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C.F.C.S. Investments, LP v. Transamerica Occidental Life Insurance Co.

United States District Court, E.D. Missouri, Eastern Division

January 23, 2017




         This matter is before the Court on Defendant Transamerica Life Insurance Company, f/k/a Transamerica Occidental Life Insurance Company (“Transamerica”)'s Motion to Dismiss Pursuant to Rules 12(b)(1) and 12(b)(6), or in the Alternative, To Strike Pleading Pursuant to Rule 12(f) (Doc. No. 12); Defendant MAFG Services, Inc. (“MAFG”)'s Motion to Dismiss for Lack of Personal Jurisdiction, Failure to State a Claim, and Lack of Subject Matter Jurisdiction (Doc. No. 34); and Plaintiff C.F.C.S. Investments, LP (“CFCS”)'s Motion for Substitution of Party (Doc. No. 38). The motions are fully briefed and ready for disposition.[2]

         I. Background

         Plaintiffs CFCS and Jewell A. Clark (“Clark”), filed this action against Defendants Transamerica and MAFG, alleging wrongful termination of a $2 million life insurance policy, Policy No. 92543172 (“the Policy”), issued by Transamerica in April 1997.[3] CFCS is the owner of the Policy; MAFG was the broker that procured the Policy; and Clark was the insured (FAC at ¶¶ 7, 8; Doc. No. 13-1 at 2). Clark died on June 13, 2016, and CFCS moves to substitute Clark's son, Michael H. Clark, the named personal representative of her estate, as the proper party plaintiff pursuant to Fed.R.Civ.P. 25(a) (Doc. No. 38).

         The Policy required annual premium payments and provided a 31-day grace period if an annual premium payment was not timely paid (FAC at ¶ 14). The Policy also had a procedure for reinstatement of a lapsed policy, so long as reinstatement was requested in writing within five years after the date of lapse (id. at ¶ 17). CFCS timely paid the annual premiums on the Policy through 2010, totaling approximately $487, 000.00 (id. at ¶ 20).

         Plaintiffs allege that in August 2011, Transamerica informed CFCS that the Policy had lapsed[4] (id. at ¶¶ 29, 36) and then denied CFCS's attempts to reinstate[5] the Policy (id. at ¶¶ 38, 41, 49). According to Plaintiffs, Transamerica and MAFG failed to send correspondence regarding the Policy's grace period and subsequent lapse to the correct address for CFCS, failed to investigate regarding the correct address, failed to reinstate the Policy, and failed to provide a copy of the Policy upon request. In Counts I and III of the Complaint, Plaintiffs assert claims for negligence against Transamerica and MAFG. As part of those claims, Plaintiffs allege that Transamerica and MAFG breached their fiduciary duties to Plaintiffs (id. at ¶¶ 51, 62). In Count II, Plaintiffs seek damages against Transamerica for breach of contract, and in Count IV, Plaintiffs request a declaratory judgment against Transamerica concerning the alleged failure to notify Plaintiffs that the Policy had entered the grace period and lapsed and the failure to reinstate the Policy.

         II. Discussion

         A. Standing/CFCS's motion to substitute party

         As a threshold matter, Defendants argue that only CFCS, as the owner of the Policy, not Clark, has standing to bring this action. By its terms, the Policy “is a legal contract between … the policy owner [CFCS] and Transamerica.” (Doc. No. 13-1 at 1A) Prior to the insured's death, only the policy owner - CFCS - has any rights under the policy (id. at 5) (“Only you, the Owner, are entitled to the rights granted under this policy while the Insured is living.”). Courts have consistently held that “[o]nly a policy owner has standing to sue based on an insurance policy.” Pike v. New York Life Ins. Co., 72 A.D.3d 1043, 1049, 901 N.Y.S.2d 67 (N.Y.A.D.2d Dep't 2010); see also Pratt v. Mut. of Omaha Ins. Co., No. 415CV00009DMBJMV, 2016 WL 1248885, at *9 n.18 (N.D. Miss. Mar. 28, 2016); Address v. Millstone, 56 A.3d 323, 333 (Md. 2012) (policy purchaser lacked standing to sue on policies he did not own); Slover v. Equitable Variable Life Ins. Co., 443 F.Supp.2d 1272, 1275 n.2 (N.D. Okla. 2006) (“As the beneficiary of the policy, rather than the owner thereof, Plaintiff ... has no present legal interest in the policy and, therefore, no standing to bring this suit.”); Gaidon v. Guardian Life Ins. Co. of Am., 272 A.D.2d 60, 60 (N.Y. Ct. App. 2000) (“Gaidon lacks standing to sue individually, inasmuch as it was not he who purchased the policy.”)

         CFCS has not responded to Defendants' challenge to Clark's standing (see Doc. No. 37); instead, CFCS has moved to substitute Clark's son, Michael H. Clark, the named personal representative of her estate, as the proper party plaintiff. A substituted party, however, merely “steps into the same position of the original party.” Hilao v. Estate of Marcos, 103 F.3d 762, 766 (8th Cir. 1996); Corbin v. Blankenburg, 39 F.3d 650, 654 (6th Cir. 1994); Ransom v. Brennan, 437 F.2d 513, 516 (5th Cir. 1971); 6 Moore's Federal Practice, § 25.15 (Matthew Bender 3d 3d.) If Clark lacks standing to bring this action, then Michael Clark, as personal representative of her estate, likewise has no standing to pursue any claims on behalf of her estate.

         Transamerica argues that Clark's death does not confer standing on her estate because after the insured's death, it is the beneficiary who has any rights under the Policy, and CFCS is the beneficiary under the Policy. See Cannon v. Katz Drug Co., 577 S.W.2d 82, 87-88 (Mo.Ct.App. 1978) (finding the widow of a deceased retired employee and beneficiary of his life insurance was the real party in interest in an action to recover damages from his employer for breach of contract to provide group life insurance benefits rather than his personal representative). The beneficiary is designated in the Policy application (Doc. No. 13-1 at 5); however, the application was not submitted with either motion to dismiss.[6] As a result, the Court is unable to determine at this juncture who the beneficiary is under the Policy. On a motion to dismiss, the Court construes the complaint in the light most favorable to the plaintiff, and draws all inferences in its favor. Foster v. Deutsche Bank Nat'l Trust Co., 2012 WL 5285887, at *2 (E.D. Mo. Oct. 25, 2012) (citing Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008)). Accordingly, the Court will deny Defendants' motions as to Clark's claims.

         Independent of the standing issue, Transamerica argues that CFCS has failed to establish Michael Clark's entitlement to be substituted for his deceased mother. More specifically, Transamerica points to the lack of evidence to establish whether Clark's will is the operative document for administering Clark's estate, whether Michael Clark remained the named personal representative of his mother's estate, whether probate proceedings have been initiated or whether Michael Clark has been duly appointed as the personal representative of his mother's estate (Doc. No. 41 at 4). The Court will defer ruling on CFCS's motion to substitute party for ten days to give Plaintiffs an opportunity to allege a basis for substituting Michael Clark as a party plaintiff.

         B. Transamerica's motion to dismiss or strike pleading

         In Count I of the FAC, Plaintiffs assert a negligence claim against Transamerica. Plaintiffs allege Transamerica breached its duties of care and fiduciary duties to Plaintiffs by: (a) failing to obtain CFCS's changed address; (b) making no effort to determine CFCS's changed address, despite having other means of communicating with CFCS; (c) allowing the Policy to lapse without informing CFCS or Clark that the Policy would lapse; (d) failing to conduct any investigation into the correct address for CFCS; (e) refusing to reinstate the Policy; (f) refusing CFCS's demand for a copy of the Policy; and (g) sending correspondence intended for CFCS to its former address (FAC at ¶ 51). Transamerica moves to dismiss Count I on the ground that Missouri law does not recognize a claim for negligence against an insurer (Doc. No. 13 at 4-6). More specifically, Transamerica argues that where an insured's tort claim against its insurer is based on conduct that constitutes a breach of contract, i.e., a company's refusal to pay, the tort claim is not actionable, citing Overcast v. Billings Mut. ...

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