Clark v. The Prudential Ins. Co. of America, No. 08-6197; U.S. District Court (DNJ); opinion by Debevoise, S.U.S.D.J.; filed February 5, 2013. DDS No. 23-7-xxxx [107 pp.]

This case concerns allegations of deception and bad faith against The Prudential Insurance Company of America in connection with health insurance plans marketed under the name Coordinated Health Insurance Program (CHIP).

The heart of the complaint is that Prudential stopped selling CHIP policies to new customers, i.e., closed the block, knowing that this would result in a prohibitive increase in premium rates.

All six named plaintiffs held their policies until 2004 or later and dropped the plan when premiums reached extremely high levels. They contend that Prudential failed to disclose that it had stopped selling CHIP, a major reason for the premium increases, and falsely misrepresented that the only reason for increased premiums would be the increasing age of the insured and rising medical costs. They contend that had they been alerted of the block closure and its consequences, they would have immediately begun searching for another health insurance plan and switched to that plan as soon as possible, at a time when they did not have medical conditions that would prevent them from securing alternate health insurance.

The operative complaint is the fifth amended complaint. It asserts four causes of action: fraudulent misrepresentation and fraudulent omissions, both on behalf of a multistate fraud class; and breach of the duty of good faith and fair dealing and violation of California’s Unfair Competition Law, both on behalf of a California subclass.

Plaintiffs move for class certification. Prudential moves for summary judgment against four of the six named plaintiffs based on the statute of limitations.

Held: Plaintiffs’ motion for class certification is denied due to lack of commonality and predominance based on the individualized review necessary to establish materiality, reliance and redress. Prudential’s motion for summary judgment is granted with respect to plaintiffs Clark and Drogell. However, it is denied with respect to plaintiffs Cusanelli and Gold because the running of their claims involve genuine issues of material fact.

The court first considers plaintiffs’ motion for class certification. They initially proposed one multistate fraud class (MSF class) and five overlapping subclasses, on behalf of roughly 17,000 current and former CHIP policyholders from California, Indiana, Ohio and Texas, who paid one or more CHIP major medical premiums based on a rate increase effective on or after March 1, 1982.

Pursuant to leave of court, they have submitted a revised proposal for:

(1) a MSF class of all current or former CHIP policyholders who resided in California, Indiana, Ohio or Texas at the time of policy issuance and who paid one or more CHIP major medical premiums based on a rate increase effective on or after March 1, 1982. All MSF class members maintain a fraudulent-concealment claim (based on omissions) and, except for Texas class members, a constructive-fraud claim based on omissions; and

(2) the California subclass defined as MSF class members who resided in California at the time of policy issuance. This subclass includes claims of fraudulent concealment and constructive fraud, in addition to a California Unfair Competition Law claim and an implied-covenant claim; and

(3) the misrepresentations subclass defined as MSF class members who paid one or more major medical premiums on or after any policy anniversary falling on Aug. 28, 1985, or thereafter. It includes claims applicable to all members for common-law fraudulent misrepresentation based on either or both of the form letters sent by Prudential. California or Indiana members of this subclass also have a claim of constructive fraud based on misrepresentations.

The court says the proposed class and subclasses clearly meet the numerosity requirement of Rule 23(a)(1). However, the requirements of typicality and adequacy of representation are not as clearly met. It notes that the proposed class is on behalf of policyholders who maintained CHIP after the block was closed in 1981 and who were subject to the premium increase that went into effect on March 1, 1982. However, the claims or defenses of the representative parties are not typical of those of the class. None of the plaintiffs are in the 85 percent and 94 percent of the proposed class who dropped the policy prior to Prudential’s 1985 and 1989 form letters. Rather, all six are in the 1 percent of the proposed class members who maintained the policy until 2001 when premiums skyrocketed.

As to commonality/predominance, plaintiffs rely on the fact that none of the form letters included an explanation related to the block closure and its consequences. However, the evidentiary record makes clear that a substantial portion of the proposed class would not find the pertinent information material and that resolution of the materiality inquiry requires individualized consideration.

The court concludes that although having some common core as to omission or misrepresentation of the block closure and its consequences, the fraud is not suitable for class treatment based on the varying degrees of its materiality and reliance by the proposed class and the lack of commonality with regard to communications with policyholders.

After reviewing the California-specific claims, the court concludes that plaintiff’s motion for class certification premised in common-law fraud, the California Unfair Competition Law, and the implied covenant of good faith and fair dealing must be denied because individualized inquiry is a superior and more efficient method for handling the mixed communications, particularities as to materiality and reliance on the omission or misrepresentation, and calculation of equitable relief.

The court then addresses Prudential’s motion for summary judgment against four of the proposed class members. The claims of Clark, Cusanelli and Gold are scrutinized under California state law, and those of Drogell under Ohio law.

The court says the question is whether those plaintiffs were put on inquiry notice of wrongdoing in connection with their injury prior to the filing of the action such that summary judgment should be found against them as a matter of law.

The court concludes that Clark is clearly out of time to contest her allegations of fraud since the record shows that she repeatedly and unequivocally suspected that Prudential was trying to get rid of her by at least 1993.

As to Cusanelli, there is no indication that she suspected any wrongdoing prior to an October 2005 call to Prudential. Because the complaint was filed on Dec. 17, 2008, she is within the four-year statute of limitations with respect to her UCL and implied-covenant claims and outside the three-year limitations period for her common-law fraud claim.

As to Gold, the court says there is a genuine issue of material fact as to whether his March 2004 phone call to Prudential evidenced his suspicion that something was amiss. Therefore, it denies summary judgment as to him based on the statute of limitations.

Finally, the court says Drogell clearly establishes her suspicion of some wrongdoing in a call on May 27, 2003 regarding her premium increases. Thus, the statute of limitations of four years began to run from that call and she is out of time to assert her claim.

For plaintiffs — Bruce Nagel (Nagel Rice); Charles N. Freiberg, Brian P. Brosnahan, David A. Thomas and Jacob N. Foster, of the Calif. bar (Kasowitz, Benon, Torres & Friedman); and Harvey R. Levine and Craig A. Miller, of the Calif. bar (Levine, Steinberg, Miller & Huber). For defendant — Douglas S. Eakeley and Natalie J. Kraner (Lowenstein Sandler) and John D. Aldock, Mark S. Raffman, Richard M. Wyner and Adam M. Chud, of the D.C. bar (Goodwin Proctor).