Brown v. Phoenix Life Ins ( 2021 )

Case: 20-30225 Document: 00515703807 Page: 1 Date Filed: 01/12/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
January 12, 2021
No. 20-30225 Lyle W. Cayce
Clerk
William Edward Brown,
Plaintiff—Appellant,
versus
Phoenix Life Insurance Company,
Defendant—Appellee.
Appeal from the United States District Court
for the Middle District of Louisiana
USDC No. 3:18-CV-478
Before Haynes, Higginson, and Oldham, Circuit Judges.
Stephen A. Higginson, Circuit Judge:*
This case concerns a contract dispute involving a life insurance policy
purchased by Plaintiff-Appellant William Edward Brown from Defendant-
Appellee Phoenix Life Insurance Company. Brown appeals the district
court’s dismissal of his Second Amended Complaint with prejudice pursuant
*
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opinion should not be published and is not precedent except under the limited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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to Federal Rule of Civil Procedure 12(b)(6). We AFFIRM in part,
REVERSE in part, and REMAND for further proceedings. 1
I. Factual Background
As alleged in Brown’s Second Amended Complaint, in December
1986 Phoenix 2 sold Brown a “universal life insurance policy” (“the Policy”)
with a $150,000 death benefit and a $1,200 annual premium. At the time of
the sale, an insurance agent working for Phoenix allegedly represented to
Brown that the Policy charged higher premiums, which—in addition to
covering the immediate costs of the insurance—would be used to create and
build an investment fund that would earn interest and be available to pay
premiums later in life in order to provide “coverage for life.” The agent
described the investment fund model as differentiating the Policy from term
life insurance.
To help demonstrate how the Policy would function, the agent
provided Brown with a “Sales Illustration.” 3 The Sales Illustration shows
two different projections of the investment fund’s accumulated value over
time, with the variable inputs being the cost of insurance and the interest rate,
and with an assumption of a steady $1,200 annual premium payment. One of
the projections is based on a “guaranteed” interest rate of 4.5% along with a
guaranteed cost of insurance. The other projection is based on an “assumed”
1
Judge Haynes concurs in the opinion and judgment except as to Count Three. She
would certify that question to the Louisiana Supreme Court.
2
Phoenix assumed responsibility for the insurance policy at issue; the original
parties to the transaction were Brown and Home Life Financial Assurance Corporation,
Phoenix’s predecessor-in-interest. For simplicity, we refer only to Phoenix when
describing the involvement of either Home Life or Phoenix.
3
While Brown did not attach the Sales Illustration to his Second Amended
Complaint, Phoenix attached it to its motion to dismiss and the magistrate judge held that
it could be considered because it was incorporated by reference into the complaint.
2
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interest rate of 9.75% and the “current” cost of insurance. The projection
based on the assumed 9.75% interest rate shows the value of the investment
fund steadily growing through the end of year 30, where the table ends. The
projection based on the guaranteed 4.5% interest rate shows that the value of
the fund initially grows before it begins to decrease and eventually reaches
zero in year 19. Accompanying the table is a note that reads: “[A]dditional
premium will be required in month 7 of year 19 or policy will lapse, based on
guaranteed factors.”
The Sales Illustration also contains handwritten notes which allegedly
“reflect what [Phoenix’s] agent told Brown at the time of the sale.” These
markings include a note that states “can reduce premiums w/ cash value
interest.” Brown alleges that this note “records [Phoenix’s] agent’s
representation that the investment fund (cash value) will be sufficient to
reduce premiums in the future.” Other notes state: “1200[,] 150 k,” “50
whole + 100 term,” and “5 yrs[,] 50 k.” Brown alleges that the “1200” note
records the agent’s representation “that the annual premium will remain
level at $1,200 per year” because the investment fund will pay additional or
increased premiums later in life. He also alleges that the “50 whole” and “5
yrs[,] 50k” reflect the agent’s representations that $50,000 of the $150,000
death benefit is whole life insurance which would be “paid up” after five
years.
To finalize the purchase, Brown completed an “Application for
Insurance,” which described the “planned” monthly premium to be $100
and stated that the Policy would take effect “when the [P]olicy is delivered
to the owner and the full first premium is paid.” Brown paid the full first
premium; however, he alleges that Phoenix failed to deliver the Policy.
In the decades following the purchase of the Policy, Brown continued
to make $100 monthly premium payments. He also repeatedly reached out
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to Phoenix to request a written copy of the original Policy. In total, he alleges
that he made six written requests (along with multiple phone inquiries) for
the Policy. For example, in a November 23, 1988 letter, Brown wrote: “This
is my third request to [Phoenix] headquarters for my insurance policy. . . . I
have not been able to obtain the policy from the agent or the company. Please
send me the policy immediately.” In August 2006, in response to another of
Brown’s requests for a copy of the Policy, Phoenix sent Brown a “Lost Policy
Certificate.”
On January 12, 2009, Brown sent another letter to Phoenix that stated:
“Please send a copy of the agreement that authorizes Phoenix to increase the
premiums and a copy of the premium schedule for past and future years. . . .
As your files will show, I have never received a copy of the policy. All I have
is a Lost Policy Certificate.”
Phoenix responded in a letter dated February 6, 2009. The letter
states that Brown’s Policy “is a type of Universal Life Insurance . . . [that] is
a combination of permanent insurance and an investment fund that provides
coverage for the insured’s entire life.” It describes that the value of the
investment fund “is determined by the accumulated premiums and interest
earned, less the cost of insurance (at the insured’s attained age), and
administrative costs.” The letter also states that the interest rate was 9.75%
at the time the Policy was issued in December 1986, but that the current
interest rate is 4.5% and the guaranteed interest rate is also 4.5%. It then
advises: “It is important for you to remember that your policy is a premium
paying contract and has reached a point where it required more than $100.00
monthly to support the death benefit. UL polices are flexible premium
policies . . . and depend on prevailing interest rates to keep the accumulation
account large enough to support the death benefit.”
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On August 3, 2015, Brown sent Phoenix another letter requesting,
among other things, the policy provisions and standards Phoenix uses to
determine premium increases, and the projected premiums for Brown’s
Policy over the next 10 years. Brown also noted, again, that he had never
received the original Policy from Phoenix.
Phoenix replied in a letter dated August 17, 2015. The letter encloses
an attachment, which is described as a “representative copy of the contract
form” that shows the “current benefits and features” of Brown’s Policy. The
letter notes that the attachment is not “an exact duplicate of the original
policy.” Brown alleges that the document does not disclose “the amount of
additional premiums or the reduction of the investment fund to zero.”
Three years later, in response to Brown’s further inquiries about
possible premium increases on his Policy, Phoenix sent Brown an email
(dated January 8, 2018), which contained an attachment showing a schedule
of future premiums due on Brown’s Policy. The schedule shows that in order
to maintain the Policy—due to the increasing cost of insurance as Brown
ages—Brown would need to pay additional premiums beyond the original
$100 monthly payment. According to the schedule, in 2018 an immediate
payment of $2,500 plus $100 monthly payments would be required to
maintain the policy. Starting in 2019, an annual premium contribution of
$11,321.04 would be required. Brown alleges that based on this schedule,
“Phoenix required almost $140,000 in additional premiums to keep the
$150,000 policy in force to age 85.” He further alleges that these increased
premiums violate Phoenix’s “promise [that] the investment fund provides
coverage for Brown’s entire life with the $1,200 annual premium.”
Separately in 2018, a Phoenix representative informed Brown that
there is no delivery receipt for the Policy in Phoenix’s files.
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On February 12, 2018, Brown filed suit in Louisiana state court
asserting a variety of contract law claims. Phoenix removed to federal court,
asserting diversity jurisdiction. Upon Phoenix’s motion, the district court
dismissed Brown’s First Amended Complaint for failure to state a claim but
granted Brown leave to amend. Brown filed his Second Amended Complaint
on April 25, 2019.
In his Second Amended Complaint, Brown’s asserts ten different
claims for relief, including breach of contract, bad faith breach of contract,
failure to deliver the Policy, estoppel, and annulment and/or rescission of the
contract. Brown’s various claims appear to be premised on one of two
alternative theories. Under one theory, the original written insurance Policy
included terms that guaranteed that the Policy could be maintained so long
as Brown made annual premium payments totaling $1,200 and therefore
Phoenix breached the Policy by charging additional premiums beyond that
amount, causing the Policy to lapse. Under the alternative theory, despite
representing that the Policy only required $1,200 in annual premiums,
Phoenix deceptively included terms in the Policy allowing it to charge
additional premiums that would deplete the investment account and cause
the Policy to lapse, and then failed to deliver the Policy or otherwise disclose
those terms, thereby causing Brown to detrimentally rely on Phoenix’s
representations.
Phoenix again moved to dismiss under Federal Rule of Procedure
12(b)(6), and the motion was referred to a magistrate judge. The magistrate
judge issued a report recommending that the district court dismiss all ten of
Brown’s claims with prejudice. Brown timely filed objections to the
magistrate judge’s report, to which Phoenix responded. The district court
issued a one-page decision accepting the magistrate judge’s
recommendation, granting Phoenix’s motion, and dismissing Brown’s
Second Amended Complaint with prejudice.
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Brown filed a timely notice of appeal.
II. Standard of Review
“We review de novo the district court’s grant of a motion to dismiss
for failure to state a claim under Rule 12(b)(6).” Leal v. McHugh, 731 F.3d
405, 410 (5th Cir. 2013) (citation omitted). In reviewing the motion, we
“must consider the complaint in its entirety,” as well as “documents
incorporated into the complaint by reference.” Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322 (2007); accord Basic Capital Mgmt., Inc. v.
Dynex Capital, Inc., 976 F.3d 585, 589 (5th Cir. 2020). All well-pleaded facts
are accepted as true, Tellabs, 551 U.S. at 322, and are construed “in the light
most favorable to the nonmoving party, ‘as a motion to dismiss under
12(b)(6) is viewed with disfavor and is rarely granted,’” Leal, 731 F.3d at 410
(quoting Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011)). “Dismissal is
appropriate only if the complaint fails to plead ‘enough facts to state a claim
to relief that is plausible on its face.’” Id. (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007)). “Yet, the complaint must allege enough facts to
move the claim ‘across the line from conceivable to plausible.’” Id. (quoting
Twombly, 550 U.S. at 570).
III. Discussion
In a typical contract interpretation dispute, the parties agree on what
the contract says but disagree about what it means. In other words, the parties
produce the same contract containing the same language but offer up
competing interpretations of that language. Phoenix argues that this is the
situation we confront here.
In doing so, Phoenix defends a key assertion made by the magistrate
judge in her opinion: construing Brown’s complaint as treating the
“representative copy of the contract from” as an accurate copy of the
original, written Policy. The magistrate judge describes that Brown’s
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complaint quotes from the August 17, 2015 letter and that “[t]he enclosed
insurance policy is mentioned in nearly every paragraph of the amended
complaint.” The magistrate judge then refers to that “enclosed insurance
policy” (i.e., the “representative copy of the contract form”) as the “written
policy” throughout the rest of her opinion. And she describes Brown’s
complaint as alleging that Phoenix failed to deliver the Policy to him until
August 17, 2015—the date the letter with the enclosed “representative copy
of the contract form” was delivered to Brown.
Brown argues that the magistrate judge erroneously interpreted his
complaint and failed to view the alleged facts in the light most favorable to
him. He claims that his complaint alleges that Phoenix never delivered a copy
of the original Policy and that the “representative copy of the contract form”
is not an accurate, complete copy of the terms of the original Policy.
We agree. While the magistrate judge permissibly considered the
documents as incorporated by reference into the pleadings, she erred by
construing Brown’s Second Amended Complaint as equating the
“representative copy of the contract form” with Brown’s use of the term
“written policy” elsewhere in the complaint. In the paragraph of the
complaint in which the “representative copy of the contract form” is first
mentioned, Brown makes clear that he is directly quoting Phoenix—Phoenix
describes the attachment to the August 17, 2015 letter as a “representative
copy,” not Brown. And in the only other two paragraphs of the complaint in
which the “representative copy of the contract form” is mentioned,
Brown—just as we do here—places the term in quotations, attributing the
language choice to Phoenix. Nowhere does Brown allege that the
“representative copy of the contract form” accurately represents the terms
of the original written Policy, or that his widespread use of the term “written
policy” should be taken as a reference to the “representative copy of the
contract form.” Furthermore, reading Brown’s complaint as alleging that
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Phoenix finally delivered a copy of the Policy to Brown on August 17, 2015
conflicts with his allegations that Phoenix never delivered the Policy. Taken
on its face, especially when construed in the light most favorable to Brown,
the Second Amended Complaint does not treat the “representative copy of
the contract form” as an accurate representation or copy of the original
written Policy. 4
Thus, contrary to Phoenix’s assertions and the magistrate judge’s
ruling, we do not have a written and undisputed copy of the terms of the
original Policy in front of us for purposes of evaluating Phoenix’s motion to
dismiss. Instead, we have Brown’s allegations describing the terms of the
original written Policy. On this front, Brown’s pro se complaint is not a model
of artful pleading. Nonetheless, we construe Brown’s Second Amended
Complaint as alleging two alternative factual possibilities and theories of
liability, both stemming from the alleged premise that Phoenix has denied
him the opportunity to review the actual contents of the original written
Policy by failing to deliver it to him (or to anyone else). The first theory is
that the original written Policy does in fact guarantee that Brown’s life
insurance could be maintained so long as Brown made $1,200 in annual
premium payments, and that therefore Phoenix breached the Policy by
charging him additional premiums. The second theory is that Phoenix
represented that the Policy contained such a guarantee, but then deceptively
4
Indeed, in Brown’s Objections to the magistrate judge’s Report and
Recommendations, he strenuously objected to the magistrate judge’s decision to construe
the “representative copy of the contract form” as an accurate copy of the original written
Policy. He then moved to further amend his complaint to add an allegation explicitly
denying that the “representative copy of the contract form” constituted an accurate copy
of the original Policy. The district court adopted the Report and Recommendation without
addressing Brown’s Objections and the magistrate judge denied the motion to amend as
moot.
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included terms in the Policy that allowed it to charge additional premiums
(causing the Policy to lapse), resulting in Brown’s detrimental reliance.
As to the first theory, Brown alleges in various parts of his complaint
that he entered into a written contract with Phoenix for a life insurance policy
that covered his entire life and guaranteed a $150,000 death benefit so long
as he paid a $1,200 annual premium. For example, in the section of his
complaint seeking specific performance of the contract, Brown alleges that
“[t]he contract of insurance contains the following enforceable terms: . . .
[t]he contract of insurance remains in force as long as the $1200 annual or
$100 monthly premiums are paid.” Of course, having never seen the original
written Policy himself, his allegations are based on evidence extrinsic to the
Policy, such as the alleged representations of Phoenix’s agent, the notes on
the Sales Illustration, and Brown’s interpretation of other documents
provided by Phoenix, such as the February 2009 letter. While these extrinsic
representations do not alter the clear terms of the contract as set out in the
original written Policy, see Peterson v. Schimek, 729 So.2d 1024, 1031 (La.
1999), they may constitute evidence of the contents of the original instrument
if the original is unavailable, La. Code Evid. art. 1004; La. Rev. Stat.
§ 13:3740; see also Swaggart v. Doe, 216 So.3d 1118, 1126 (La. Ct. App. 2017). 5
As to the second theory, the Second Amended Complaint also
contains several allegations that Phoenix included “undisclosed” terms in
the original Policy which permitted it to charge additional premiums that
would deplete the investment fund and cause the Policy to lapse, despite
Phoenix’s alleged representations to the contrary.
5
In Louisiana, insurance contracts must be in writing. La. Maint. Servs., Inc. v.
Certain Underwriters at Lloyd’s of London, 616 So.2d 1250, 1252 (La. 1993) (citing La. Rev.
Stat. § 22:867 (formerly codified at § 22:628)).
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Either the terms of the original written Policy permit the contested
additional premiums, or they do not. It may turn out that Phoenix will be able
to prove that the “representative copy of the contract form” is an accurate
representation of the original Policy, despite Brown’s allegations in the
Second Amended Complaint. But the dispute over what the original Policy
says (as opposed to what it means) is a dispute of fact that cannot be resolved
at the motion to dismiss stage.
Just because there is a dispute of fact, however, does not mean that
Brown has properly stated legal claims. We therefore take each of Brown’s
ten claims in turn and assess whether he has properly stated claims for relief.
A. Count One
As his first count, Brown alleges that:
Phoenix breached the written policy by charging additional
premiums that depleted the investment fund to zero at age 75,
rendered the written policy unaffordable, uneconomic, and
worthless, and caused the written policy to lapse in violation of
the representations, purpose, and cause of the written policy of
universal life insurance to provide “an investment fund that
provides coverage for [Brown’s] entire life.”
Under Louisiana law, “[t]he essential elements of a breach of contract
claim are (1) the obligor’s undertaking an obligation to perform, (2) the
obligor failed to perform the obligation (the breach), and (3) the failure to
perform resulted in damages to the obligee.” Favrot v. Favrot, 68 So.3d 1099,
1108-09 (La. Ct. App. 2011).
Brown has pleaded plausible facts establishing all three elements of a
breach of contract claim under Louisiana law. As discussed above, Brown has
alleged (as his first theory of liability) that the terms of the Policy established
Phoenix’s obligation to provide life insurance with a $150,000 death benefit
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for Brown’s entire life as long as he paid a $1,200 annual premium. Brown
further alleges that Phoenix breached that obligation by charging him an
additional $2,500 in 2018 and by planning to charge him a $11,321.04 annual
premium starting in 2019, and that these increased premiums caused the
policy to lapse and Brown to lose coverage.
The magistrate judge held that Brown failed to state a claim under
Count One because his “allegations . . . are contradicted by the written terms
of the policy, which controls.” She then describes the terms as laid out in the
“representative copy of the contract form” which purportedly governs. As
explained, Brown’s complaint does not allege that the “representative copy
of the contract from” is the “written policy,” and thus its terms do not
govern for purposes of Phoenix’s motion to dismiss. Phoenix’s arguments on
appeal also turn on the contention that the “representative copy of the
contract form” constitutes the Policy and thus are similarly unavailing at this
juncture.
We therefore REVERSE the district court’s dismissal of Count One.
B. Count Two
In his Count Two, Brown alleges that “Phoenix breached the written
policy by charging additional premiums that violated the ‘guaranteed factors’
limits on additional premiums” as set forth in the Sales Illustration. This
allegation fails to state a claim for two reasons.
First, Brown does not allege that the Sales Illustration was attached to
or incorporated into the original written Policy. Therefore, terms expressed
in the Sales Illustration are not considered terms of the Policy. La. Rev.
Stat. § 22:867(A) (“No agreement in conflict with, modifying, or
extending the coverage of any contract of insurance shall be valid unless it is
in writing and physically made a part of the policy . . . .”).
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Second, to the extent that Brown is alleging that the terms contained
in the Sales Illustration constitute evidence of similar terms in the original
written Policy, Brown does not describe what the “guaranteed factors” are
that Phoenix purportedly violated. Looking at the Sales Illustration, its
reference to “guaranteed factors” appears to encompass a “guaranteed
interest rate” of 4.5% and a “guaranteed cost of insurance.” Brown does not
allege that the investment fund in his Policy was subject to an interest rate
less than 4.5%. Nor does he allege what the “guaranteed cost of insurance”
amounted to, or that the costs exceeded this guarantee. 6
Therefore, we AFFIRM the district court’s dismissal of Count Two.
C. Count Three
In Count Three, Brown claims (based on his second, alternative
theory of liability) that any provisions in the original Policy that would
authorize additional premiums are unenforceable under Louisiana law
“because the written policy was not delivered or mailed to Brown . . . and the
alleged provisions were not otherwise disclosed to Brown.”
In support of this claim, Brown cites to this court’s decision
interpreting Louisiana law in In re Matter of Complaint of Settoon Towing,
L.L.C., 720 F.3d 268 (5th Cir. 2013). He focuses on one sentence in the
opinion, which states that: “[U]nder Louisiana law an insurer cannot take
advantage of favorable policy terms where it delayed delivery of the policy
after the insured payed the premium.” Id. at 282 (citing La. Maint. Servs.,
Inc. v. Certain Underwriters at Lloyd’s of London, 616 So.2d 1250, 1253 (La.
6
Brown also does not describe whether the “cost of insurance” is something
different than the premium charged for his insurance coverage. Presumably, the “cost of
insurance” is the projected cost to Phoenix of providing coverage to Brown, which is
separate from what it charges Brown for that coverage (in the form of a premium).
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1993)). Brown argues that this statement constitutes a holding that in
Louisiana, “an undelivered policy is enforceable for the benefit of the
insured . . . but the insurance company cannot take advantage of favorable
policy terms.”
However, when read in context, this court’s statement in Settoon did
not create a blanket rule that all terms favorable to the insurer are
unenforceable when delivery of a policy is delayed; rather, this court merely
reiterated a narrower rule that is well established in Louisiana law: that
“[i]nsurance policy exclusions are not valid unless clearly communicated to
the insured.” La. Maint. Servs., Inc., 616 So.2d at 1253 (emphasis added).
At issue in Settoon was whether an insurer could rely on a coverage
exclusion related to liability for pollution when it had delayed delivery of the
insurance policy to the insured. Settoon, 720 F.3d at 282. To answer that
question, this court looked to the Louisiana Supreme Court’s decision in
Louisiana Maintenance Services, Inc. v. Certain Underwrites at Lloyd’s of
London, 616 So.2d 1250 (La. 1993). There, the Court considered whether an
insurer could rely on a policy exclusion to deny coverage when it had failed
to deliver the policy to the insured in violation of Louisiana Revised Statute
§ 22:873 (formerly codified at § 22:634). La. Maint. Servs., 616 So.3d at 1252-
53. Notably, § 22:873 does not specify a remedy; it states only that “every
policy shall be delivered to the insured . . . within a reasonable period of time
after its issuance.” La. Rev. Stat. § 22:873(A). In determining that the
insurer could not rely on the policy exclusion due to its failure to deliver the
policy, the Court cited Louisiana case law emphasizing the requirement that
insurance policy exclusions must be clearly communicated to the insured and
the importance of the insured’s notice of such provisions. La. Maint. Servs.,
616 So.2d at 1252-53 (citing Spain v. Travelers Ins. Co., 332 So.2d 827 (La.
1976)). Relying on that discussion and holding, this court in Settoon held that
“Louisiana Maintenance Services indicates delayed delivery in violation of
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§ 22:873(A) is enough to prevent [the insurer] from relying on the pollution
exclusion . . . .” Settoon, 720 F.3d at 282.
Brown cites no case law—and we are aware of none—where
§ 22:873(A) (or Settoon, for that matter) has been applied to prohibit an
insurer’s reliance on other policy provisions that are not coverage exclusions,
such as a provision requiring an insured to pay premiums in exchange for
continued coverage, while enforcing terms favorable to the insured. We
therefore decline to adopt Brown’s expansive reading of Louisiana law.
The district court’s dismissal of Count Three is AFFIRMED.
D. Count Four
In Count Four, Brown alleges that Phoenix committed a “bad faith
breach of [the] written policy” by charging additional premiums that reduced
the investment fund to zero at age 75 after Phoenix represented to Brown that
the investment fund provided coverage for Brown’s entire life.
Under Louisiana law, “[b]ad faith is an intentional and malicious
failure to perform” a conventional obligation. Volentine v. Raeford Farms of
La., LLC, 201 So.3d 325, 338 (La. Ct. App. 2016). “The term bad faith means
more than mere bad judgment or negligence and it implies the conscious
doing of a wrong for dishonest or morally questionable motives.” Id. “An
obligor in bad faith is liable for all the damages, foreseeable or not, that are a
direct consequence of his failure to perform,” whereas “[a]n obligor in good
faith is liable only for the damages that were foreseeable at the time the
contract was made.” Id. In sum, to hold a defendant liable for bad faith breach
of a contract, a plaintiff must show that (1) the defendant consciously
breached the contract (2) for dishonest or morally questionable motives. See
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As discussed above with respect to Count One, Brown has
satisfactorily alleged that Phoenix breached the written Policy by charging
unauthorized, additional premiums. But Brown has not pleaded sufficient
facts alleging that Phoenix consciously breached its obligations in bad faith.
Brown only makes conclusory allegations that Phoenix perpetrated “an
intentional sham and scam.” This does not suffice. Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (“Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)); accord Firefighters’ Ret. Sys. v.
Grant Thornton, L.L.P., 894 F.3d 665, 669 (5th Cir. 2018).
The district court’s dismissal of Count Four is AFFIRMED.
E. Count Five
Brown asserts another claim for bad faith breach of the Policy in Count
Five. However, this claim for relief is premised on his second theory of the
case, in which Phoenix is alleged to have deceptively included “terms in the
written policy that allegedly authorized [Phoenix] to increase premiums high
enough to reduce the investment fund to zero by age 75” despite
“representing to Brown that the higher premiums would create and build an
investment fund to provide coverage for his entire life.”
If, as alternatively alleged, Phoenix included terms that permitted it to
charge the contested additional premiums, then it cannot be held liable for
bad faith breach of contract because it has not breached the contract. As
described above with respect to Count Four, bad faith breach requires the
failure to perform. Volentine, 201 So.3d at 338.
The district court’s dismissal of Count Five is AFFIRMED.
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F. Count Six
In Count Six, Brown claims that Phoenix’s failures to deliver the
Policy “violated Louisiana law,” “breached an express or implied provision
in the written policy,” and breached “Phoenix’s policies.”
In his briefing, Brown disputes two aspects of the magistrate judge’s
opinion recommending dismissal of his claim in Count Six. First, he argues
that the magistrate judge erred in construing his Second Amended Complaint
as admitting that Phoenix performed its obligation to deliver the Policy on
August 17, 2015. Second, Brown contests the magistrate judge’s finding that
Brown failed to allege any damages that flowed from the non-delivery (or late
delivery, in the magistrate judge’s telling) of the Policy. He argues that “the
failure to deliver the policy caused [him] to buy the wrong policy and pay the
higher premiums.” He also argues that he suffered emotional distress and
“loss of peace of mind” when he discovered in 2018 that the investment fund
associated with his Policy had been depleted and that the Policy would be
rendered “worthless.”
As already discussed, we agree with Brown that his complaint is
properly understood to allege that Phoenix has never delivered the Policy.
But we disagree that the magistrate judge erred by concluding that Brown did
not properly allege damages that flowed from the non-delivery of the Policy.
Regardless of what he now asserts in his briefing before this court, no
allegations of damages resulting from non-delivery of the Policy is found in
his Second Amended Complaint with respect to Count Six. 7 See Favrot, 68
7
Brown also does not describe how non-delivery of the Policy breached the Policy
or other Phoenix “policies.” In his First Amended Complaint, he alleged that Phoenix’s
failure to deliver the Policy violated the terms of the Application for Insurance and argued
the Policy was therefore a nullity. But Brown does not repeat that claim in his Second
Amended Complaint nor in his appellate briefing.
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No. 20-30225
So.3d at 1108-09 (La. Ct. App. 2011) (describing that a breach of contract
claim requires showing damages resulted from the breach). Nor does Count
Six tie the damages complained of elsewhere in his Second Amended
Complaint to the wrongs alleged in Count Six. Finally, Brown does not
otherwise describe how non-delivery of the Policy violated “Louisiana law”
in a way that states a claim for relief and affords a remedy. 8
The district court’s dismissal of Count Six is AFFIRMED.
G. Count Seven
In Count Seven, Brown claims that Phoenix should be estopped from
“charging additional premiums to reduce the investment fund to zero”
because he detrimentally relied on multiple alleged misrepresentations and
omissions by Phoenix regarding the terms of the Policy. These alleged
misrepresentations and omissions include: (1) the failure to deliver the
Policy, (2) oral misrepresentations by Phoenix’s agent, (3)
misrepresentations in the Sales Illustration, (4) the general failure to disclose
to Brown that additional premiums would be charged, and (5) specific failures
to disclose that additional premiums would be charged in the monthly
premium notices, annual reports, and in the Lost Policy Certificate sent to
Brown.
To establish detrimental reliance or promissory estoppel in Louisiana,
a plaintiff must show “(1) a representation by conduct or word; (2) justifiable
reliance; and (3) a change in position to one’s detriment because of the
reliance.” Luther v. IOM Co., 130 So.3d 817, 825 (La. 2013). Moreover, the
8
As discussed above with respect to Count Three, Phoenix’s alleged failure to
deliver the Policy states a violation of Louisiana Revised Statute § 22:873(A). But Brown
does not identify or discuss that statute with respect to Count Six, nor does he explain what
remedies are available here for its violation.
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No. 20-30225
plaintiff must “reasonably” rely on the promise, which is typically a fact-
bound determination. Drs. Bethea, Moustakas & Weaver LLC v. St. Paul
Guardian Ins. Co., 376 F.3d 399, 403 (5th Cir. 2004) (citing Babkow v. Morris
Bart, P.L.C., 726 So.2d 423, 427 (La. Ct. App. 1998)). “However, Louisiana
law recognizes certain situations where a plaintiff’s reliance on a promise is
unreasonable as a matter of law.” Id. (citing Gray v. McCormick, 663 So.2d
480, 486 (La. Ct. App. 1995)).
Reliance may be unreasonable as a matter of law “when a plaintiff
relies on oral representations despite the law’s insistence on certain
formalities.” Id. at 405 (citing Gray, 663 So.2d at 486). In Gray v. McCormick,
the Louisiana Court of Appeal held that a party’s reliance on an oral promise
to donate land was unreasonable as a matter of law because transfers of such
property require “adherence to formal, written requirements provided by
law” which the parties did not adhere to in forming their agreement. 663
So.2d at 486. More specifically, the Louisiana Supreme Court has held that
“[a]bsent fraud, or at least affirmative misrepresentations as to the necessity
of a writing, . . . it is almost always the case that it will be unreasonable to rely
on an oral promise where the law requires such a promise to be in writing to
be enforceable.” Morris v. Friedman, 663 So.2d 19, 26 n.14 (La. 1995)
(internal citation omitted).
In Louisiana, insurance contracts must be in writing. La. Maint. Servs.,
616 So.2d at 1252 (citing La. Rev. Stat. § 22:867 (formerly codified at
§ 22:628)). Therefore, to the extent Brown claims he justifiably relied on oral
representations made by Phoenix’s agent, that reliance was unreasonable as
a matter of law. Likewise, Brown alleges that the handwritten notes on the
Sales Illustration reflect the oral representations of Phoenix’s agent. Thus, it
was also unreasonable to rely on these notes.
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No. 20-30225
As to the Sales Illustration itself (not including the handwritten
notes), Brown claims that it omitted that additional premiums would deplete
the investment fund to zero. But the Sales Illustration made no such omission
or misrepresentation. On the contrary, the Sales Illustration explicitly stated
that the investment fund would have a balance of zero in year 19 of the Policy
if it earned only the guaranteed interest rate of 4.5%.
So too with the annual reports, which contain month-to-month detail.
The notices show that Brown made steady $100 monthly premium
payments. But they also show the cost of insurance was increasing as Brown
aged and that the investment funds were being used to cover the difference
between his $100 monthly contributions and the rising cost of insurance.
They also reflect that the rate of growth of the investment fund was
insufficient to keep up with the growing cost of insurance, so long as Brown
continued to make only $100 monthly payments. Therefore, the annual
reports do not contain a misrepresentation.
Brown’s allegations with respect to the “monthly premium
notices”—copies of which are not attached to the Second Amended
Complaint or Phoenix’s motion—are the same as his allegations involving
the annual reports. He alleges the notices only reported his $100 monthly
premium payments and did not disclose that “additional premiums were or
would be charged in amounts to deplete the investment funds to zero.” As
with the annual reports, Brown has not explained how the monthly notices
made a misrepresentation insofar as they accurately represented that Brown
made monthly premium payments of $100. And if, unlike the annual reports,
the monthly notices did not include detail about the rising costs of insurance
or draws on the investment fund, Brown has not explained how that omission
could induce his justifiable and detrimental reliance—especially in light of
the fact that Phoenix did provide this allegedly absent detail in the annual
reports. Cf. Bethea, 376 F.3d at 405 (explaining that reliance is unreasonable
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No. 20-30225
as a matter of law “when a plaintiff relies on a representation that is clearly
not intended to bind the defendant or induce the plaintiff into reliance”
(citing Miller v. Loyola Univ. of New Orleans, 829 So.2d 1057, 1062 (La. Ct.
App. 2002))). The same is true with respect to the Lost Policy Certificate.
See id.Finally, failure to deliver the Policy is not a misrepresentation in and
of itself. Nor is Phoenix’s alleged general failure to disclose that additional
premiums may be necessary.
The district court’s dismissal of Count Seven is AFFIRMED.
H. Count Eight
In Count Eight, Brown seeks specific performance of the Policy and
alleges the specific enforceable terms of the contract. As described above,
these allegations track Brown’s first theory of liability that the original
written terms of the Policy guaranteed, among other things, that the Policy
would be maintained so long as Brown made $1,200 in annual premium
payments.
Count Eight therefore rises and falls with Count One, where Brown
alleges breach of these terms. See Dore Energy Corp. v. Prospective Inv. &
Trading Co., 570 F.3d 219, 230 (5th Cir. 2009) (“Under Louisiana law,
‘specific performance is the preferred remedy for breach of contract.’”
(quoting J. Weingarten, Inc. v. Northgate Mall, Inc., 404 So.2d 896, 897 (La.
1981))).
We therefore REVERSE the district court’s dismissal of Count
Eight.
I. Count Nine
In Count Nine, Browns seeks, in the alternative, a declaration that the
Policy is an “absolute nullity” under Louisiana Civil Code Article 2030
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No. 20-30225
because Phoenix failed to deliver the Policy in violation of Louisiana Revised
Statute § 22:873(A). He requests restitution in the form of all premiums paid.
Brown asserted a virtually identical claim for relief in his First
Amended Complaint, which was dismissed by the district court. And, as the
magistrate judge noted below, Brown made no specific argument with respect
to Count Nine in his opposition to Phoenix’s motion to dismiss.
Regardless, the district court below did not err in dismissing Count
Nine. Article 2030 states that “[a] contract is absolutely null when it violates
a rule of public order, as when the object of a contract is illicit or immoral.”
La. Civ. Code art. 2030. Brown cites no authority holding that
§ 22:873(A) is a rule of public order such that its violation renders a contract
null. And as discussed above with respect to Count Three, while courts have
declined to enforce insurance policy exclusions when an insurer fails to
deliver a policy in violation of § 22:873(A), those same courts have not
declared the relevant contracts null; rather, they enforced other provisions of
the contract. See, e.g., Settoon, 720 F.3d at 280-82.
The district court’s dismissal of Count Nine is AFFIRMED.
J. Count Ten
In Count Ten, Brown alternatively seeks rescission of the contract for
error or fraud, alleging that Phoenix fraudulently represented (and/or Brown
erroneously believed) that the Policy would provide coverage for his entire
life and could be sustained with $1,200 annual premiums.
“Consent to a contract may be vitiated by error, fraud, or duress.”
Osborne v. McKenzie, 962 So.2d 501, 503 (La. Ct. App. 2007) (citing La.
Civ. Code. art. 1948). When that occurs, rescission of the contract is a
potential remedy. Id. However, the action for rescission or annulment must
be brought within five years of discovering the alleged error or fraud. Id.22
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No. 20-30225
(citing La. Civ. Code. art 2032); see also Clark v. Constellation Brands,
Inc., 348 F. App’x 19, 21 (5th Cir. 2009) (per curiam) (unpublished opinion).
Here, we agree with the district court that Brown’s action for rescis-
sion fails. Assuming arguendo that Brown has alleged fraud or error that could
give rise to the remedy of rescission, he has not sought this remedy within
the applicable five-year window. That the Policy might require additional
premiums to be paid in order to sustain the Policy was apparent from at least
the time Brown received the February 6, 2009 letter from Phoenix.
In that letter, Phoenix described that the value of the investment fund
“is determined by the accumulated premiums and interest earned, less the
cost of insurance (at the insured’s attained age), and administrative costs.”
After describing that the investment fund was currently earning an interest
rate of only 4.5%, the letter starkly stated: “It is important for you to remem-
ber that your policy is a premium paying contract and has reached a point
where it required more than $100.00 monthly to support the death benefit.
UL polices are flexible premium policies . . . and depend on prevailing inter-
est rates to keep the accumulation account large enough to support the death
benefit.”
In short, the 2009 letter alerted Brown to the alleged error or fraud by
directly stating that the Policy would require additional premiums in order to
be sustained. Because Brown did not bring this action until nine years later,
his claim for rescission is too late.
The district court’s dismissal of Count Ten is AFFIRMED.
K. Brown’s Motion to Supplement
Brown also appeals the magistrate judge’s decision denying his mo-
tion to supplement the Second Amended Complaint. Brown filed his motion
in response to the magistrate judge’s Report and Recommendation, before it
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No. 20-30225
was adopted by the district court. While the motion was pending, the district
court issued its decision granting Phoenix’s motion to dismiss and dismissing
all of Brown’s claims with prejudice. The magistrate judge then denied
Brown’s motion as moot in light of the district court’s decision.
Because, as explained above, we reverse the district court’s decision
to dismiss Counts One and Eight, Brown should be given leave to refile his
motion to supplement.
IV. Conclusion
The district court’s decision granting Phoenix’s motion to dismiss is
AFFIRMED in part and REVERSED in part. The dismissal of Counts
Two through Seven and Counts Nine and Ten is AFFIRMED. The dismis-
sal of Counts One and Eight is REVERSED and this case is REMANDED
for further proceedings consistent with this opinion. 9
9
We recognize, as well, that further proceedings may yield more information about
the actual, original Policy that was issued to Brown, and that such information could lead
to additional claims. We offer no opinion on any such claims.
24