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Schroeder v. Acceleration Life Ins. Co. of Pennsylvania

filed: July 31, 1992.

ROBERT E. SCHROEDER, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, APPELLANT
v.
ACCELERATION LIFE INSURANCE COMPANY OF PENNSYLVANIA



Before: Becker, Roth and Higginbotham, Circuit Judges.

Author: Higginbotham

Opinion OF THE COURT

A. LEON HIGGINBOTHAM, JR., Circuit Judge.

Robert Schroeder sued Acceleration Life Insurance Company of Pennsylvania for breach of contract, Unfair Trade Practices and RICO violations on a credit disability insurance policy. The district court granted summary judgment in favor of Acceleration. The central premise of the court's judgment was its Conclusion that Acceleration had not breached its contract with Schroeder. From that premise, the court reasoned that, absent a breach of contract, there could not be fraud under the Pennsylvania Unfair Trade Practices and Consumer Protection Law; and absent a breach of contract, there was no evidence of RICO activities. We disagree. The central premise of our judgment is our Conclusion that the district court was bound by a prior state court judgment, holding that Acceleration had indeed breached its contract with Schroeder. From that premise, we reason that the district court was incorrect to base its ruling on the Unfair Trade Practices and RICO claims on the erroneous finding that there was no breach of contract. We will, therefore, vacate the court's grant of summary judgment in favor of Acceleration.

Jurisdiction in the trial court was proper based on 28 U.S.C. § 1331. Jurisdiction on appeal is proper based on 28 U.S.C. § 1291. Our review of the district court's grant of summary judgment is plenary. Blakesley v. Wolford, 789 F.2d 236 (3d Cir. 1986).

I

On January 11, 1982, Robert Schroeder obtained a car loan from First Seneca Bank and purchased credit disability insurance from Acceleration Life Insurance Company of Pennsylvania to cover the loan. The monthly installments on the loan started on February 25, 1982 and were scheduled to end on January 11, 1986.

Under the policy, in the event Schroeder became disabled, Acceleration would pay First Seneca Bank a monthly benefit in order to reduce or extinguish Schroeder's loan during the period of covered disability. Any excess disability benefits were to be paid to Schroeder or his estate. Additionally, the certificate of insurance stated that Schroeder's insurance would end on the "earliest of the following dates: the date the indebtedness is discharged, whether by payment, renewal, refinancing, or otherwise." Finally, the certificate contained a "non-prejudice" clause which provided that "any termination of this insurance prior to the maturity date by prepayment, renewal, refinancing, or otherwise, shall be without prejudice to any claim originating prior to termination."

In October 1982, the Pennsylvania Insurance Department informed Acceleration that the non-prejudice clause of its insurance contracts, permitting Acceleration to pay disability benefits after termination of the underlying loan, violated the department's regulations. The department ordered Acceleration to delete from its insurance contracts the non-prejudice clause and to cease the payment of disability benefits immediately upon termination of the underlying loan. In an internal memo, Acceleration explained to its employees that it would have to change the wording of its insurance certificate. Acceleration did not, however, inform Schroeder of the change.

Schroeder became disabled on April 6, 1983 but continued to make payments on the car loan to First Seneca Bank. Schroeder did not notify Acceleration of his disability claim until April 18, 1984. At the time of his disability Schroeder had 34 payments remaining on his car loan. On August 22, 1984, Acceleration began payments to First Seneca on Schroeder's car loan retroactive to April 6, 1983, the date of Schroeder's disability. By making these retroactive payments Acceleration caused the loan to be fully satisfied in 25 rather than 34 payments. The 9 payments difference between 34 and 25 totalled $2,023.87.

Schroeder wrote to Acceleration, claiming that he was entitled to the $2,023.87. Acceleration refused and quoted the clause of the insurance contract which provided that the insurance would end on the "earliest of the following dates: the date the indebtedness is completely discharged, whether by payment, renewal, refinancing or otherwise."

On April 16, 1986 Schroeder filed the first of two class actions against Acceleration in the Pennsylvania Court of Common Pleas. The first class action claimed solely that Acceleration had breached its contract with Schroeder and thousands of other insureds similarly situated. Specifically, Schroeder read the non-prejudice clause of the insurance certificate to mean that Acceleration would pay monthly benefits until the scheduled maturity date, or that Acceleration would reimburse an insured for any duplicate payments made by the insured during the period of disability. Acceleration disagreed and interpreted the policy as stating that monthly benefits would terminate on the earlier of the scheduled maturity date of the loan, or the actual date when the loan was satisfied.

On September 17, 1987, Schroeder filed a second class action in state court, this time alleging that Acceleration had committed fraud against Schroeder and other insureds similarly situated in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq. and the Pennsylvania Unfair Trade Practice and Consumer Protection Law, 73 Pa.Stat.Ann. §§ 201-1, et seq (Purdon Supp. 1992). Schroeder claimed that Acceleration had defrauded its insureds using three different schemes. First, Acceleration promised its insureds to pay them excess benefits upon early termination of their loans, when in fact, it never intended to do so. Second, Acceleration paid less benefits than it was required to pay by "secretly calculating benefits on a daily basis rather than a monthly basis." Finally, Acceleration terminated coverage of its insureds before the scheduled date for the final payment of the underlying loan.

Acceleration immediately removed Schroeder's fraud claims to the federal district court for the Western District of Pennsylvania. By order of the district court Schroeder later amended his complaint to include a breach of contract claim. The breach of contract claim in the federal complaint was identical to the one asserted in the state court action. On October 11, ...


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