Sentry Equities v. Allstate Life ( 2022 )

Case: 22-20024 Document: 00516528114 Page: 1 Date Filed: 10/31/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
October 31, 2022
No. 22-20024 Lyle W. Cayce
Clerk
Sentry Equities, Ltd.; Sentry Holding Company, L.L.C.;
Robert W. Haas,
Plaintiffs—Appellants,
versus
Allstate Life Insurance Company, doing business as
Northbrook Life Insurance Company; Allstate
Assurance Company, doing business as Northbrook Life
Insurance Company; Life Inforce Processing; Morgan
Stanley; Company, L.L.C.,
Defendants—Appellees.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:21-CV-52
Before Stewart, Elrod, and Graves, Circuit Judges.
Per Curiam:*
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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No. 22-20024
This appeal arises out of a dispute over the terms of a life insurance
policy that was obtained in the 1980s. The policy holder filed suit on grounds
that the insurer breached the terms of the policy by unilaterally lowering the
interest rate which caused the cash value of the policy to decrease. The
district court disagreed, denied the policy holder’s motion for summary
judgment, and dismissed the suit in its entirety. The policy holder now
appeals. For the following reasons, we affirm.
I. FACTUAL & PROCEDURAL BACKGROUND
In 1988, Sentry Equities, Ltd., Sentry Holding, LLC, and Robert W.
Haas (collectively, “Haas”) purchased a Single Premium Life Insurance
Policy 1 (the “Policy”) from Allstate Life Insurance Company, et al.
(collectively, “Allstate”). The Policy had a maturity date of May 11, 2049,
and a $350,000 cash value that was to increase each year based on a
compounding interest rate. The Policy terms permitted Haas to take out
loans against the Policy, which he did on occasion, subject to various interest
rates to be determined at the time the loans were obtained. The Policy
provided that “[t]he basis of the guaranteed cash values is 7.75 percent
interest the first year, 6 percent interest thereafter, and the maximum annual
costs of insurance.” Then, under a section titled “Cash Values,” the Policy
provided that “[t]he rate(s) of interest earned on the cash value will be
declared by us. The rate(s) of interest earned on the unloaned cash value will
not be less than 4%.”
On May 22, 2020, in response to a “concern” that Haas had
expressed, Allstate sent a letter to him that explained:
Your policy has a cash value. Each year, the cash value
grows with interest and we deduct a cost of insurance
1
Policy No. 510 817 4187.
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(COI) charge. Two of the guarantees available on your
policy are a 4% guaranteed interest rate and guaranteed
maximum COI charges. In other words, your interest
rate will never drop below 4%, and the COI charges will
never exceed the maximum COI charges specified in
your policy.
Your policy also has a guaranteed cash value which
acts as an additional layer of protection. The cash
value will never be less than the guaranteed cash value
amounts shown on page 4 of your policy. The
guaranteed cash value amounts are calculated based on
the assumptions that the initial premium grows at a 6%
interest rate and maximum COI charges are deducted.
The 6% interest rate is not a guarantee, but one of the
factors used to calculate the guaranteed cash value.
Your current cash value is more than the guaranteed
cash value, even though the policy currently earns 4%
interest, because current COI charges have been less
than maximum COI charges.
As of your last anniversary, we decreased the
interest rate from 6% to 4% in response to
unfavorable market conditions. The COI charges
remained unchanged. As discussed above, your
policy’s current credited interest rate, COI charges,
and guaranteed cash value align with the guarantees
provided by the policy.
According to Haas, Allstate’s actions as described in the May 2020 letter
constituted a material breach of the Policy terms because it unilaterally
decreased the interest rate guaranteed by the Policy from 6% to 4%.
Haas filed suit against Allstate in state court in December 2020, and
Allstate removed the case to federal court in January 2021. Shortly after
removal, Allstate moved to dismiss the case pursuant to Rules 12(b)(1) &
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12(b)(6). See Fed. R. Civ. P. 12(b)(1), (6). The district court denied Allstate’s
motion in March 2021. Haas then moved for summary judgment on his
breach of contract claims in October 2021. In his motion, Haas summarized
the testimony of two expert witnesses in support of his claims. In December
2021, Allstate also moved for summary judgment. Haas then moved for and
received a continuance on January 4, 2022, seeking additional time to
respond to Allstate’s summary judgment motion. Finally, on January 13,
2022, the district court denied Haas’s motion for summary judgment and
dismissed the suit. In its Memorandum and Order the district court stated:
In the Court’s view, the terms of the Policy are
unambiguous, hence, the opinions of experts are
unnecessary . . . Notably, Sentry/Haas does not assert
that the Policy terms are ambiguous. Hence, the sole
question is whether the Policy empowers Allstate to
vary the interest in the Policy from time-to-time within
its discretion. The Court is of the opinion that the
Policy permits Allstate to vary [the] rate(s) of interest
earned on the unloaned cash value [so long as] the
unloaned cash value will not drop below 4%, []and so
long as the Policy’s Cash Value meets or exceeds the
corresponding values represented on the Table of
Guaranteed Values set out in the Policy.
There is no evidence that the Cash Value of Haas’
Policy ever fell below the values set out in the Table of
Guaranteed Values. The Court concludes that
Sentry/Haas’ motion for summary judgment is
unmeritorious and that it should be Denied.
Moreover, because Haas is still alive, and no request to
surrender the policy has been made, the suit is
DISMISSED in its entirety.
Haas filed this appeal.
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II. STANDARD OF REVIEW
We conduct a de novo review of a district court’s denial or grant of
summary judgment. See Morrow v. Meachum, 917 F.3d 870, 874 (5th Cir.
2019) (denial); Molina v. Home Depot, USA, Inc., 20 F.4th 166, 168 (5th Cir.
2021) (citation omitted) (grant). “Typically, a district court may grant
summary judgment only on grounds requested by the moving party.” Molina,
20 F.4th at 169. A district court must provide the parties ten days’ notice
before granting summary judgment sua sponte. Id. If it fails to provide the
requisite notice, however, we review for harmless error. Id. “Error is
harmless if the nonmovant has no additional evidence or if all of the
nonmovant’s additional evidence is reviewed by the appellate court and none
of the evidence presents a genuine issue of material fact.” Id. (internal
quotation marks and citations omitted).
III. DISCUSSION
“Under Texas law, ‘[i]nsurance policies are controlled by rules of
interpretation and construction which are applicable to contracts
generally.’” O’Brien’s Response Mgmt., LLC v. BP Expl. & Prod., Inc., 24
F.4th 422, 428 (5th Cir. 2022) (quoting Richards v. State Farm Lloyd’s, 597
S.W.3d 492, 497 (Tex. 2020)). In construing contracts, “Texas courts give
terms their plain, ordinary and generally accepted meaning . . . [and] will
enforce the unambiguous document as written.” Id. (citing Heritage Res., Inc.
v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996) (internal quotation marks
and citations omitted)). “If policy language is worded so that it can be given
a definite or certain legal meaning, it is not ambiguous” and will be construed
“as a matter of law.” Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157
(Tex. 2003). An ambiguity is not created by the fact that the parties offer
different contract interpretations. Id. Rather, an “ambiguity exists only if the
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contract language is susceptible to two or more reasonable interpretations.”
Id.On appeal, Haas takes a “kitchen sink” approach and attempts to
construct numerous errors of law out of the district court’s brief ruling. To
summarize, he argues that the district court erred in: (1) holding that the
Policy terms were unambiguous, (2) excluding his expert witness testimony,
(3) holding that Allstate did not breach the Policy terms, (4) holding that the
cash value of the Policy never fell below the amounts guaranteed by the Policy
terms, (5) blue-penciling the Policy language, (6) granting summary
judgment in favor of Allstate, and (7) failing to consider his arguments
regarding the Texas Insurance Code 2 and the Deceptive Trade Practices Act
(“DTPA”). 3 We address each argument in turn.
A. Ambiguity of the Policy Terms & Exclusion of Expert Testimony
As a preliminary matter, Haas did not make an argument to the district
court that the Policy terms were ambiguous. Instead, he repeatedly argued in
his summary judgment motion that the contract was “wholly unambiguous.”
On appeal, however, Haas makes the opposite argument by contending that
“[t]he life insurance policy in question contains, at best, two phrases which
are contradictory.” He then compares the part of the Policy that states that
the interest rate will be 6% beginning in year two with the part of the Policy
that references the 4% minimum interest rate. Because Haas did not argue
that the Policy was ambiguous to the district court, he has waived the
argument on appeal. See Owens v. Circassia Pharms., Inc., 33 F.4th 814, 833
2
TEX. INS. CODE § 541.001, et seq.
3
TEX. BUS. & COM. CODE § 17.41, et seq.
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(5th Cir. 2022) (“But that argument was not raised before the district court,
so we do not consider it here.”).
Nevertheless, our analysis of Haas’s remaining arguments regarding
the Policy and the district court’s exclusion of his expert witness testimony
requires that we determine whether the Policy is ambiguous. We hold that it
is not. The Policy provides that “[t]he basis of the guaranteed cash values is
7.75 percent, 6 percent interest thereafter, and the maximum annual costs of
insurance.” Under the “Cash Values” section, the Policy provides that
“[t]he rate(s) of interest earned on the unloaned cash value will not be less
than 4%.” This language provides the parameters of the interest rate as being
set at 7.75% on year one, 6% thereafter, with a guaranteed minimum interest
rate of 4%. It is not ambiguous because it is not “susceptible to two or more
reasonable interpretations.” See Schaefer, 124 S.W.3d at 157. In other words,
an ambiguity is not created simply because the Policy permits a fluctuation of
interest rates within a range specified by the Policy terms. Haas’s attempt to
offer his own self-serving alternative interpretation of the Policy language
does not change that. Id. Moreover, because the Policy terms are not
ambiguous, the district court properly excluded Haas’s expert witness
testimony. See Brock Servs., LLC v. Rogillio, 936 F.3d 290, 298 (5th Cir. 2019)
(“When a contract is unambiguous, we look only to the four corners of the
contract to interpret it.”).
B. Breach of the Policy Terms & the Guaranteed Cash Value of the Policy
Given our determination that the Policy terms are unambiguous, the
only remaining question is whether Allstate breached the terms of the Policy
by reducing the interest rate from 6% to 4%. “Breach of contract requires
pleading and proof that (1) a valid contract exists; (2) the plaintiff performed
or tendered performance as contractually required; (3) the defendant
breached the contract by failing to perform or tender performance as
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contractually required; and (4) the plaintiff sustained damages due to the
breach.” Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d
882, 890 (Tex. 2019). Here, neither party disputes that a valid contract exists
or that Haas performed as contractually required under the Policy.
Accordingly, as the district court observed, “the sole question is whether the
Policy empowers Allstate to vary the interest in the Policy from time-to-time
within its discretion.” In answering in the affirmative, the district court
reasoned that “the Policy permits Allstate to vary [t]he rate(s) of interest
earned on the unloaned cash value [so long as] the unloaned cash value will
not drop below 4%, []and so long as the Policy’s Cash Value meets or exceeds
the corresponding values represented on the Table of Guaranteed Values set
out in the Policy.”
A review of the Policy’s plain language indicates that the district
court’s interpretation of the Policy terms is correct. Page 4 of the Policy
provides that “[t]he rate(s) of interest earned on the cash value will be
declared by us.” This language clearly permits Allstate to vary the interest
rate on the unloaned cash value. The Policy then states that “[t]he rate(s) of
interest earned on the unloaned cash value will not be less than 4%.” This
language clearly limits Allstate’s ability to lower the interest rate to no less
than 4%. In turn, the Table of Guaranteed Cash Values functions as a separate
guarantee that the cash value of the Policy will never fall below a certain
specified amount regardless of the interest rate. Read together, these terms
permit Allstate to vary the interest rate within a range specified by the Policy
terms, i.e., between 4% and 6%. As the record reveals and as the district court
correctly pointed out, “[t]here is no evidence that the Cash Value of Haas’
Policy ever fell below the values set out in the Table of Guaranteed Values”
due to Allstate’s lowering the interest rate per the Policy terms.
Consequently, we agree with the district court that Haas has failed to prove
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that Allstate breached the terms of the Policy. Pathfinder Oil & Gas, Inc., 574
S.W.3d at 890.
C. Whether the District Court Blue-Penciled the Policy
Haas next contends that the district court impermissibly “blue-
penciled” an extra clause into the Policy. See Lloyd’s Syndicate 457 v.
FloaTEC, LLC, 921 F.3d 508, 518 (5th Cir. 2019) (noting that the court
cannot “blue-pencil” an extra clause into the contract). We disagree. Here,
the district court merely inserted the words “so long as” between the existing
contract language to point out that two provisions in the Policy (the 4%
minimum interest rate language and the guaranteed cash value language)
were related and to be read together. The district court’s insertion of these
three words did not alter the terms of the contract and thus, did not constitute
a form of blue-penciling. See Sims v. Mulhearn Funeral Home, Inc., 2007-0054
(La. 5/22/07); 956 So.2d 583, 589 (“Courts lack the authority to alter the
terms of insurance contracts under the guise of contractual interpretation
when the policy’s provisions are couched in unambiguous terms.”). Haas’s
argument to the contrary is meritless.
D. The District Court’s Dismissal of the Suit & the Texas Insurance Code
& Deceptive Trade Practices Act
Haas argues that the district court improperly granted summary
judgment in favor of Allstate and dismissed his case without giving him the
requisite notice prior to issuing its judgment. While we are not convinced that
the district court’s dismissal was improper, we agree that the precise nature
of the district court’s dismissal of the suit was not entirely clear. Our review
of the record shows that Haas moved for summary judgment in October
2021, and while that motion was pending, Allstate moved for summary
judgment in December 2021. Haas subsequently moved for and received an
unopposed continuance on January 4, 2022, in which he requested fifteen
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additional days to respond to Allstate’s summary judgment motion. Then,
on January 13, 2022, while Allstate’s December 2021 summary judgment
motion was still pending, the district court denied Haas’s motion for
summary judgment. In the same order, the district court dismissed the suit
in its entirety but did not specify the context from which its dismissal arose.
Allstate argues that the district court’s dismissal of the suit may have
arisen from its dormant December 2021 summary judgment motion.
Alternatively, Allstate suggests that pursuant to Federal Rule of Civil
Procedure 54(b), the district court may have dismissed the suit after
reconsidering and reversing its prior order denying Allstate’s Rule 12
dismissal motion. Nevertheless, because the district court’s order is silent as
to this issue and Allstate’s summary judgment motion was the only motion
pending at the time of the dismissal, we assume for purposes of our analysis
that the dismissal order arose from that motion as Haas contends. The
question now becomes whether the district court erred in granting summary
judgment in favor of Allstate without providing the requisite notice to Haas.
As stated, a district court must provide the parties ten days’ notice
before granting summary judgment sua sponte. Molina, 20 F.4th at 169. If the
district court fails to provide the requisite notice, we review for harmless
error. Id. We consider the error harmless if the nonmovant (1) has no
additional evidence to offer in support of his claims or (2) if the appellate
court reviews all of the nonmovant’s additional evidence and concludes that
none of the evidence presents a genuine issue of material fact. Id. (internal
quotation marks and citations omitted); see also Lexcon Ins. Co., Inc. v. Fed.
Deposit Ins. Corp., 7 F.4th 315, 321 (5th Cir. 2021) (same).
Haas contends on appeal that when the district court granted his
continuance motion on January 4, he had planned to respond to Allstate’s
summary judgment motion advancing additional arguments related to the
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Policy’s cash value and certain extracontractual statutory claims. He argues
that the district court’s dismissal of his suit without sufficient notice deprived
him of this opportunity. We disagree.
As a preliminary matter, we note that Haas did not state in his
continuance motion that he planned to submit additional evidence in support
of his arguments related to the Policy’s cash value or any extracontractual
claims. Rather, he stated that he was requesting the continuance because it
was the holidays, his counsel’s office had recently moved, and several of its
staff members had been recently diagnosed with COVID-19. Nevertheless,
assuming that, as Haas argues on appeal, he had additional evidence to offer
on the Policy’s cash value and his extracontractual claims, he still could not
have prevailed in his suit against Allstate. As we have held infra, Haas’s
breach of contract claims fail as a matter of law. Additionally, because the
Policy’s terms are unambiguous, the district court properly excluded Haas’s
proposed expert witness testimony relating to the Policy’s cash value.
Further, under Texas law, Haas cannot recover damages from Allstate based
on an alleged extracontractual statutory violation, such as a DTPA or Texas
Insurance Code violation, because he has failed to “establish[] a right to
receive benefits under the policy or an injury independent of a right to
benefits.” USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 500 (Tex.
2018). Consequently, he cannot prevail on these claims regardless of whether
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he presents more evidence. Id. 4 On this basis, we conclude that no genuine
issue of material fact remains in Haas’s suit. See Molina, 20 F.4th at 169. 5
Accordingly, the district court’s issuance of summary judgment and
dismissal of the suit without the requisite notice was harmless error. Id.
IV. CONCLUSION
For the foregoing reasons, the district court’s judgment is
AFFIRMED.
4
Haas’s arguments under the Texas Insurance Code and the DTPA also fail on the
merits. There is no record evidence that Allstate engaged in unfair claim settlement
practices or misrepresented a material fact or policy provision relating to coverage under
the Policy. See TEX. INS. CODE §§ 541.003, 541.060, 541.061; see also Chamrad v. Volvo
Cars of N. Am., 145 F.3d 671, 672 n.3 (5th Cir. 1998) (citing Doe v. Boys Clubs of Greater
Dall., Inc., 907 S.W.2d 472 (Tex. 1995)) (“The elements of a DTPA cause of action are: 1)
The plaintiff is a consumer; 2) the defendant engaged in false, misleading, or deceptive
acts; and 3) these acts constituted a producing cause of the consumer’s damages.”). To the
contrary, the record evidence demonstrates that Allstate sent numerous letters to Haas
over the years explaining the Policy terms after he requested clarification.
5
Moreover, “[w]e have reasoned that at some point a court must decide that a
plaintiff has had fair opportunity to make his best case, and if, after that time, a cause of
action has not been established, the court should finally dismiss the suit.” Anokwuru v. City
of Houston, 990 F.3d 956, 967 (5th Cir. 2021) (alterations, internal quotation marks, and
citation omitted). Haas had over a year between the day he filed suit against Allstate and
the day the district court dismissed his case, yet he failed to provide sufficient evidence to
support his breach of contract or extracontractual claims. Thus, it was reasonable for the
district court to issue summary judgment and dismiss the suit on grounds that Haas had a
fair opportunity to make his best case but failed to do so. Id.12