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Court Denies Class Certification; Rules Each Insurance Policy Must Be Considered as an Individual Contract

February 7, 2020

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<p style="text-align: justify;">Insurance policies are contracts.  For that reason and others, insurers benefit when courts approach their policies from a contract perspective rather than a public policy perspective.  Related to this point, a Tennessee federal judge recently denied class certification to a group of policyholders who brought suit against North Carolina Mutual Life Insurance Company. The underlying complaint alleges breach of contract and claiming problems with policy loans and rider benefits affecting thousands of other policies. In order for a group of plaintiffs with an array of claims to even be considered for class certification, a court must first determine whether the particular class action is the best option to manage the multiple claims.</p>
<p style="text-align: justify;">In <em><a href="">McClendon v. North Carolina Mutual Life Insurance Company</a>,</em> Marietta McClendon of Brentwood, Tennessee sued North Carolina Mutual, alleging breach of contract, alleging problems with policy loans and rider benefits affected thousands of other policyholders. The complaint alleges that her mother had taken out a life insurance policy of $10,000 on her son in the 1980s in Alabama. McClendon then took a $1,500 loan out against the policy in 1995, agreeing to a 5% interest rate, and when she died in 2005 her son took over payments.</p>
<p style="text-align: justify;">In 2009, when North Carolina Mutual assumed more than 52,000 insurance policies from several Alabama companies, that particular portfolio also included McDaniel’s policy.  After taking over the policy, the company then charged a higher 6% rate on the loan. Plaintiff’s Complaint further asserts that the payments made on the loan amount by McDaniel’s son after her death, during the period of 2009 to 2016, was snaffled by the company. Moreover, plaintiff claims that the life insurance payment McClendon received after her brother died last year was then reduced.<strong> </strong></p>
<p style="text-align: justify;">A motion for class certification under <a href=";pubNum=1000600&amp;cite=USFRCPR23&amp;originatingDoc=I04961e50338711eabbc4990d21dc61be&amp;refType=LQ&amp;originationContext=document&amp;vr=3.0&amp;rs=cblt1.0&amp;transitionType=DocumentItem&amp;contextData=(sc.DocLink)">Rule 23</a> requires class members to satisfy all four of the <a href=";pubNum=1000600&amp;cite=USFRCPR23&amp;originatingDoc=I04961e50338711eabbc4990d21dc61be&amp;refType=LQ&amp;originationContext=document&amp;vr=3.0&amp;rs=cblt1.0&amp;transitionType=DocumentItem&amp;contextData=(sc.DocLink)">Rule 23(a)</a> prerequisites: numerosity, commonality, typicality, and adequate representation. The four requirements serve to limit class claims to those that are fairly encompassed within the claims of the named Plaintiffs, because class representatives must share the same interests and injury as the class members. Failure to meet any of these elements will result in the denial of class certification. In addition to the four prong criteria, Courts must also take into account a second part to the overall analysis whereby a class must fall within one of the three typed of actions listed in Rule 23(b). Most importantly, the party seeking class certification has the burden to prove the Rule 23 certification requirements.</p>
<p style="text-align: justify;">Following a rigorous analysis of the aforementioned criteria by the Court, Judge Campbell eventually disagreed with Plaintiff’s contention that the loan class members shared the same injury. The court determined that the interest rate on each loan being identical does not in itself establish breach of contract, and that each individual contract’s terms would have to examined to determine whether there was a breach of contract. Moreover, the issue as to whether the loan payments were improperly applied to each loan balance, would require a case by case examination of each loan.  In other words, each contract would be treated as an individual contract.  And that benefits insurers.</p>
<p style="text-align: justify;"><span>Thanks to James Papadakis for his contribution to this post.  Please email <a href="">Mike Gauvin </a></span><span>with any questions.</span></p>


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