Jaunich v. State Farm Life Insurance Company

Background

John E. Jaunich purchased a $50,000 flexible-premium adjustable whole life insurance policy from State Farm on December 7, 1995. The policy provided a death benefit and an “Account Value,” which the policy described as the insured’s property held by State Farm in trust. The policy allowed State Farm to withdraw money from that value for specified charges, including the cost of insurance (COI), rider charges, a monthly expense charge, and a premium expense charge.

The policy said that monthly COI rates could be calculated using the insured’s age, sex, applicable rate class, and projected changes in mortality. Jaunich alleged that State Farm also used undisclosed factors, increasing the amounts withdrawn from policyholders’ Account Values. The court had previously dismissed Jaunich’s conversion and declaratory-relief claims. The remaining claims alleged that State Farm breached the policy by using undisclosed factors in the COI calculation and by including expenses in the COI charge.

Summary Judgment on the Contract Claims

The court denied State Farm’s motion for summary judgment on both remaining breach-of-contract claims. Summary judgment is appropriate only when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law.

For the COI claim, State Farm argued that “applicable rate class” referred to the individual rate assigned during underwriting and that it used only the policy’s listed factors and the applicable rate class. The court relied on an Eighth Circuit decision involving a similar State Farm policy, which found the provision at least ambiguous. The court explained that a reasonable policyholder might not understand language stating that COI fees would be calculated “based on” listed factors to permit the insurer to use additional unlisted factors. Because State Farm’s interpretation was not the only reasonable interpretation, factual disputes remained about the policy’s meaning and whether State Farm breached it.

For the expense-charge claim, the policy stated that the monthly expense charge was $5 and that a 5% premium expense charge would be deducted from each premium paid. The court noted that State Farm undisputedly deducted the $5 monthly expense charge. However, because the premium amount varies with the COI, Jaunich’s claim concerning the 5% charge depended in part on the outcome of the COI claim. State Farm did not show that no material factual dispute existed, so the court denied summary judgment on this claim as well.

The court also rejected State Farm’s argument that the six-year Minnesota limitations period barred the claims. It held that State Farm had not shown undisputed facts establishing that the claims were time-barred. The court said that the facts supporting Jaunich’s claims could also support equitable tolling, which can pause the limitations period, if a jury found that State Farm concealed its use of additional factors from policyholders.

Expert Testimony

The court denied State Farm’s motion to exclude the testimony of Scott Witt under Federal Rule of Evidence 702 and the standards associated with Daubert. Witt was a trained actuary with degrees in statistics, mathematics, and computer science and more than 25 years of life-insurance actuarial experience. The court concluded that State Farm’s challenges to Witt’s methodology were better addressed through cross-examination rather than exclusion. It found that his damages model was not so unsupported that it would provide no assistance to a jury.

Class Certification

The court granted Jaunich’s motion for class certification under Federal Rule of Civil Procedure 23(b)(3). The certified class consists of all persons who own or owned a State Farm universal life policy issued on policy form 94030 in Minnesota, whose policy was in force on or after January 1, 2002, and who were subject to at least one monthly deduction.

The court found that the class satisfied the requirement that common questions exist and that those questions predominate over individual issues. It concluded that much of the evidence could be considered on a class-wide basis. The court did not certify the class under Rule 23(c)(4), because Jaunich did not explain why that provision applied, and it did not certify the class under Rule 23(b)(2) because the declaratory-relief claim had already been dismissed.

The class excludes State Farm and certain related persons and entities, State Farm officers, directors, employees and their immediate families, State Farm’s legal representatives, heirs, successors, and assigns, people employed by the law firms representing Jaunich, the assigned judge and the judge’s immediate family, and certain policies insuring males with an issue age of zero that terminated during the first policy year.

Disposition

The court ordered that State Farm’s motion for summary judgment was DENIED, State Farm’s motion to exclude expert testimony was DENIED, and Jaunich’s motion to certify the class was GRANTED. The order did not determine the ultimate liability of State Farm on the breach-of-contract claims.