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Bates v. Bankers Life and Casualty Co.

United States District Court, D. Oregon

January 27, 2014

LORRAINE BATES, CHARLES EHRMAN BATES, EILEEN BURK, DAVD YOUNGBLUTH, DOLORES MARIER, THOMAS MARIER, DAVID CASTAGNO, and DARLA CASTAGNO, Plaintiffs,
v.
BANKERS LIFE AND CASUALTY COMPANY and CNO FINANCIAL GROUP, INC., Defendants

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For Lorraine Bates, on behalf of themselves and all other similarly situated Oregon residents, Eileen Burk, on behalf of themselves and all other similarly situated Oregon residents, David Youngbluth, on behalf of themselves and all other similarly situated Oregon residents, Charles Ehrman Bates, on behalf of themselves and all other similarly situated Oregon residents, Plaintiffs: Christopher L. Cauble, Rachele R. Selvig, LEAD ATTORNEYS, Cauble & Cauble, LLP, Grants Pass, OR; Leslie W. O'Leary, Michael L. Williams, LEAD ATTORNEYS, Williams O'Leary, LLC, Portland, OR.

For Dolores Marier, on behalf of themselves and all other similarly situated Oregon residents, David Castagno, on behalf of themselves and all other similarly situated Oregon residents, Darla Castagno, on behalf of themselves and all other similarly situated Oregon residents, Thomas Marier, on behalf of themselves and all other similarly situated Oregon residents, Plaintiffs: Christopher L. Cauble, Rachele R. Selvig, LEAD ATTORNEYS, Cauble & Cauble, LLP, Grants Pass, OR; Michael L. Williams, LEAD ATTORNEY, Leslie W. O'Leary, Williams O'Leary, LLC, Portland, OR.

For CNO Financial Group, Inc., a Delaware corporation, Defendant: Adam J. Kaiser, Jeffrey J. Amato, John M. Aerni, Kelly Librera, LEAD ATTORNEYS, PRO HAC VICE, Winston & Strawn LLP, New York, NY; Vicki L. Smith, Lane Powell, PC, Portland, OR.

For Bankers Life and Casualty Company, an Illinois insurance company, Defendant: Adam J. Kaiser, Jeffrey J. Amato, LEAD ATTORNEYS, PRO HAC VICE, Winston & Strawn LLP, New York, NY; Vicki L. Smith, LEAD ATTORNEY, Lane Powell, PC, Portland, OR.

OPINION

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OPINION AND ORDER

Honorable Paul Papak, United States Magistrate Judge.

Named plaintiffs Eileen Burk, David Youngbluth, Charles Ehrman Bates, and Lorraine Bates filed this putative class action against their insurer Bankers Life and Casualty Company (" Bankers" ), Bankers' intermediate and ultimate parent companies CDOC, Inc. (" CDOC" ), and CNO Financial Group, Inc. (" CNOFG" ), individual defendant James Peterson, and ten corporate Doe defendants on April 4, 2013. On May 31, 2013, plaintiffs amended their complaint, abandoning their claims against Peterson and the corporate Doe defendants, adding Bankers' intermediate parent company Conesco Life Insurance Company of Texas (" CLIC" ) as an additional defendant, and adding David Castagno, Darla Castagno, Thomas Marier, and Dolores Marier as additional named plaintiffs. Effective October 23, 2013, plaintiffs amended their complaint a second time, abandoning their claims against Bankers' intermediate parent companies CDOC and CLIC. The parties' dispute arises out of the remaining defendants' alleged conduct in connection with the issuance of long-term health-care insurance policies to the plaintiffs, with raising plaintiffs' insurance premiums owed under those policies without commensurate increase in the benefits available thereunder, and with the handling and disposition of claims filed under the policies. By and through their second amended complaint, plaintiffs allege Bankers' and CNOFG's liability for elder abuse in violation of Oregon statutory law, breach of contract and of the implied covenant of fair dealing, fraudulent inducement to enter into the subject insurance agreements, and a tort styled as " intentional misconduct." Plaintiffs argue both that CNOFG may be found directly liable on each of their claims and, alternatively, that CNOFG may be found vicariously liable on their claims either on an alter ego or an agency theory. This court has subject-matter jurisdiction over plaintiffs' claims pursuant to 28 U.S.C. § 1332, based on the complete diversity of the parties and the amount in controversy.

Now before the court are CNOFG's motion (#29) to dismiss for failure to state a claim and for lack of personal jurisdiction,[1] defendants' motion (#32) to strike plaintiffs' class action allegations from their pleading, and defendants' motion (#39) to dismiss plaintiffs' elder abuse, fraud, and intentional misconduct claims in their entirety and to dismiss plaintiffs' breach claim in part. I have considered the motions, oral argument on behalf of the parties, and all of the pleadings and papers on file. For the reasons set forth below, CNOFG's motion (#29) to dismiss is granted on personal jurisdictional grounds as to plaintiffs' fraud in the inducement claim to the extent alleged against CNOFG, and otherwise denied (in part as moot and in part on its merits, as discussed below), defendants' motion (#32) to strike class allegations is granted, and defendants' motion (#39) to dismiss is granted with prejudice as to plaintiffs' elder abuse and intentional misconduct claims in their entirety, with prejudice as to plaintiffs' fraud claim to the extent premised on a theory of fraudulent inducement to continue paying policy premiums pursuant to pre-existing insurance contracts, without prejudice as to plaintiffs' fraud claim to the extent premised on a theory of fraudulent

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inducement to enter into the insurance policies in the first instance, with prejudice as to the breach claims brought by the Castagno plaintiffs in their entirety and as to the breach claims brought by plaintiffs Charles Ehrman Bates and Dolores Marier to the extent premised solely on those plaintiffs' concern regarding possible future breach, and with prejudice as to the breach claims brought by plaintiffs Charles Ehrman Bates, David Youngbluth, and Dolores Marier to the extent brought on those plaintiffs' own behalf rather than on behalf of those plaintiffs' family members who sought benefits under their Bankers policies, and is otherwise denied.

LEGAL STANDARDS

I. Motion to Dismiss for Lack of Personal Jurisdiction

A motion to dismiss for lack of personal jurisdiction is governed by Federal Civil Procedure Rule 12(b)(2). See Fed.R.Civ.P. 12(b)(2). " In opposition to a defendant's motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing that jurisdiction is proper." Boschetto v. Hansing, 539 F.3d 1011, 1015 (9th Cir. 2008), citing Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990). In evaluating the defendant's motion, " [t]he court may consider evidence presented in affidavits to assist it in its determination and may order discovery on the jurisdictional issues." Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001), citing Data Disc, Inc. v. Systems Technology Assoc., Inc., 557 F.2d 1280, 1285 (9th Cir. 1977). If the court decides the motion based on the pleadings and affidavits submitted by the parties without conducting an evidentiary hearing, " the plaintiff need make only a prima facie showing of jurisdictional facts to withstand the motion to dismiss." Id., quoting Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995). In the absence of such an evidentiary hearing, the court accepts uncontroverted allegations contained within the plaintiff's complaint as true, and resolves conflicts between statements contained within the parties' affidavits in the plaintiff's favor. See id .

II. Motion to Dismiss for Failure to State a Claim

To survive dismissal for failure to state a claim pursuant to Rule 12(b)(6), a complaint must contain more than a " formulaic recitation of the elements of a cause of action; " specifically, it must contain factual allegations sufficient to " raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). To raise a right to relief above the speculative level, " [t]he pleading must contain something more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action." Id., quoting 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004); see also Fed.R.Civ.P. 8(a). Instead, the plaintiff must plead affirmative factual content, as opposed to any merely conclusory recitation that the elements of a claim have been satisfied, that " allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). " In sum, for a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. United States Secret Serv., 572 F.3d 962, 970 (9th Cir. 2009), citing Iqbal, 129 S.Ct. at 1949.

" In ruling on a 12(b)(6) motion, a court may generally consider only allegations contained in the pleadings, exhibits

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attached to the complaint, and matters properly subject to judicial notice." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). In considering a motion to dismiss, this court accepts all of the allegations in the complaint as true and construes them in the light most favorable to the plaintiff. See Kahle v. Gonzales, 474 F.3d 665, 667 (9th Cir. 2007). Moreover, the court " presume[s] that general allegations embrace those specific facts that are necessary to support the claim." Nat'l Org. for Women v. Scheidler, 510 U.S. 249, 256, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994), quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The court need not, however, accept legal conclusions " cast in the form of factual allegations." Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).

III. Motion to Strike Class Allegations

In conducting an action under [Federal Civil Procedure Rule 23], the court may issue orders that:

* * *
(D) require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly; or
(E) deal with similar procedural matters.

Fed. R. Civ. P. 23(d).

FACTUAL BACKGROUND

I. The Parties

A. Defendants

Defendant Bankers is a Delaware corporation with its principal place of business in Illinois, engaged in the business of issuing and selling insurance policies, including elder disability care and long-term health-care policies such as those purchased from it by some of the named plaintiffs. Bankers is a wholly-owned indirect corporate subsidiary of defendant CNOFG.

CNOFG is a Delaware corporation with its principal place of business in Delaware. Plaintiffs allege that CNOFG (and/or its immediate corporate predecessor entity) at all material times oversaw Bankers' activities in marketing long-term health-care policies to older Oregonians, and played a direct role in reviewing and processing claims filed under such policies. Plaintiffs further allege that in the ordinary course of business CNOFG exercises " day-to-day management and control over Bankers," including by providing all human resources, public relations, legal affairs, product development, and employee training services and functionality to Bankers. Moreover, plaintiffs allege that it was William Kirsch, the CEO of CNOFG, who in 2005 was the architect of the policies and procedures complained of here, and who specifically and expressly required Bankers to begin denying legitimate claims under Bankers' long-term health-care policies and to create obstacles intentionally calculated to make filing such claims more burdensome for Bankers' insureds.

B. Plaintiffs

Each of the named plaintiffs, like the members of the proposed classes the named plaintiffs purportedly represent, is (and at all material times was) an individual resident of Oregon. Each of the named plaintiffs other than Youngbluth, who is the son of named plaintiff Eileen Burk, was issued a long-term health-care insurance policy by Bankers.

As discussed in greater detail below, the Bateses (Charles Ehrman Bates and Lorraine Bates), the Burk family (Eileen Burk and her uninsured son David Youngbluth), and the Mariers (Thomas Marier and Dolores Marier)

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each allegedly pursued a claim or claims under their respective policies with only partial success, and allege that Bankers has both failed to pay certain covered expenses and breached their insurance contract in other ways, including by intentionally delaying payments and by failing to waive further premiums as provided under the policy. Specifically, the Bateses allegedly pursued a claim for benefits on behalf of Lorraine Bates, the Burk family allegedly pursued a claim for benefits on behalf of Eileen Burk, and the Mariers allegedly pursued a claim for benefits on behalf of Thomas Marier.

The Castagnos (David Castagno and Darla Castagno), by contrast, have never attempted to file a claim under their policy, but rather are concerned that should they need to avail themselves of the coverage they believed they were promised when they purchased the policy, Bankers will delay payment, deny coverage in whole or in part, and otherwise breach their agreement in the same manner as it allegedly did in connection with the claims filed on behalf of Lorraine Bates, Eileen Burk, and Thomas Marier.

The plaintiffs propose three classes of absent plaintiffs purportedly similarly situated to the named plaintiffs: (i) Oregonian policy-holders whose claims have been mishandled by Bankers through a combination of delay and nonpayment of claims between 2005 and the present, notwithstanding the insureds' timely payment of all policy premiums (plaintiffs' " Class A," putatively represented by Lorraine Bates, Eileen Burk, and Thomas Marier), (ii) family members and other representatives of such Oregonian policy-holders who have incurred expenses in the course of attempting to obtain benefits for their policy-holder family members under their policies (plaintiffs' " Class B," putatively represented by Charles Ehrman Bates, David Youngbluth, and Dolores Marier), and (iii) Oregonian policy-holders who have paid all policy premiums on a timely basis and who have not yet filed any claim under their policies (plaintiffs' " Class C," putatively represented by Charles Ehrman Bates, Dolores Marier, David Castagno, and Darla Castagno).

II. History of the Parties' Dispute[2]

Bankers is in the business of selling annuities and elder disability care insurance policies to older Oregonians. Bankers aggressively marketed long-term health-care insurance policies to this demographic despite its awareness, by not later than 2005, that it would be unable to comply with its obligations under those policies due to rising health care costs and due to increased projected longevity among its insured population. At the time of sale of such a policy, Bankers would advise purchasers to " review carefully all policy limitations," but would provide neither a copy of the policy itself nor a summary of all applicable limitations, but rather only a misleading summary of select policy provisions.

In addition, defendants " developed onerous procedures" calculated to discourage policy-holders from pursuing valid claims for insurance benefits under the policies and to delay and deny such claims improperly, including the following:

(A) [Bankers'] [e]mployees were prohibited from responding to policy holders by telephone;

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(B) Defendants abandoned or denied claims without notifying policy holders;
(C) Defendants routinely lost claim forms, medical records and other documentation provided by plaintiffs;
(D) Employees were not allowed to contact one another to resolve disputes about claims;
(E) Defendants denied claims because of missing records, even though such records had been provided to them, sometimes repeatedly;
(F) Defendants systematically denied claims on the false grounds that the policy-holder's elder disability care providers were not " licensed" or otherwise did not comply with the policy requirements, even though Oregon law does not require care givers to be licensed;
(G) Defendants routinely paid less than what the claimants were owed under the terms of their policies; [and]
(H) Defendants would demand that policy holders continue paying premiums even though the policies' " waiver" provision suspended premiums while policy holders or their spouses received benefits.

Second Amended Complaint, ¶ 37.

Charles Ehrman and Lorraine Bates purchased a long-term health-care policy from Bankers (Policy No. 980,155,343 or the " Bates policy" ) on or around June 30, 1998. In December 2009, Lorraine Bates moved into an elder care facility, and her husband Charles Ehrman Bates submitted a claim to Bankers on her behalf, seeking reimbursement of the costs thereby incurred. In September 2010, Bankers denied coverage on spurious grounds. Shortly thereafter, the Bateses retained the services of an attorney who pursued their claim against Bankers. In June 2011, Bankers agreed to pay the Bates' claim retroactively to July 9, 2010, but refused to cover the Bates' expenses incurred between December 2009 and July 2010. The Bateses continue to pay premiums under their Bankers policy, notwithstanding policy provisions that waive premiums following 90 consecutive days of benefits paid under the policy.

Elieen Burk purchased a long-term health-care policy from Bankers (Policy No. 950,193,392 or the " Burk policy" ) on or around July 27, 1995. In December 2008, Burk moved into an assisted living facility, and her son Youngbluth attempted to submit a claim to Bankers on her behalf, seeking reimbursement of the costs thereby incurred. Youngbluth was unsuccessful in his efforts to submit the claim, due to the failure of Bankers' employees and of the insurance agent who initially sold the policy to Burk to assist him or to respond to his inquiries. Youngbluth retained counsel to assist him, and his attorney ultimately submitted Burk's claim with supporting materials in April 2009. In May 2009, Bankers agreed to pay the claim retroactively to March 31, 2009, but failed to reimburse 63 days of covered expenses notwithstanding its concession that coverage existed during the material period. In December 2009, Bankers agreed to waive further premium payments under the policy retroactively to August 2009, although according to the terms of the policy such waiver should have taken effect as of April 2009. The Burk family's counsel requested a copy of the policy from Bankers, but in response Bankers provided only a summary of the policy. In May 2012, Bankers advised Burk that she had exhausted the benefits available under her policy, and ceased paying further benefits. In addition, because no further benefits were to be paid, Bankers

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rescinded its waiver of Burk's policy premiums, and demanded that she resume paying premiums notwithstanding its position that no further benefits were available whether premiums were paid or not.

Thomas and Dolores Marier purchased a long-term health-care policy from Bankers (Policy No. 940,143,808 or the " Marier policy" ) on or around April 1, 1994. Thomas Marier received home health-care services for nine months from February 16, 2011, through November 24, 2011, and in February 2011 his wife Dolores Marier submitted a claim to Bankers on his behalf, seeking reimbursement of the costs thereby incurred. In April 2011, Bankers denied the claim on the spurious ground that the Marier policy did not pay for the first 30 days of home health care, whereas in fact the policy excluded coverage only for the first 14 days of home health care. In May 2011 Dolores Marier pointed out the error, and in August 2011 Bankers acknowledged its mistake and paid $840 of the $865 it owed for the first 16 covered days of Thomas Marier's home health care (without explanation for its failure to pay the full covered amount). In December 2011, Bankers characterized its payment of $840 as an overpayment, again citing the spurious 30-day exclusion invoked in connection with the initial denial, and demanded that the Mariers return the funds. The Mariers complied, out of concern that Bankers would otherwise void the policy in its entirety. Dolores Marier filed a complaint with the Oregon Insurance Division in March 2013, and in response to the complaint Bankers advised the agency that it had paid the claim, without acknowledging that its payment had been returned.

In November 2011, Thomas Marier moved into a nursing home, and Bankers began paying benefits 30 days thereafter. Thomas Marier remained in the nursing home until January 2012, when he was hospitalized until February 2012. In February 2012, Thomas Marier moved into a new nursing home that specialized in caring for residents with his condition. In December 2012, Bankers agreed to waive the Mariers' premium payments, which according to the Marier policy became waived after 90 days of consecutive benefits, retroactively to June 2012, on the purported ground that the hospitalization of early 2012 constituted an interruption in the care Thomas Maurier had been receiving. Dolores Marier again complained to the Oregon Insurance Division, and Bankers refunded the remaining waived premiums.

In October 2012, Thomas Marier moved to Oregon State Hospital, the only Oregon facility then willing to accept him as an inpatient given his condition. Bankers has refused to cover any of the costs thereby incurred, notwithstanding Thomas Marier's continued eligibility for coverage under the policy. Because Bankers stopped paying benefits, it additionally ceased waiving the Mariers' premiums.

David and Darla Castagno purchased a long-term health-care policy from Bankers (Policy No. 950,189,898 or the " Castagno policy" ) on or around July 31, 1995. They have timely paid all premiums under the policy, but have never made a claim under it.

According to defendants' evidentiary submissions, the Bates policy, the Burk policy, the Marier policy, the Castagno policy and all policies issued by Bankers to members of putative Class A and Class C all expressly provide that " [n]o legal action may be brought to recover on this policy . . . . after 3 years . . . from the time written proof of loss is required to be given." Except where it is not reasonably possible for an insured to do so, the policies provide that written proof of loss must be submitted " within 90 days after the end of each

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period" for periodic payment of a continuing loss and " within 90 days of the end of [any other] loss." In the event it is not reasonably possible to submit written proof of loss within the specified time, the policies provide that insureds may do so within a period of up to one year.

ANALYSIS

As noted above, by and through its motion (#29) to dismiss, defendant CNOFG moves pursuant to Federal Civil Procedure Rule 12(b)(2) for dismissal of plaintiffs' claims against it for lack of personal jurisdiction, and in the alternative moves for dismissal of plaintiffs' claims for failure to state a claim upon which relief can be granted pursuant to Federal Civil Procedure Rule 12(b)(6), on the narrow ground that plaintiffs have failed adequately to allege CNOFG's involvement in and/or vicarious responsibility for the conduct complained of in plaintiffs' complaint. In addition, by and through their motion (#39) to dismiss, defendants Bankers and CNOFG together challenge the broader adequacy of plaintiffs' allegations to support their claims under Rule 12(b)(6). In the discussion that follows, I address first the jurisdictional issues raised by CNOFG's motion and then, following analysis of defendants' motion (#32) to strike class allegations, combine discussion and analysis of the issues raised by CNOFG's Rule 12(b)(6) arguments and defendants' Rule 12(b)(6) motion.

I. CNOFG's Motion (#29) to Dismiss for Lack of Personal Jurisdiction

By and through its motion (#29) to dismiss, CNOFG argues that plaintiffs' claims against it should be dismissed for lack of personal jurisdiction. For the reasons set forth below, CNOFG's motion to dismiss for lack of personal jurisdiction is granted without prejudice as to plaintiffs' fraud in the inducement claim to the extent alleged against CNOFG only, and otherwise denied.

" When no federal statute governs personal jurisdiction, the district court applies the law of the forum state." Boschetto, 539 F.3d at 1015, citing Panavision Int'l L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). Oregon's long-arm statute creates a standard co-extensive with federal jurisdictional standards, see Or. R. Civ. P. 4(L), so a federal court sitting in the District of Oregon may exercise personal jurisdiction wherever it is possible to do so within the limits of ...


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