Berg v. Viaticus, Inc.
- William Alsup
- 3:19-cv-04259
- U.S. District Court · Northern District of California
- 2
In Berg v. Viaticus, Inc., Judge Alsup denied defendants’ motion to dismiss Berg’s claim concerning life-insurance benefit increases.
Philip Berg and the defendants, including Viaticus, Inc. and its successor by merger, Continental Casualty Company. The ruling allowed Berg’s complaint to continue past the motion-to-dismiss stage.
What happened
Berg v. Viaticus, Inc. concerns an agreement involving Berg’s life-insurance policy after he was diagnosed with AIDS. The agreement required Viaticus to pay Berg at least 84% of certain increases in the policy’s death benefit.
After Berg turned 60, the increases were no longer automatic and had to be requested from the insurer. Berg alleged that Viaticus failed to make the application, reducing the death benefit and damaging him. The defendants argued that the agreement gave Viaticus discretion to decide whether to seek the increase.
Judge William Alsup denied the defendants’ motion to dismiss. The court held that, even if Viaticus had discretion, it had to use that discretion consistently with the requirement of good faith and fair dealing, and the agreement could be interpreted in Berg’s favor at this stage.
The detailed version
- Berg v. Viaticus, Inc. · No. 3:19-cv-04259
- William Alsup
- Oct. 11, 2019
Background
Philip Berg brought this civil action against Viaticus, Inc., Continental Casualty Company, and other defendants. The opinion describes Berg as an AIDS victim and the defendants as viatical investors. Continental Casualty Company is identified as Viaticus’s successor by merger.
Berg obtained a life-insurance policy from Mutual of New York Life Insurance Company of America. The policy’s death benefit automatically increased each year until Berg’s sixtieth birthday. Between his sixtieth and seventieth birthdays, increases depended on Berg being found insurable by the insurer.
In 1996, Berg entered into a viatical agreement with Viaticus. Section 3.02 stated that, when the policy contained a provision increasing the life-insurance benefits, Viaticus would pay Berg within 30 days after receiving satisfactory confirmation from the insurer an amount equal to at least 84% of the increase.
After Berg turned 60, the annual increases were no longer automatic and required an application. Berg alleged that Viaticus failed to make that application. As a result, the death benefits did not increase, and Berg claimed damages equal to 84% of the increase that would have occurred.
Motion and analysis
The defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legal claim. They argued that Section 3.02 gave Viaticus discretion to decide whether to apply for increased death benefits.
The court rejected that argument at the pleading stage. It explained that even when a contract gives one party discretion, that discretion must be exercised consistently with the implied duty of good faith and fair dealing so the other party is not deprived of the benefit of the bargain. The parties agreed that California law governed the agreement.
The court also concluded that, at least at the pleading stage, Section 3.02 could be interpreted in a way favorable to Berg—namely, as requiring Viaticus to take reasonably necessary steps to seek the increase in life-insurance benefits.
Ruling
Judge William Alsup denied the defendants’ motion to dismiss. The opinion does not state that the court entered judgment on the underlying contract dispute; it ruled only that Berg’s complaint could not be dismissed at this stage based on the defendants’ interpretation of Section 3.02.
Read the full 2-page opinion on CourtListener, the free public archive maintained by the Free Law Project.