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 April 18, 2013. DDS No. 23-7-xxxx [35 pp.]

This case concerns allegations of deception and bad faith against The Prudential Insurance Company of America. The heart of the complaint is that Prudential stopped selling Comprehensive Health Insurance policies to new customers (closing the block), knowing that this would result in prohibitive increases in premiums as sick policyholders remained in the block and healthy policyholders left, resulting in the sick getting locked into the increasingly expensive policy and locked out of alternative options due to pre-existing conditions. Plaintiff-former policyholders contend that Prudential falsely misrepresented to its policyholders that the only reason for increased premiums would be the increasing age of the insured and rising medical costs and failed to disclose that a major reason for the premium increases was the closing of the block. The court denied class certification on multiple grounds and granted Prudential’s summary judgment in part, based on the statute of limitations.

Plaintiffs have filed motions for reconsideration of the denial of their motion for class certification; the denial of their motion to alter or amend the class certification order with respect to redefining the class and bifurcating liability and damages issues so that the class may be certified solely for purposes of liability; and of the order granting Prudential’s motion for summary judgment in part.

Held: Plaintiffs’ motions for reconsideration of the order denying class certification, the motion for reconsideration of the order granting in part summary judgment, and the motion to amend or alter the class are denied because the court did not overlook a factual or legal issue that may alter the disposition of this matter.

The court first notes that reconsideration, which is governed by Local Civil Rule 7.1(i), is an extraordinary remedy that is granted very sparingly. The movant must show an intervening change in the controlling law; the availability of new evidence that was not available when the court issued its order; or the need to correct a clear error of law or fact or to prevent manifest injustice.

Plaintiffs argue that the court made a clear error of fact in concluding that the damages methodology proposed by Dr. Frech did not satisfy their burden to propose a common approach to measuring damages. However, the court says the reasonableness check clearly establishes that Frech’s proposed substitutive methodology for an actual yardstick fails because his projected implied but-for premium was two-times larger than the proposed comparative check, and therefore of questionable accuracy and reliability. The motion for reconsideration on this point is denied.

Plaintiffs also argue that the court’s approach to damages ignores the well-accepted principles that precision in calculation of damages is not required for recovery and some individualized calculation of damages is frequently required in class cases and rarely defeats class certification where common issues predominate as to liability. Thus, they assert for the first time that the common issues as to liability are divisible from any individual issues of damages, and there are no impediments to bifurcation of liability issues for class treatment.

The court says there is no division between damages and liability here. In addition to explaining the wide array of reasons why policyholders would have dropped CHIP, the varied nature and frequency of oral communications with policyholders further showed the fact-specific individual inquiry that will be necessary to determine the presence of the fraud. Here, the individualized issues that arise in the calculation of damages and damages in fact are so inextricably linked that bifurcation would be judicially inefficient.

Plaintiffs also argue that the court erred by ignoring their argument that classwide materiality could be shown by the fact that the nondisclosure meant that all class members paid above-market premiums and in relying on post-block-closure lapse rates and speculation about varying reasons for lapse to support its conclusion that materiality could not be established on a classwide basis.

The court says it clearly considered these issues but rejected them. Thus, the question is ripe for appeal, but not for a "second bite of the apple" via a motion for reconsideration.

Plaintiffs argue that the opinion’s flaws are most pronounced regarding California’s Unfair Competition Law because it ignores the unique elements of a UCL violation. The court considers the fraud and unfairness prongs of the UCL and says plaintiffs overlook the need for individualized litigation concerning materiality, conduct and limitations defenses, and a reliable approach to establish damages by common proof. It concludes that it has not overlooked any factual or legal issue on this point.

As to plaintiffs’ claim that the court erred and worked a manifest injustice by not considering whether to certify a narrower class, the court says the proposed class and subclass still do not overcome the problems of classwide treatment, i.e., materiality, varied conduct or calculation of damages by common proof.

As to the court’s granting in part Prudential’s motion for summary judgment after concluding that Clark and Drogell’s claims were time-barred because they were put on inquiry notice and incurred a duty to investigate further, plaintiffs argue that the court misconstrued California and Ohio law and misapplied the facts. They contend that it is a triable factual question whether Clark’s suspicion was not reasonably based on the facts known to her, and thus that a duty to investigate was not triggered.

However, the court says California jurisprudence is clear that a plaintiff is on inquiry notice when she suspects or should suspect that her injury was caused by wrongdoing and that all of the generic elements were in place in 1993 when Clark suspected or should have suspected that her injury was caused by the wrongdoing. Further, the delayed discovery rule is a narrow exception to the inquiry notice rule, applied where the plaintiff proves that a reasonable investigation at that time would not have revealed a factual basis for a particular cause of action. However, the record as to Clark and Drogell is replete with evidence that they were suspicious of Prudential’s averments based on material facts already available to them and which form the basis of the fraud claim.

The court concludes that Clark and Drogell simply waited too long to file the claim. The court thus did not overlook a factual or legal issue that may alter the disposition of this matter, and the motion for reconsideration of the partial grant of summary judgment is denied.

For plaintiffs — Bruce Nagel and Robert H. Solomon (Nagel Rice); Charles N. Freiberg, Brian P. Brosnahan, David A. Thomas, and Jacob N. Foster, of the Calif. bar (Kasowitz, Benson, Torres & Friedman), and Craig A. Miller, of the Calif. bar. For defendant — Douglas S. Eakeley and Natalie J. Kraner (Lowenstein Sandler) and John D. Aldock, Mark S. Raffman and Adam M. Chud, of the D.C. bar (Goodwin Protctor).