Locke Lord QuickStudy: Eleventh Circuit Affirms Dismissal of ‎Cost-of-Insurance Rate Class Action ‎Against Wilco Life ‎Insurance Company

On November 15, 2021, the U.S. Court of Appeals for the Eleventh Circuit ‎affirmed dismissal of a ‎putative cost-of-insurance (“COI”) rate class action in ‎Anderson v. Wilco Life Insurance Company ^[1] — a victory for life insurers in litigation that has harried the industry for the last ‎decade.‎

The lawsuit alleged that Wilco Life — a successor to Conseco Life Insurance ‎Company — breached ‎the terms of certain universal life policies by determining COI ‎rates using factors not described in the ‎policy. The district court granted Wilco Life’s ‎motion to dismiss the case on the pleadings, holding ‎that the policy unambiguously ‎gave Wilco Life discretion to determine current COI rates, as long as ‎they were below ‎the maximum guaranteed rates stated in the policy. The Eleventh Circuit affirmed.‎

Anderson staked her claims on a sentence accompanying the Table of ‎Guaranteed Monthly COI ‎Rates in her policy. That sentence, which followed the ‎table and explanation of the annual ‎guaranteed COI rates, stated that ‎“[a]ctual ‎monthly cost of insurance rates will be determined by the ‎company ‎based on the ‎policy cost factors described in your policy”‎ (emphasis added). The policy’s ‎later ‎provision entitled “Cost of Insurance Rates” explained that the guaranteed monthly ‎COI rates ‎were “based on the insured’s sex, attained age, and premium class on the ‎date of issue” but that ‎current monthly COI rates “will be determined by the ‎Company” ‎and would not exceed the ‎guaranteed rates.‎ Anderson argued that, ‎because sex, attained age, and premium class were the ‎only “policy cost factors” ‎described in the policy, the policy restricted Wilco Life to consider only those ‎factors ‎in adjusting current COI rates.‎

‎The Eleventh Circuit rejected Anderson’s argument. ‎

First, it rejected Anderson’s invitation to apply contra proferentem — an oft-‎cited (and misapplied) ‎contract construction principle interpreting ambiguous policy ‎exclusions against the drafter. The ‎court stated that, even if Anderson had provided ‎a reasonable alternative reading of the policy, a ‎policy “susceptible to two reasonable ‎meanings is not ambiguous if the trial court can resolve the ‎conflicting ‎interpretations by applying the rules of contract construction.”‎

The court determined that the policy was not ambiguous because Wilco Life’s ‎proffered ‎interpretation, not Anderson’s, was the only reasonable way to read the ‎policy. It held that the policy ‎plainly set forth two different COI rates (guaranteed ‎and current), and that engrafting the factors ‎governing the determination of guaranteed ‎rates onto the current rates would destroy the policy’s ‎distinction between the two ‎types of rates. It further concluded that the provision stating that current ‎monthly ‎COI rates “will be determined by the Company” was a “straightforward” provision that ‎gave Wilco ‎Life discretion to set Anderson’s current monthly rate, citing to cases in ‎other contexts where the ‎phrase “determined by the Company” has been interpreted ‎to give discretion.‎

The Court declined to weigh in on the debate over whether policy provisions ‎stating that COI rates ‎will be “based on” certain factors requires insurance ‎companies to consider only those factors in ‎determining COI rates. It distinguished ‎cases like Vogt v. State Farm Life Ins. Co., 963 F.3d 753, 761 ‎‎(8th Cir. 2020), and ‎Fleisher v. Phoenix Life Insurance Co., 18 F. Supp. 3d 456, 470 (S.D.N.Y. 2014). ‎‎Nevertheless, a separate 11th Circuit panel recently held in an unreported decision ‎that the phrase ‎‎“based on” is not exclusive. Slam Dunk I, LLC v. Conn. Gen. Life Ins. ‎Co., No. 20-13706, 2021 WL ‎‎1575162 (11th Cir. Apr. 22, 2021). The Slam Dunk court ‎relied on Seventh Circuit authority in ‎determining that“[n]othing about the plain ‎and ordinary meaning of the phrase ‘based on’ connotes ‎exclusivity, and nothing ‎about it implies the list that follows is exhaustive.” Id. (citing Norem v. ‎Lincoln ‎Benefit Life Co., 737 F.3d 1145, 1150 (7th Cir. 2013)).‎

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^{[1]— F.4th —, 2021 WL 5293558 (11th Cir. Nov. 15, 2021).‎}