral out of control until all plan participants were forced to drop their coverage.

As one federal court succinctly described this phenomenon:

It is widely known throughout the insurance industry, but not to the general public, that closing a block of business, by ensuring that no new insureds will enter the pool covered by the policy, inevitably leads to a decrease in the size of the pool as healthy insureds switch to cheaper policies. This in turn leads to increased premiums, as the risks and costs associated with the pool are shared by fewer and fewer people. As the premiums increase, more healthy insureds flee the policy, leaving only those unhealthy insureds who cannot find insurance elsewhere, and leading to even higher premiums.

This vicious circle of higher premiums and a shrinking pool to share the increased costs is known in the insurance industry as a "death spiral" and is most common in those sectors of the industry that sell policies covering small groups and individuals. In a death spiral situation, eventually the premiums increase to the point where they become unaffordable to the vast majority of policyholders, at which point the insured fails to pay the premium and the policy lapses.

Dickerson v. Cent. United Life Ins. Co., 932 F. Supp. 1471, 1473 (M.D. Ga. 1996).

Similarly, the Fifth Circuit Court of Appeals examined the CHIP Policy in question and its effects in 1987 and found as follows:

These premiums increases were based on Prudential's nationwide loss experience with the CHIP policy, and were made for all policyholders within predetermined geographic areas. Based partly on a greater than expected rise in the cost of offering CHIP policies, Prudential stopped marketing this insurance product to new customers. This combination of loss-based pricing and a closed group of customers virtually guaranteed that the premiums for the remaining CHIP policyholders would continue to rise. Because only those with substantial continuing claims or high health risk were motivated to countenance the ever-increasing premiums, a continual worsening of loss-ratios was assured.

[ . . . ]

Prudential made a business decision to begin marketing the CHIP policy, and it made a business decision to terminate that marketing effort. When it did the latter, the universe of policyholders necessarily began to constrict, with the certain result that the earnings/loss payable ratio steadily declined.

The decision to terminate new sales of CHIP policies fixes with moral certitude the reality that financially the CHIP policy cannot stand on its own bottom.

Tusa v. Prudential Ins. Co., 825 F.2d 69, 71 (5th Cir. 1987).

Thus, Plaintiffs propose a class action on behalf of a putative class of roughly 17,000 members spanning four states, California, Indiana, Ohio, and Texas, under various state laws. The proposed class consists of individuals who paid one or more CHIP major medical premiums based on a rate increase effective on or after March 1, 1982. Plaintiffs seek recovery for Prudential's failure to disclose that it stopped selling CHIP to new policyholders, and related severe consequences to existing policyholders, namely severe premium increases and the risk of being locked out of other policies and locked into CHIP due to the development of a serious chronic condition. Plaintiffs claim that this omission prevented class members from making the rational choice to switch to an alternate policy, and it gave the lie to Prudential's representations that premium increases would be based only on medical cost inflation; increases in policyholder age; and, between 1985 to 1990, high claim cost.

Prudential opposes the effort to certify the class, arguing that individual issues predominate over common ones. Surprisingly, Prudential does not concede that the block closure leads to premium increases and a death spiral. Nonetheless, the Court's role is not to assess the merits, but rather to review the factual evidence based on a preponderance of the evidence, and assess whether the Federal Rules of Civil Procedure are satisfied with respect to class certification.

6.Class Representatives

All six named Plaintiffs held their policies until 2004 or later,*fn10 and dropped the plan when premiums reached extremely high levels. Plaintiffs allege that none of them knew about or learned of the closed block and death spiral consequences in CHIP outside of the applicable limitations period, and that they all relied on Prudential's misrepresentations and omissions. Plaintiffs uniformly contend that had they been alerted of the block closure and its consequences, they would have immediately begun searching for another health insurance plan and switched to that plan as soon as possible. (See Declarations in support of class cert. mot.: Walcher Decl., ¶¶ 8, 12; Drogell Decl. ¶ 8; Cusanelli Decl. ¶¶ 8, 14; Paul Decl. ¶¶ 8, 13; Clark Decl. ¶¶ 8, 12; Gold Decl. ¶¶ 8; 11.) Plaintiffs did not have a medical condition in 1981 which would have prevented them from securing alternate health insurance or dissuaded them from searching for alternate insurance at that time. (Id.) Below is outlined a full exploration of the relevant record, which consists of over 300 exhibits and appendices, again with consideration for objections to evidence which are addressed separately below, and with consideration of supplemental briefing filed in the motion for summary judgment. Again, the motion for summary judgment is filed with respect to only four of the six proposed class representatives -- Ms. Clark, Mr. Gold, Ms. Cusanelli, and Ms. Drogell.

a.Beverly Clark

Ms. Clark is currently a resident of Vancouver, British Columbia. Ms. Clark purchased CHIP from Prudential, with a policy date of September 13, 1978, in San Diego, California, where she then resided, at a monthly premium rate of $46.09. By 1982, her premium was $149.66 per month. (Clark Dep. 44:23-45:1.) Ms. Clark terminated her policy in September of 2005 when her monthly premium reached $5,600 (or $68,388 per year), an increase from $4,217.65 per month (or $50,611.80 per year). (Clark Decl. ¶ 11.)

Ms. Clark was attracted to the CHIP policy because it was "fully comprehensive." (Clark Dep. 24:22.) When asked why she renewed her policy in 1984, she responded, "I never considered giving it up. I loved my policy, I thought it was a great policy . . [b]ecause it was fully comprehensive." (Clark Dep. 57:18-25.)

Ms. Clark concedes that she "didn't know what to think" when her premiums "started becoming quite enormous" in the 1980s. (Clark Dep. 78:3-17.) She further explains, "I couldn't understand why my rates were becoming so enormous, unless, perhaps, they were trying to get rid of me." (Id. at 78:23-25.) Although Ms. Clark could not remember the precise dates as to when she believed Prudential was trying to rid her of her policy, she submitted that the company was attempting to rid her "when they started increasing my premiums to such enormous amounts." (Id. at 78:3-8.)

Ms. Clark concedes that in 1993 she believed that Prudential was "trying to get [her] to drop the policy . . . [b]y increasing [her] rates." (Id. at 90:14-20.) Ms. Clark further concedes that she thought there had to be other reasons aside from age and costs for the rising costs: "I thought there had to be because it just didn't make sense to me." (Id. at 91:9-19.)*fn11 *fn12

In 1993, although Ms. Clark attests that she believed Prudential's representations that the premium rates were based on her age and medical inflation, she her bookkeeper, Karen Ellis, to look into the issue because the price "made no sense to me whatsoever." (Clark Dep. at 93:24-95:18, 94:16-95:9, 121:5-21.) Prudential indicated to Ms. Ellis that CHIP was no longer being sold to the public. (Id. at 95:16-95:9.) This was the first time that Ms. Clark had heard that the CHIP policy did not exist anymore. (Id.; Id. at 108:20-24, 121:14-18.) After hearing this from Ms. Ellis, Ms. Clark wanted the policy "even more . . . [b]ecause they didn't exist anymore. If that fully comprehensive major medical didn't exist anywhere, I certainly was -- it was important to me to keep this policy active." (Id. at 95:6-18.)

In response to questioning concerning receipt of a letter from Prudential that several factors caused CHIP premiums to increase including increase in age and increasing cost of medical care, Ms. Clark responded that at the time she received the letter, she thought those were the actual reasons why her premiums increased. However, when asked next whether she thought these were the only reasons, Ms. Clark responded, "Well, like I said, I was quite shocked sometimes. I did wonder how could medical costs be this expensive." (Clark Dep. 112:1-9.)

In November of 1996, Prudential sent Ms. Clark a letter regarding her residency status, stating that it "reserve[d] the right to discontinue" her policy if she intended to stay in London more than six months. (See Raffman Decl., Ex. 3 at 2, Clark Dep. Ex. 22.) Before responding to Prudential, Ms. Clark again enlisted the assistance of her attorney Mr. Dean Goetz, writing him that she had "a very old policy" and that Prudential "tr[i]ed many times to cancel me." (Id. at 1.) Ms. Clark further noted that Mr. Goetz "went to bat for me once before with them[,]" in reference to an effort to reinstate the policy a few years prior due to error. Ms. Clark further stated "I a[m] fully expecting a fight from them[,]" and explained her belief that, "[t]hey no longer have this type of policy and don't want it." (Id.)

Ms. Clark had approximately four telephone conversations with Prudential in the 2000s, regarding the reason why the rates were going up. (Clark. Dep. 204:24-205:6.) Ms. Clark testified that she made the calls "to vent my anger probably." (Id. at 81:14-15.) Specifically, when asked whether she was calling because she did not believe that the rates were going up because of age and medical cost inflation and "thought there might be some other reason as well," she answered "Yes" to the affirmative. (Id. at 81:16-21.) One of the telephone transcripts from this period indicates that on September 15, 2004, Ms. Clark disputed that her premium increase was: "outrageous. I've never heard of such a thing. There's not a human being in the world that can pay that kind of money." (Raffman Decl., Ex. 11, 9/15/04 Tr. at 1.)

At some point before her policy terminated in 2005, Ms. Clark telephoned a Prudential representative, who said that the premiums were increasing due to age and rising medical costs. (Clark Dep. 197:14-198:17.) The Prudential representative made no mention of the closed block. (Id.) Ms. Clark allegedly believed her due to the consistency of Prudential's representations. However, Ms. Clark noted in her deposition that "at the same time, I was beginning to get highly suspicious that there had to be something else. Because, you know, $5,600 a month just made absolutely no sense to me whatsoever." (Id. at 198:6-11.) It was that suspicion that led Ms. Clark to ask Mr. Goetz to look into the reason for the premium increases (Id. at 198:12-15.) "I also thought that surely California would have some sort of a law that would stop such a thing from happening." (Id. at 198:15-17.)

In the Fall of 2005, Ms. Clark asked Mr. Goetz to contact the Insurance Commission in California to see if there was a solution to her fear of being left without health insurance after having paid Prudential for so many years, and to look into the reason for the premium increases. (Clark Dep. 196:11-21, 198:12-17.) On October 14, 2005, Mr. Goetz wrote a letter to the California Department of Insurance stating:

Prudential has been taking advantage of Ms. Clark for years by charging her exorbitant premiums. They obviously realized she would not cancel the policy so they continued to take advantage of her by raising the premiums. Prudential took advantage of a 64 year old woman who feared losing her health insurance, as well as health insurance for her son. Prudential's actions breached their covenant of good faith and fair dealing in violation of [the UCL and the California Insurance Code].

(Raffman Decl., Ex. 5, Goetz Dep. Ex. 16 at PRUDG000010.) As of October 2005, Ms. Clark still held hope that she would get the CHIP policy reinstated at ...

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