JOHN S. BRYANT, United States Magistrate Judge.
This civil action is before the undersigned for all further district court proceedings, pursuant to the consent of all parties. (Docket Entry No. 54)
Plaintiffs, Richard A. Johnson and C. Dale Allen, Tennessee citizens and co-Trustees under an irrevocable trust agreement dated October 17, 1996 for the Gary D. Sasser Irrevocable Trust,
Before the Court is Prudential's motion to dismiss plaintiffs' Second Amended Complaint (Docket Entry No. 49), filed on July 13, 2012. Plaintiffs have filed their response (Docket Entry No. 56), to which Prudential replied with leave of Court (Docket Entry No. 60). On September 26, 2012, the Court heard oral argument on Prudential's motion, pursuant to plaintiffs' request for same. For the reasons stated in this Memorandum, and by Order entered contemporaneously herewith, Prudential's motion will be GRANTED and plaintiffs' case DISMISSED.
II. ALLEGATIONS OF THE SECOND AMENDED COMPLAINT
On September 14, 2000, Prudential issued an insurance policy on the life of Mr. Gary D. Sasser, in the amount of thirty million dollars. The term of this policy was twenty years. Plaintiff Johnson, as Trustee of the Gary D. Sasser Irrevocable Trust, was the owner and beneficiary of the policy. This policy was purchased after plaintiff Johnson, in 1999, had instructed Mr. Steve Jackson of American Brokerage to search for a policy of insurance on Mr. Sasser's life which had the best possible underwriting classification without being "rated." Mr. Jackson, as agent for the Trustees, was informed by Prudential that Mr. Sasser qualified for "preferred" rates, and that Prudential would issue a policy on Mr. Sasser's life which was not rated and which had a "preferred" underwriting classification. In reliance upon these representations, plaintiff Trustees purchased the policy from Prudential. (Docket Entry No. 45 at ¶¶ 9-21)
The policy issued on September 14, 2000, was marked as being in the "Preferred" rating class, consistent with the representations made by Prudential to the Trustees through Mr. Jackson. Id. at ¶ 23 and Exh. 1, p. 3. However, unbeknownst to the plaintiff Trustees, there was no rating class known simply as "Preferred"; rather, the rating classes were denominated "Select Preferred," "Non-Select Preferred," and "Standard." Id. at ¶ 24. In fact, the policy issued to plaintiff Johnson was in the "Non-Select Preferred" rating class. Id. at ¶ 25. The Trustees did not discover this discrepancy until reviewing emails produced by Prudential in this lawsuit. Id. at ¶ 27.
The policy contains a provision for conversion to another plan of insurance, and Plaintiffs had contemplated their eventual conversion of the policy at the time they purchased the policy. Id. at ¶¶ 32-33.
The conversion clause of the policy provides, in pertinent part, the following:
(Docket Entry No. 45-1 at 8).
Plaintiffs allege that Defendant "was obligated, upon request from [Plaintiffs] to convert the Policy to a policy in the same rating class." (Docket Entry No. 45 at ¶ 31) (emphasis in original). On November 17, 2005, Defendant agreed by letter to extend the conversion period through December 2, 2005. Id. at ¶ 34. An illustration for a converted policy was prepared by Defendant and received by Plaintiff Johnson, with the insured's underwriting classification noted as "Non-Smoker." Id. at ¶¶ 35, 37. Plaintiff Johnson then requested that Defendant supply an illustration for a converted policy with a "Preferred" rating. Id. at ¶ 41. Defendant responded by supplying an illustration of a converted policy with a "Preferred Non-Smoker" rating, the premiums for which were substantially lower than those associated with the "Non-Smoker" rating. Id. at ¶¶ 42, 43.
On November 22, 2005, Defendant sent a letter to Plaintiff Johnson, stating in pertinent part, the following:
(Docket Entry No. 45 at 144)
On November 29, 2005, Plaintiffs sent a letter to Defendant demanding Defendant convert the original policy to a new policy with a "Preferred Non-Smoker" rating, and stating the following in pertinent part:
(Docket Entry No. 45 at 147). Plaintiff tendered $385,282.00 for the first annual premium on the new policy. Id. at 148. On December 6, 2005,
In response, on February 16, 2006, Plaintiff sent a letter to Defendant stating the following, in pertinent part:
Id. at ¶ 50. Thus, Plaintiffs allege that they converted the policy under the rating classification of Nonsmoker in accordance with Defendant's requirements, but under the express reservation of "the right to have the [p]olicy converted to a [new policy] with the same rating class as the [original] [p]olicy." Id. at ¶ 51. The converted policy was thereafter issued by Defendant.
According to Plaintiffs, Defendant failed and refused to honor its contractual obligation to convert the policy to a new policy of the same rating class. Id. at ¶ 53. Plaintiffs conclude that, given the ambiguity resulting from the original policy's issuance on the "Preferred" class of risk when the risk class at the time were denominated "Select Preferred," "Non-Select Preferred," and "Standard," the conversion option in the policy must be construed against Defendant, as requiring conversion to a new "Select Preferred" policy. Id. at ¶¶ 54-55. Plaintiffs alternatively allege that, at the very least, Defendant was obligated to convert the policy to a policy with the equivalent of the "Select Preferred" classification, which is their "Preferred Nonsmoker" classification. Id. at ¶ 56. Plaintiffs allege that Defendant's breach of contract has caused them and the trust great damage due to the difference in premiums between policies written on the "Nonsmoker" and "Preferred Nonsmoker" risk classes. Id. at ¶¶ 57-59. Plaintiffs finally allege that Defendant breached their obligation of good faith and fair dealing with Plaintiffs, also causing damages to Plaintiffs and the trust. Id. at ¶¶ 45-47. Plaintiffs have paid all premiums for the converted policy as they have become due. Id. at ¶ 48.
Federal Rule of Civil Procedure 12(b)(6) permits dismissal of a complaint for "failure to state a claim upon which relief can be granted." To survive a motion to dismiss, Plaintiffs' complaint must include sufficient "[f]actual allegations ... to raise a right to relief above the speculative level."
Under Tennessee law, "`[t]he essential elements of any breach of contract claim include (1) the existence of an enforceable contract, (2) nonperformance amounting to a breach of the contract, and (3) damages caused by the breach of the contract.'" ARC LifeMed, Inc. v. AMC-Tennessee, Inc., 183 S.W.3d 1, 26 (Tenn.Ct.App.2005) (citation omitted). Plaintiffs allege, and Defendant does not dispute, the existence of a valid, enforceable contract of insurance. Plaintiffs further allege that the Defendant breached that contract when it failed to perform its contractual obligation to convert the original policy to a new policy "in the same rating class."
"The central tenet of contract construction is that the intent of the contracting parties at the time of executing the agreement should govern." Planters Gin Co. v. Federal Compress & Warehouse Co., Inc., 78 S.W.3d 885, 890 (Tenn.2002). Furthermore,
"`Ordinary meaning' of the terms of a policy is the meaning which the average policyholder and insurer would attach to the term, and a settled and widely accepted meaning accorded to a particular phrase is persuasive in the interpretation of an insurance policy thereafter using such phrase." Rain and Hail Ins. Servs., Inc. v. Peeler, 2001 WL 25706, at *3 (Tenn.Ct.App. Jan. 9, 2001). Further, "[w]hen called upon to interpret a term used in an insurance policy that is not defined therein, courts in Tennessee sometimes refer to dictionary definitions." American Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 815 (Tenn.2000).
The phrase "same rating class" is not a defined term under the policy. Since the filing of their original state court complaint, Plaintiffs have contended that a converted policy of the "same rating class" refers to a policy with a rating classification labeled "Preferred," just as the original policy. According to Plaintiffs, the Oxford Dictionary defines the term "same" as, "exactly alike; not different or changed." (Docket Entry No. 56 at 11) Prior to filing their Second Amended Complaint, Plaintiffs further contended in the alternative that, inasmuch as the "Preferred" rating class no longer existed when
Meanwhile, Defendant does not argue any opposing dictionary definition of "same." Rather, Defendant asserts that Plaintiffs in fact received a new policy in the same rating class as the original, since "Preferred" was the middle tier of a three-tiered rating class regime when the original policy was issued, and the "Nonsmoker" rating class under which the new policy was issued is the corresponding middle tier under the renamed three-tier regime. Defendant points out that the original policy issued to Plaintiffs did not promise to preserve the nomenclature of its underwriting classifications for the duration of that term policy, nor does the conversion option contemplate that its exercise will result in issuance of an otherwise identical policy, as both the issue age and the premium schedule for the converted policy are expressly determinable according to Defendant's rules in use on the date of the new policy's issuance. (Docket Entry No. 45-1 at 8) In short, Defendant's argument is that Plaintiffs got exactly what they bargained for in their converted policy: a new policy in the same, middle-tier rating class, which class just happened to be called something different in 2006 than it was in 2000.
The Court finds that the policy language in this case may be fairly and reasonably interpreted according to its plain and ordinary meaning, which does not allow for the doubt and ambiguity that Plaintiffs attempt to inject. Plaintiffs' reading of the phrase "same rating class," isolating the word "same" and applying their asserted definition of that modifier to insist that, since Prudential's terminology had changed and "Preferred" no longer existed as a rating class, they were entitled to an upgrade lowering their premiums for the same coverage, would result in a strained interpretation awarding Plaintiffs a windfall for name's sake.
The Court declines to so interpret this provision. Compare Preis v. New England
Here, unlike in Preis, there does not appear to be any legitimate dispute that, at the time Plaintiffs purchased the original policy, Mr. Sasser had been rated in the middle tier of Prudential's risk classification structure, pursuant to Plaintiffs' stated desire to purchase a policy with the best possible underwriting classification, with the qualification that it not be a "rated" policy. Plaintiffs even concede that, "[h]ad Prudential drafted its Policy so to limit the conversion option [to a policy of an equivalent rating class rather than `the same' rating class] in the first place, this litigation would have been entirely unnecessary." (Docket Entry No. 56 at 29) Ergo, Plaintiffs' position here is purely a matter of semantics. From September 2000 until February 2006, Plaintiffs and Prudential performed under their policy contract with the evident and mutual understanding that coverage was provided upon the life of the insured at the middle (i.e., higher than Standard but lower than Select Preferred) rating class with the corresponding schedule of premium payments. It was plainly not the intent of the parties when they entered into this contract that, upon its conversion at some indeterminate point in the future, the name of Mr. Sasser's original rating class would define Plaintiffs' entitlement vis-à-vis Prudential's risk classification structure
Furthermore, Plaintiffs' allegation and argument that an email chain from July 2000 referencing Prudential's offer of a "Non Select Preferred" rating (Docket Entry No. 45-2) reveals that the "Preferred" rating class never even existed, creating a latent ambiguity in the policy which requires the Court to construe the policy in their favor, is a red herring. In none of the three iterations of Plaintiffs' complaint have they ever alleged their belief that they were purchasing coverage at the best rating available, or that Mr. Sasser's rating was held out by Prudential as its top-tier rating.
In sum, the Court finds that Plaintiffs' Second Amended Complaint does not plausibly allege Prudential's "nonperformance amounting to a breach of the contract[.]" ARC LifeMed, 183 S.W.3d at 26. Correspondingly, Plaintiffs' claim of a breach of the obligation of good faith and fair dealing is without merit. Envoy Corp. v. Quintiles Transnat'l Corp., 2007 WL 2173365, at *8 (M.D.Tenn. July 26, 2007)
In light of the foregoing, Plaintiffs' Second Amended Complaint will be dismissed, and judgment will enter for Prudential. An appropriate Order will enter.
(Docket Entry No. 45-7)