CYR, Senior Circuit Judge.
Nancy Brooks and Joan Silverman, as trustees of an irrevocable trust created by Donald Silverman and as executors of his estate, appeal from a district court decision dismissing their putative class-action claims for breach of contract and unfair business practices against decedent's life insurer, AIG SunAmerica Life Insurance Company. We affirm.
In May 1984, Mutual Benefit Life Insurance Company ("Mutual") issued a flexible premium adjustable life ("FPAL") insurance policy to Donald Silverman. The FPAL policy provided, inter alia, a death benefit of $850,000 (provided Silverman survived until at least April 1999) and a maturity date of May 1, 2012. Mutual agreed to provide Silverman with yearly reports showing the policy's current cash value, cash surrender value, total paid premiums, and total assessed charges.
Like most FPAL policies, the Mutual policy provided Silverman with a type of savings and investment feature, which depended on the potential investment growth of the policy's accumulated cash value (ACV). Although Silverman could increase or decrease the amount and frequency of his planned premium payments (viz., the policy's "flexible premium" feature), he initially committed to pay a fixed $41,658.50 premium each year until the policy's maturity date. These premium payments would be added into the ACV of
On the other hand, Mutual periodically would reduce the policy's ACV to account for cash withdrawals or loans from the ACV made to Silverman, a monthly charge (not to exceed $4 per month) for Mutual's administrative expenses, and the "cost of insurance" rate ("COI rate"). Unlike Silverman's fixed annual premiums, the COI rate, which reflected the current actual cost to Mutual of insuring the risks to Silverman's life, was expected to increase over the course of the policy term:
Because Silverman's annual premium payments were fixed, whereas COI rates would increase over time, the monthly COI rate deduction from the policy's ACV could deplete the policy's ACV rapidly if, for example, the insured failed to make timely premium payments, or if the investment return on the ACV was less than optimal. For the years 1999, 2000, and 2001, however, the policy capped the monthly COI rate that Mutual could deduct at $9.42, $10.42, and $11.47 per $1000 of insurance, respectively.
In March 1991, Silverman assigned ownership of his FPAL policy to the irrevocable trust ("the Trust") of which appellants currently serve as trustees. In 1994, the New Jersey Commissioner of Insurance took control of a financially-distressed Mutual, and developed a court-approved rehabilitation plan ("Rehabilitation Plan") transferring Mutual's assets and selected liabilities to MBL Life Insurance Corporation ("MBL Life"). Mutual policyholders, including Silverman, were given the option either to receive 55% of their policies' cash surrender value, or to have their policies restructured and transferred to MBL Life at their full value.
In 1999, MBL Life obtained court approval pursuant to this Rehabilitation Plan to assign the Mutual policies to appellee AIG SunAmerica Life Assurance Company ("SunAmerica"). For the policy years 1999, 2000, and 2001, SunAmerica raised the monthly cost of insurance rate on Silverman's FPAL policy from $5.14 to $7.95 per $1000 of insurance. Silverman died on June 27, 2001, and SunAmerica paid the Trust a death benefit of $857,901.86.
By letter dated May 9, 2003, appellants notified SunAmerica, inter alia, that they believed its COI rate increases in 1999, 2000 and 2001 must have been overcharges, given that MBL Life had raised the COI rate at most by 11.5% (in 1997), whereas the SunAmerica COI rates for 1999 and 2000 were increased by 22.5% and 21.8% respectively as compared to the prior year. Appellants further faulted SunAmerica for failing to notify Silverman
On May 28, 2003, SunAmerica sent appellants a letter explaining that "within certain limits, the owner [of an FPAL policy] is given flexibility to determine the amount of premium he or she wants to pay," that Silverman had made no premium payments in 1992 and 1993, that SunAmerica had sent annual statements to Silverman showing that his premium payments were insufficient to cover the COI rate deductions from the policy's ACV, and yet he never requested adjustments to his premium payments. SunAmerica also noted that the policy plainly provides that COI rates would increase (subject to guaranteed yearly caps) over the 28-year life of the policy, and that its COI rates for 1999, 2000, and 2001 were $6.52, $7.12, and $7.95, well below the policy caps $9.47, $10.42, and $11.47. On July 2, 2003, appellants responded, stating only that SunAmerica had failed to comply with their request that it provide "the actual per thousand rate mortality charges" for the years before SunAmerica acquired the Silverman policy, or "as far back as you can provide." On August 5, 2003, SunAmerica sent appellants the requested information, for policy years 1994-1999 (viz., $3.36, $3.72, $4.17, $4.71, and $5.14).
In February 2005, appellants sent SunAmerica a demand letter pursuant to Mass. Gen. Laws Chapter 93A, alleging that SunAmerica had "willful[ly] and knowing[ly]" committed "unfair or deceptive acts or practices" by raising, "without any justification," the COI rates from 1999 to 2001, failing to warn Silverman that his policy's ACV was being depleted, and misrepresenting that its COI increases had been court-approved pursuant to the Rehabilitation Plan. SunAmerica responded by letter dated March 21, 2005, denying all of these allegations. In May 2005, appellants, acting as trustees/executors of the Silverman trust and estate, filed this putative class-action diversity suit against SunAmerica in the United States District Court for the District of Massachusetts, alleging that SunAmerica's COI rate increases had breached the FPAL policy (Count 1), breached its implied covenant of good faith and fair dealing (Count 2), and violated the Massachusetts and California unfair business practices statutes (Counts 3 and 4). At the core of all four claims is this allegation:
SunAmerica moved to dismiss the complaint for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6). Finding that appellants' complaint failed to allege SunAmerica's "bad faith," the district dismissed the "breach of implied covenant" claim in Count 2, but deferred any ruling on the remaining counts subject to appellants' submission of a "supplemental pleading identifying with some specificity the provision or provisions of the contract alleged to have been breached and the manner in which they were breached."
Rather than submitting the invited supplemental pleading, however, appellants filed a supplemental brief in opposition to the SunAmerica motion to dismiss. Appellants cited the policy provision that COI rate changes would be "in accordance with any procedures and standards on file with the [Massachusetts Division of Insurance],"
Mass. Regs.Code tit. 211, § 95.6(2) (2007) (emphasis added). Appellants asserted: "SunAmerica breached the insurance policy as modified [in the rehabilitation Plan] by making Rate Increases that were not in accordance with the COI Rate Increase Filing." SunAmerica in turn promptly renewed its motion to dismiss Counts 1, 3 and 4.
The district court rejected appellants' contention that Mass. Regs.Code tit. 211, § 95.6(2), which deals solely with the insurer's calculation of its reserve liabilities, was the regulatory filing contemplated by the FPAL policy provision that "[a]ny change in [COI] rates will be in accordance with any procedures and standards on file with the Insurance Department of the jurisdiction in which this policy is delivered." The district court generously ordered SunAmerica — not the appellants — to produce a copy of any filing it had made with the Massachusetts Division of Insurance anent COI rates changes pursuant to the pertinent policy provision.
SunAmerica produced a copy of an actuarial memorandum ("Actuarial Memorandum") identical to the one that Mutual and MBL Life would have filed with the Massachusetts Division of Insurance,
In their opposition to the SunAmerica motion, appellants contended that the Actuarial Memorandum did contain procedures and standards for calculating COI rates. Appellants cited, inter alia:
Actuarial Memorandum Section II.B. Appellants pointed out Exhibit I of the Actuarial Memorandum, which sets forth the algebraic formula for calculating the "guaranteed maximum monthly cost of insurance rate for each attained age." They cited Section III of the Memorandum, which set forth the "Policy Value Formula," and indicated that COI is one of the
Appellants claimed that ¶¶ 5-6 of the affidavit submitted by Gary Strunk, the actuary who provided SunAmerica with a copy of the Actuarial Memorandum, "confirm[ed] that the Actuarial Memorandum contains a calculation of COI."
Appellants' opposition also asserted, for the first time, that the court-approved Purchase and Sale Agreement through which SunAmerica had acquired the Silverman policy contained a provision which prohibited it from changing the COI rate for the fifteen-month period following its purchase:
Purchase and Sales Agreement § 4.18.1. Appellants accordingly contended that SunAmerica's annual increases in the COI rates before May 1, 2001, violated the Purchase and Sale Agreement.
Finally, appellants raised, once again for the first time, the contention that SunAmerica may have violated state regulations if it considered — as the policy expressly allowed — its "expectation as to investment earnings" in calculating the COI rate changes, since a state regulation does not specify investment earnings as a permissible deduction from the ACV of a FPAL policy. See Mass. Regs.Code tit. 211, § 95.05.
After oral arguments on the parties' cross-motions, the district court granted summary judgment for SunAmerica on the remaining counts of appellants' complaint.
Appellants contend that the district court erred in granting SunAmerica's Rule 12(b)(6) motion to dismiss Count 2, which alleged that SunAmerica had breached the implied covenant of good faith and fair dealing "by fraudulently conceal[ing] that it had made the COI Rate increases in violation of the relevant insurance policy's terms by misrepresenting to the named plaintiffs and their agents several times between 2001 and the present that the Rehabilitation Plan authorized it to make the COI Rate increases . . . [whereas] the COI Rate increases were governed by the insurance policy language in ¶ 19." They argue that the district court erroneously held that SunAmerica could not have breached the implied covenant unless it breached an express contractual provision. See, e.g., Speakman v. Allmerica Fin. Life Ins., 367 F.Supp.2d 122, 132 (D.Mass.2005) ("A party may breach the covenant of good faith and fair dealing implicit in every contract without breaching any express term of that contract.").
We lack appellate jurisdiction to consider appellants' challenge to the district court decision to dismiss Count 2 pursuant to Rule 12(b)(6). The district court dismissed Count 2 on October 5, 2005. Appellants' Notice of Appeal specifies that their appeal is taken from the district court "Order Granting Summary Judgment for Defendant entered 3 March 2006 (Exhibit A)." (Emphasis added.) Notices of appeal must "designate the judgment, order, or part thereof being appealed." Fed. R.App. P. 3(c)(1)(B). Even though notices of appeal are to be liberally construed, if the appellant "chooses to designate specific determinations in his notice of appeal — rather than simply appealing from the entire judgment — only the specified issues may be raised on appeal." Constructora Andrade Gutierrez, S.A. v. Am. Int'l Ins. Co., 467 F.3d 38, 43 (1st Cir.2006) (noting that "[t]he failure to include a particular issue in a notice of appeal can be fatal to this court's jurisdiction over that issue"). The notice of appeal plainly did not place SunAmerica on adequate notice that appellants were challenging the Rule 12(b)(6) dismissal six months prior to the grant of summary judgment on the remaining counts of the complaint.
Appellants next contend that the district court erred in granting summary judgment for SunAmerica on the breach-of-contract claim because trialworthy issues of material fact remained as to whether the SunAmerica COI rate changes for
We review the grant of summary judgment de novo, viewing all facts and reasonable inferences therefrom in favor of the non-moving party, to determine whether there are no genuinely disputed material facts and the moving party is entitled to judgment as matter of law. Commercial Union Ins. Co. v. Pesante, 459 F.3d 34, 37 (1st Cir.2006) (citing Fed.R.Civ.P. 56(c)). Should SunAmerica make a preliminary showing that no genuine issue of material fact exists, appellants — who must bear the burden of proof at trial on each element of their breach of contract claim — would have to produce "specific facts, in suitable evidentiary form, to establish the presence of a trialworthy issue." Clifford v. Barnhart, 449 F.3d 276, 280 (1st Cir.2006) (emphasis added; citation omitted).
Massachusetts contract law applies in this diversity action. See Umsted v. Umsted, 446 F.3d 17, 20 (1st Cir.2006). In order to state a viable breach of contract claim under Massachusetts law, plaintiffs must prove that a valid, binding contract existed, the defendant breached the terms of the contract, and the plaintiffs sustained damages as a result of the breach. See Michelson v. Digital Fin. Servs., 167 F.3d 715, 720 (1st Cir.1999). Plaintiffs also must do more than allege, in conclusory fashion, that the defendant breached the contract, by describing, with "substantial certainty," the specific contractual promise the defendant failed to keep. See Buck v. Am. Airlines, Inc., 476 F.3d 29, 38 (1st Cir.2007) ("In a contract action, this irreducible [`substantial certainty'] minimum requires the pleader to `explain what obligations were imposed on each of the parties by the alleged contract.'") (citations omitted); Doyle v. Hasbro, Inc., 103 F.3d 186, 194-95 (1st Cir. 1996) (holding that "[c]onclusory statements that `Hasbro and its executives failed to meet their contractual requirement,' are insufficient to satisfy the pleading requirements"); Williams v. Astra USA, Inc., 68 F.Supp.2d 29, 37 (D.Mass. 1999).
The record plainly demonstrates that appellants failed to meet the "substantial certainty" requirement. Apparently, appellants suspected that SunAmerica miscalculated the COI rates for 1999, 2000, and 2001, based solely on the fact that, prior to SunAmerica's acquisition of the Silverman policy in 1999, COI rate increases had been 11.5%, at most, whereas the rate increases for 1999 and 2001 had been far greater, viz., 22.5% and 21.8%. Arguably then, given this unexplained and dramatic differential, appellants may have had a legitimate reason for requesting SunAmerica to explain the precise calculation by which it had arrived at the COI rates of $6.52 and $7.12, viz., to request SunAmerica to demonstrate what factors enumerated in the policy (e.g., sex, age, rate class, earnings, mortality, persistency, expenses, and taxes) were encompassed within that calculation, and the value and weight SunAmerica assigned to each such factor. Presumably, the insurer has exclusive control over the internal documentation of these COI rate calculations, and it is unlikely that a policyholder, unschooled as an insurance actuary, could reasonably be expected to reconstruct (or divine) the precise algebraic formulae employed by the insurer in making the esoteric calculations.
When they drafted their complaint, therefore, appellants had two options: (1) allege that the unexplained and dramatic increases in the COI rates beginning in 1999 were circumstantial evidence that SunAmerica had miscalculated the rates, perhaps by considering factors other than sex, age, rate class, earnings, mortality,
In any event, unlike SunAmerica's calculations for the COI rates, which presumably were in SunAmerica's exclusive control, the Division of Insurance filings were accessible to appellants pursuant to Massachusetts "public records" law. See Mass. Gen. Laws. Ann. ch. 66, § 10 (2007) (providing that "any person" be permitted to inspect a "public record" on file with a state agency, and be furnished with a copy for a reasonable fee). Had appellants exercised due diligence, they would have had no problem satisfying the district court's repeated orders to specify what "procedures and standards" on file with the Division of Insurance SunAmerica had allegedly violated. If they did not exercise due diligence, their bringing a suit against SunAmerica was not based on "substantial certainty," Doyle, 103 F.3d at 194-95, but on sheer speculation, both as to whether any relevant procedures and standards were on file at the Division of Insurance, and more importantly, as to their contents and precisely how SunAmerica's COI rate calculations had violated them.
Confronted with their ruinous pleading defect, appellants have scrambled — unsuccessfully — to recover some procedural footing.
Section III of the Actuarial Memorandum, entitled "Policy Value Formula," demonstrates the formula by which SunAmerica would calculate the policy's ACV. The COI rate concededly is one variable in that ACV calculation (along with, e.g., interest earned, the monthly expense charge and any cash withdrawals or loans to the policyholder) because the COI rate is one enumerated monthly deduction from the policy's ACV, but this cannot inform as to how the COI rate is calculated. In other words, although the formula X = Y — Z may tell us how to calculate the value of X (viz., the ACV), it tells us nothing useful about how to calculate the value of Z (viz., the COI rate) in the first instance. Instead, Section III provides only, in the most general terms, that the COI calculation "depends on the net amount at risk." (Emphasis added.)
In response, appellants simply advance the conclusory argument that "COI, COI rates, annual COI rates, monthly COI rates . . . are all algebraically related. . . . [so that] any changes to any of the COI-related variable . . . will affect all of the other variables." Not surprisingly, however, they make no attempt to illustrate their theory. Appellants give one example: "[T]he monthly cost of insurance is just the annual cost of insurance divided by 12 (months)." This simplistic example proves nothing. In the formula X = Y — Z, the larger the value assigned to Z (viz., the COI rate), the smaller the amount of X (viz., ACV) will be (and vice versa), but that arithmetic truism still does not inform us how to calculate the value for Z. Thus, the arithmetic interrelationship appellants posit is real, but irrelevant. Thus, the district court properly found that the Actuarial Memorandum did not create a trial-worthy issue of fact.
Appellants also contend for the first time, in opposition to SunAmerica's summary judgment motion, that the Purchase and Sale Agreement through which SunAmerica had acquired the Silverman policy contained a provision, entitled "Modified COI Scale," which provided that "[m]ortality charges may be changed on the policy anniversary beginning 15 months after the Rehabilitation Period Termination Date [viz., on May 1, 2001]," Purchase and Sales Agreement § 4.18.1, and that SunAmerica had violated this provision by increasing COI rates in 1999, 2000, and 2001. SunAmerica responds that the terms "COI Scale" and "COI Rate" are not equivalent, and that it did not increase the COI scale before May 1, 2001:
Whatever vagueness one arguably might perceive in SunAmerica's explanation of the distinction between "mortality
Appellants raised, again for the first time in their reply opposition to SunAmerica's summary judgment motion, the contention that SunAmerica may have violated Mass. Regs.Code tit. 211, § 95.05, see supra note 4, when it considered its "expectation as to investment earnings" in calculating the COI rate changes, and pursuant to Federal Rule of Procedure 56(f), requested further discovery on that factual issue.
SunAmerica argues that we should reject this argument because appellants did not raise the theory in their complaint, because SunAmerica's putative consideration of investment earnings would have resulted in its lowering of the COI rate (not an increase),
We think the first ground suffices, and that further discovery (which would show, at most, whether SunAmerica did in fact consider anticipated earnings when it calculated COI rates) would not cure appellants' failure to allege this legal theory in their complaint.
Finally, appellants contend that SunAmerica engaged in an unfair business practice by overcharging on the COI rates for 1999, 2000, and 2001, and subsequently engaging in a willful campaign to conceal their misconduct. See Mass. Gen. Laws Chapter 93A, § 2 ("Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.").
To the extent that their Chapter 93A claim is premised merely on their allegations that SunAmerica breached the insurance contract — either by violating its express terms or by failing to follow the incorporated "standards or procedures on file" with the Division of Insurance — it falls well short of the Chapter 93A liability threshold. See Commercial Union Ins. Co. v. Seven Provinces Ins. Co., Ltd., 217 F.3d 33, 40 (1st Cir.2000) ("A mere breach of contract does not constitute an unfair or deceptive trade practice under 93A, unless it rises to the level of `commercial extortion' or a similar degree of culpable conduct.") (citing Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 583 N.E.2d 806, 821 (1991)); Chambers Steel Engraving Corp. v. Tambrands, Inc., 895 F.2d 858, 861 (1st Cir.1990) ("The mere breach of contract, without more, even if one existed, would not violate ch. 93A."). Moreover, appellants failed even to make a viable Rule 56 proffer that SunAmerica violated any provision of the policy, any procedures or standards on file with the Massachusetts Division of Taxation, or any pertinent statute or regulation. See supra Section II.B. In view of these deficiencies, the district court properly dismissed appellants' Chapter 93A "unfair business practices" claim.
This might have been a different case if appellants had alleged in their complaint that the substantial percentage increases in the COI rates beginning in 1999 (increasing from 11.5% to 22.5%), when SunAmerica acquired the Silverman Policy, were circumstantial evidence that SunAmerica had inflated the rates for improper purposes, perhaps by considering factors other than sex, age, rate class, earnings, mortality, persistency, expenses, and taxes. As the torturous procedural travel of this case demonstrates, see supra Section I, appellant chose a different course, and alleged only that SunAmerica violated the
(1) An insurer must clearly disclose in writing, at the time of solicitation or contemporaneously with delivery of the policy, all charges that may be made against the separate account.
(2) An insurer may deduct only the following from the separate account:
(a) taxes or reserves for taxes attributable to investment gains and income of the separate account as required by applicable state or federal law;
(b) actual cost of reasonable brokerage fees and similar reasonable direct acquisition and sales costs incurred in the purchase or sale of separate account assets;
(c) actuarially determined mortality costs of insurance (tabular costs) and the release of separate account liabilities;
(d) reasonable charges for administrative expenses and investment management expenses, including internal costs attributable to the investment management of assets of the separate account;
(e) a reasonable charge, at a rate specified in the policy, for mortality and expense guarantees;
(f) any amounts in excess of those required to be held in the separate account;
(g) charges for incidental insurance benefits; and
(h) any other type of charge that the Commissioner has determined to be fair and reasonable.
Mass. Regs.Code tit. 211, § 95.05 (2007).