United States District Court, D. New Jersey
DUANE BUCK and ANN BUCK, on behalf of themselves and all others similarly situated, Plaintiffs,
AMERICAN GENERAL LIFE INSURANCE COMPANY, Defendant.
P SCHRAMA CRAIG S. HILLARD STEFANIE COLELLA-WALSH STARK &
STARK SCOTT P. GORMAN GORMAN & GORMAN, LLC Attorneys for
Plaintiffs Duane and Ann Buck
P. FISHKIN ZACHARY W. SILVERMAN S. AARON LOTERSTEIN FISHKIN
LUCKS LLP THE LEGAL CENTER Attorneys for Defendant American
General Life Insurance Company
L. HILLMAN, U.S.D.J.
case is a putative class action alleging the breach of a
universal life insurance policy. Presently before the Court
is Defendant American General Life Insurance's Motion to
Dismiss Plaintiffs' First Amended Complaint and Motion to
Strike Class Allegations. For the reasons expressed herein,
Defendant's Motion to Dismiss will be denied, in part,
and granted, in part. Defendant's Motion to Strike Class
Allegations will be denied without prejudice.
our brief recitation of the facts from Plaintiffs' first
amended complaint. In 1984, Plaintiffs Duane and Ann Buck
(collectively, “Plaintiffs”) purchased a
universal life insurance policy (the “Policy”) on
the life of Duane Buck with his wife, Ann Buck, as an
additional insured. The Policy was issued by The Old Line
Life Insurance Company of America, a company later acquired
by Defendant American General Life Insurance Company
(“Defendant” or “AGLIC”).
discussing the specifics of the Policy and the dispute which
later arose under it, it is important to establish the basic
principles of a universal life insurance policy. Universal
life insurance is a form of permanent life insurance, also
known as flexible premium or adjustable life insurance. This
refers to the fact that a policy is for a term of years with
a set periodic premium, but the premium, benefits, and
beneficiaries may all be modified during the term of years.
type of insurance is meant to give a policyholder coverage
for her entire lifetime, while allowing her to vary premium
payments, adjust death benefits, and build a cash value while
young to offset the higher premiums charged later in life. In
other words, as Plaintiffs explain, this type of policy has
three elements: (1) the premium, payable periodically, (2)
the death benefit, payable to the beneficiary upon death of
the insured, and (3) the cash surrender value, the value the
policyholder receives if the policy is surrendered prior to
death. The cash value built up in the policy receives
preferred tax treatment and may be used to pay the cost of
insurance in place of a premium, to borrow money against the
policy, or merely saved to build cash value.
types of policies are governed, in part, by the Internal
Revenue Code. This provides an outer limit for the amount of
cash value that may accrue within a policy while still
qualifying for preferred tax treatment. See I.R.C.
§ 7702, et seq. If the cash value exceeds this
outer limit, a policy may lose preferred tax treatment as
“life insurance.” Besides this penalty, it is
unclear from the parties briefing whether there are any other
consequences to the owner or insurer. Both parties note that
the actual calculations to determine the premium amount to
pay to keep this preferred tax treatment and build cash value
are too complicated to explain and, in any event, those
calculations are irrelevant to this case.
the Policy provided a $70, 000 death benefit for Duane Buck,
a $25, 000 rider for Ann Buck, and three $5, 000 riders, one
for each of the couple's children. The Policy guaranteed
an interest rate of 4.5%, compounded yearly, for all premiums
paid in excess of cost. The Policy also granted Plaintiffs
the right to effectuate a partial or total surrender of the
Policy at certain points with certain predetermined fees.
AGLIC also provided “Annual Reports” which show
the policy's current death benefit, current cash value,
total amount of premiums paid, total accumulated growth, and
total charges assessed. As the name suggests, the Policy
promised that these Annual Reports would be sent - at least -
on a yearly basis.
point thereafter, Plaintiffs increased Duane Buck's death
benefit to $100, 000 and Ann Buck's death benefit to $50,
000. In 2008, Plaintiffs requested that AGLIC reduce the
death benefit for both Duane and Ann Buck to $25, 000 and
that it eliminate the $15, 000 in riders the couple had
maintained for their children. AGLIC complied.
connection with the 2008 decrease in death benefit, AGLIC
provided the Bucks with a “Supplemental
Illustration” (the “Illustration”) dated
September 29, 2008. The Illustration provides policyholders
with projections to help them decide how desired changes to
their policy may affect the ability of their investment to
grow while maintaining preferred tax status.Plaintiffs allege
the Illustrations provided by AGLIC determined the amount of
yearly or monthly premiums they paid. The Bucks paid the
premium as described in the Illustration.
January 7, 2016, AGLIC sent Plaintiffs a letter which claimed
the Policy had been funded to its limit and was at risk of
losing its preferred tax status. Plaintiffs allege that the
reason the Policy was at risk of losing its preferred tax
status was because Defendant used faulty compliance
procedures and software which failed to adequately predict
the amount of premiums required to keep the Policy tax
compliant throughout its life. Defendant, in this letter,
claimed that it was a combination of the decrease in death
benefits and premium amount which led to this compliance
presented the Bucks with three options that would allow the
Policy to maintain its tax status: (1) increasing the death
benefit (which would have required additional underwriting),
(2) surrendering the Policy, or (3) maintaining the Policy,
allowing annual refunds, and ceasing premium payments until
the cash value of the Policy was exhausted. AGLIC, in the
letter, reserved the right to completely surrender the Policy
if Plaintiffs did not choose one of the three listed options.
chose none of these options. Each option presented Plaintiffs
with either a loss of the Policy, increased premiums, or loss
of the benefit of the 4.5% interest rate being applied to
their future premium payments (as they would be prohibited
from making any further premium payments until a later date).
AGLIC continued to send letters over the following year,
reiterating the options available and that it reserved the
right to unilaterally surrender the policy if no option was
January 13, 2017, AGLIC sent a letter stating (1) the Policy
remained non-compliant, (2) a check would be sent in the
amount of $3, 260 representing the amount the Policy was
overfunded, and (3) the cash value of the Policy would be
used to pay premiums until it had been exhausted, at which
time Plaintiffs could resume paying premiums.
on December 11, 2017 AGLIC sent a letter stating Plaintiffs
“may pay enough into the policy each year as necessary
to maintain . . . coverage without building up any excess
policy value.” Plaintiffs allege this prohibits them
from gaining the benefit of the 4.5% interest rate and
building any cash value within the Policy. In effect,
Plaintiffs allege, the Policy has been transformed into a
year-to-year term policy.
December 19, 2017 Plaintiffs filed a complaint in this Court,
which included class action allegations. Plaintiffs present
two claims for relief: breach of contract and rescission.
Defendant filed its Motion to Dismiss and Motion to Strike
Class Allegations on March 5, 2018. It has been fully briefed
and is ripe for adjudication.
Subject Matter Jurisdiction
Court has jurisdiction over this action under the Class
Action Fairness Act of 2005. See 28 U.S.C. §
1332(d) (granting United States district courts jurisdiction
over putative class claims, which, in aggregate, exceed $5,
000, 000 and include one putative class member who is diverse
from defendants). Plaintiffs are individual citizens of New
Jersey and AGLIC is a citizen of Texas having been
incorporated there and maintaining its principal place of
business in that state.
amount in controversy, the First Amended Class Action
Complaint is unfortunately vague and internally inconsistent
- or at least redundant. First, while it alleges AGLIC has
approximately 100, 000 individual life insurance policies in
force in New Jersey, it fails to distinguish between
universal life policies - at issue here - and other forms of
life insurance. Second, in one sentence the First Amended
Class Action Complaint alleges AGLIC received “over
$100 million in premiums annually” and then in the next
sentence alleges AGLIC received over $600 million in premiums
“in 2016 alone” both numbers attributed to its
New Jersey life insurance customers. [Doc. No. 8 at para. 6.]
the lack of clarity and specificity, it seems plausible at
this stage of the proceedings that a large enough percentage
of AGLIC life insurance customers are universal life
customers and given the large dollar volume of premiums for
all life insurance policies in force - whichever alleged
number is more accurate - that the putative class damages
exceed the statutory minimum.
Standard for Motion to Dismiss
considering a motion to dismiss a complaint for failure to
state a claim upon which relief can be granted pursuant to
Federal Rule of Civil Procedure 12(b)(6), a court must accept
all well-pleaded allegations in the complaint as true and
view them in the light most favorable to the plaintiff.
Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005).
It is well settled that a pleading is sufficient if it