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Maxon v. Sentry Life Insurance Co.

United States District Court, W.D. Wisconsin

September 22, 2019

PRUDENCE F. MAXON, on behalf of herself and all others similarly situated, Plaintiff,
v.
SENTRY LIFE INSURANCE COMPANY, Defendant.

          OPINION AND ORDER

          JAMES D. PETERSON, DISTRICT JUDGE

         This is 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.

         Several 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.

         As for 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.

         ALLEGATIONS OF FACT

         The 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).

         Maxon 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 the policy.

         Per the 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).

         The 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).

         Under 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.

         The 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 ...


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