Gaudet v. Metropolitan Life Insurance Company

Background

Germaine Gaudet brought a proposed class action against Metropolitan Life Insurance Company, referred to as MetLife. Gaudet purchased a MetLife long-term-care insurance policy that became effective in 2007. The policy stated that it was guaranteed renewable for life, but that premium rates could change on a class-wide basis subject to approval by the California Department of Insurance (CDI).

MetLife learned in 2008 that its actual experience differed materially from the assumptions used to price certain policies. It developed new rate schedules and later sought premium increases for existing policyholders. The CDI denied MetLife’s 2013 California request, but in 2021 approved a 123.8% increase for California policyholders in the relevant policy group. MetLife then notified Gaudet of the phased increase and of options to reduce its effects.

Gaudet alleged that MetLife should have disclosed, before 2021, that the policies were underpriced, that MetLife planned to seek premium increases, and that it had made earlier rate filings. She asserted three California-law claims: fraud by omission, violation of California’s Unfair Competition Law, and violation of California Insurance Code section 10234.8.

Judicial Notice

The court granted both parties’ requests for judicial notice of specified public documents and documents incorporated into the complaint. The court took notice of the documents’ existence and contents, but not the truth of factual assertions contained in them.

Fraudulent Omission

Under California law, a fraud-by-omission claim requires plausible allegations that the defendant concealed a material fact, had a duty to disclose it, acted with intent to defraud, and caused the plaintiff to act differently and suffer damages.

The court focused on whether MetLife had a duty to disclose its proposed rate increases before CDI approval. Relying on California authority, the court explained that an insurer’s disclosure duty applies to changes that are impending—that is, about to happen or already established—not merely possible future changes. Because the CDI could deny a proposed increase, the court held that MetLife’s rate action plans were not impending before approval. The court therefore granted MetLife’s motion to dismiss the fraud-by-omission claim.

Unfair Competition Law Claim

Gaudet relied exclusively on the “unlawful” theory under California’s Unfair Competition Law. She alleged that MetLife’s failure to disclose the rate action plans violated several California Insurance Code provisions.

The court concluded that Gaudet had not plausibly alleged a violation of those provisions because MetLife had no duty to disclose the unapproved rate plans. The court also cited California Insurance Code section 339, which provides that parties to an insurance contract are not required to communicate their own judgments about matters in question. The court granted MetLife’s motion to dismiss the Unfair Competition Law claim.

Insurance Code Section 10234.8 Claim

Section 10234.8 imposes duties of honesty and good faith and fair dealing on participants in the long-term-care insurance business, including duties owed to policyholders and prospective policyholders. The court held that the statute did not create disclosure duties beyond those imposed by existing common law and other insurance laws and regulations.

The court further concluded that Gaudet could not state a duty-of-honesty claim because the policy disclosed that premiums could change and MetLife notified her promptly after the CDI approved the increase. The court granted MetLife’s motion to dismiss the section 10234.8 claim. The court did not decide MetLife’s argument that the statute provides no private right of action because it found that Gaudet had not plausibly alleged a statutory violation.

Disposition

The court granted MetLife’s motion to dismiss the complaint with leave to amend. Any amended complaint must be filed within 28 days of the order. The court also granted MetLife’s motion to stay discovery because no operative complaint remained pending. Discovery is stayed until MetLife files an answer to any amended complaint, and existing deadlines are vacated except for the amendment deadline. The court did not address MetLife’s alternative argument that Gaudet’s claims were untimely.