Third Circuit Rules for State Farm in Juvenile Smoking Policy Lawsuit
By Ben Hallman
July 02, 2009
A class action over clauses in insurance contracts concerning youth smoking appears to be extinguished. In an unpublished decision, the U.S. Court of Appeals for the Third Circuit has upheld the dismissal of claims against State Farm Insurance Company brought by a plaintiff who sued because the company didn't differentiate between smokers and nonsmokers when calculating policy premiums for her children.In 2002, Samuel Doctor, now deceased, bought life insurance policies for his sons (Samuel, who was 16, and Nathan, who was 10) for face amounts of $15,000 each. The standardized application forms, which State Farm uses for both adult and juvenile applicants, asked Doctor whether each child smoked or used tobacco products. He designated both children to be nonsmokers/non-tobacco users. According to court documents, State Farm has offered tobacco-distinct premiums for adults, but has never offered tobacco-distinct premiums for insureds age 20 and under. Rather, it offers an aggregate juvenile premium rate that takes into account the mortality experience of all juveniles (both those who use tobacco and those who do not).
In 2005, Mary Alleman, the boys' mother, represented by Joseph Kravec, Jr., of Specter Specter Evans & Manogue, filed a class action in the U.S. district court for the Western District of Pennsylvania accusing State Farm of breaching its insurance contract by charging the same premiums to juvenile insureds who do not smoke tobacco as it did to juvenile insureds who do. She sued for breach of contract, breach of fiduciary duty, constructive fraud, and unjust enrichment. Plaintiffs' argument hinged on whether Doctor had a "reasonable expectation" that the policy he signed was different from what he expected when he applied and paid for the policy. But the Third Circuit, in denying the appeal, said that the Pennsylvania Supreme Court has made clear that the reasonable expectations of the insured should only trump the language of the contract where there are allegations of unilateral change of coverage provisions or where the insurer has made affirmative misrepresentations about the policy terms, according to the opinion.
"The reasonable expectations doctrine is therefore inapplicable in the instant matter, which involves the price term of the policy and no allegation of any affirmative misrepresentation by the insurer," the court said. Similar youth smoking suits have bounced around in other jurisdictions without much success. The Pennsylvania suit was seen as the most promising for plaintiffs lawyers.
Russell Jackson of Skadden, Arps, Slate, Meagher & Flom represented State Farm.
