United States District Court, W.D. Wisconsin
PRUDENCE F. MAXON, on behalf of herself and all others similarly situated, Plaintiff,
SENTRY LIFE INSURANCE COMPANY, Defendant.
OPINION AND ORDER
D. PETERSON, DISTRICT JUDGE
a proposed class action against defendant Sentry Life
Insurance Company about the way it sets premiums for its
universal life insurance policies, which combine an
investment vehicle with a life insurance policy. Plaintiff
Prudence Maxon owns a Sentry universal life policy. Under the
terms of Maxon’s policy, Sentry sets the monthly
premiums “based on” certain factors that relate
to a “Mortality Charge.” Maxon contends that the
expressly stated Mortality Charge factors should be the
exclusive factors in setting the monthly premiums. Sentry
contends that the Mortality Charge factors are only
illustrative, and that it can consider other factors in
setting the premiums, including its own profitability.
motions are before the court, but the main one is
Sentry’s motion for judgment on the pleadings, Dkt. 92,
which the court will grant. Maxon’s argument is
foreclosed by Norem v. Lincoln Ben. Life Co., 737
F.3d 1145 (7th Cir. 2013), and Mai Nhia Thao v. Midland
Nat. Life Ins. Co., 549 F. App’x 534 (7th Cir.
2013). In those cases, the court of appeals interpreted
similar universal life policy language to mean that the
mortality-related factors need not be the exclusive
determinants of the premiums. The court is not persuaded by
Maxon’s argument that the Sentry policy language is
materially different from that in Norem or
Thao, or that Sentry’s alleged rate-setting
conduct would warrant a different outcome.
the other motions, the court will grant Maxon’s motion
for leave to file a sur-reply on the motion for judgment on
the pleadings. Dkt. 115. Because the court is deciding the
case on the merits, the court will deny as moot Maxon’s
motion for class certification, Dkt. 73, and Sentry’s
motion for a sur-reply on that motion, Dkt. 124. The court
will also deny Maxon’s motion for oral argument on the
pending motions. Dkt. 126. The parties have adequately
explained their positions in the briefs, and oral argument
would add unnecessary expense and effort.
court draws the facts from the Maxon’s complaint, Dkt.
1, and accepts them as true for purposes of the motion for
judgment on the pleadings. Finch v. Peterson, 622
F.3d 725, 728 (7th Cir. 2010).
purchased a “Flexible Premium Adjustable Life
Insurance” policy from Sentry in 1988. Maxon is both
the owner of the policy and the insured. (Maxon’s
policy is attached as Exhibit A to the complaint. Dkt. 1-1.)
Unlike a standard term life insurance policy, a universal
life insurance policy includes both an investment component
that provides a cash value and an insurance component that
provides a death benefit. Sentry held the cash value of
Maxon’s policy in an account that earned interest, and
the balance in the account could be borrowed, invested,
withdrawn as cash, or used to increase the death benefit.
Sentry also drew the premiums for the insurance component
from the cash value account. The premiums for the insurance
component are called the “monthly deduction” in
terms of the policy, the monthly deduction includes (1) a
“Cost of Insurance” charge, and (2) a five-dollar
administrative fee. The Cost of Insurance charge is
calculated by multiplying a “Mortality Charge” by
the policy’s net amount at risk (the amount by which
the policy’s death benefit exceeds its cash value).
heart of the dispute concerns the Mortality Charge. The
Mortality Charge is defined in the policy as being
“based on” two components, “Mortality
Rates,” and “Mortality Class Factors.” The
policy refers to Sentry using the pronouns “we”
and “our,” and the insured is referred to as
“the insured,” or using “you” and
“your.” The pertinent definitions provide:
Mortality Charge – The monthly
mortality charge is based on our current Mortality Rates and
the Mortality Class Factors for your policy. (These two parts
to the mortality charge are described below). A detailed
statement of the formulas used to calculate the monthly
mortality charge has been filed with the Insurance Department
of the State where this policy is delivered.
1) Mortality Rates – The current mortality rates for
the policy are based on the insured’s attained
age, sex, and mortality class. We will determine the current
mortality rates based on our expectations as to future
mortality experience. Any change in mortality rates will
apply to all insureds of the same mortality class.
In no case will mortality rates for an insured in a
standard mortality class ever be greater than those shown in
the Table of Guaranteed Maximum Mortality Rates in this
policy. Such guaranteed rates are based on the 1958
Commissioners Standard Ordinary Mortality Table, Age Last
Birthday. The guaranteed rates for insureds
classified as substandard are based on percentage multiples
of the 1958 Commissioners Standard Ordinary Mortality Table,
Age Last Birthday.
2) Mortality Class Factors – The mortality class(es)
shown on the Policy Specifications Page, and on any Policy
Amendments, are the result of our underwriting your
insurability. The Factors shown with each mortality class are
used to determine the mortality charge.
Dkt. 1-1, at 15 (emphasis in original).
the terms of the policy, Sentry sets the amount of the
monthly deduction, subject to a cap established by the
Guaranteed Maximum Mortality Rates. The maximum rates are set
out in tables attached to the policy. Dkt. 1-1, at
21–22. Maxon does not allege that her monthly deduction
ever exceeded the guaranteed maximum.
core issue concerns the use of the term “based
on” in the policy. The Mortality Charge is “based
on” the Mortality Rate and Mortality Class Factors. And
the Mortality Rate is “based on the insured’s
attained age, sex, and mortality class,” and Sentry
will determine the mortality rate “based on our
expectations as to future mortality experience.” In
practice, Sentry also used other factors to calculate the
mortality rate, including expense experience, persistency,
taxes, profit assumptions, investment earnings, capital and
reserve requirements, and “other unspecified