The opinion of the court was delivered by: Judge Conner
Presently before the court is a motion (Doc. 16), filed by defendant Hartford Insurance, Inc. ("Hartford"), to dismiss the complaint filed by plaintiffs Novinger Group, Inc., James D. Novinger, and Patrick D. Hospodavis (collectively "plaintiffs"). For the reasons that follow, the motion will be granted in part and denied in part.
I. Statement of Facts*fn1
Plaintiffs James D. Novinger ("James") and Patrick D. Hospodavis ("Hospodavis") are the President and Chief Financial Officer of Novinger Group, Inc. ("Novinger Group"), respectively. (Doc. 1 ¶¶ 1-3.) Novinger Group acts as plan administrator of a nonqualified deferred compensation plan (hereinafter "DC Plan").*fn2 (Id. at 1.) Hartford is an insurance company that sold eight Variable Universal Life Policies and one Buy-Sell Policy to Novinger Group as a component of the DC Plan. (Id. ¶ 7.) The policies insured the following employees of Novinger Group and/or CIESCO, Inc.:*fn3 James, Hospodavis, Jeffery G. Depew, Frank J. Kruse ("Kruse"), Timothy G. Kephart, Robert R. Myers, Robert D. Boyle, and Richard A. Simmons (collectively "plan participants"). (Id.) The policies were intended to assist in the business succession of Novinger Group from James to the other insured employees. (Doc. 23 at 8.)
Essentially, plaintiffs allege that they were "baited and switched" into purchasing the policies by Hartford Salesperson Richard Harper ("Harper"). (Doc. 1 ¶ 5, 17.) Plaintiffs' relationship with Harper arose in May of 2000, when plaintiffs were introduced to Harper by Charles R. Eberly, Jr. ("Eberly"), a financial advisor for Wachovia Securities ("Wachovia") who manages the DC Plan portfolio for plaintiffs. (Id. ¶¶ 19-20, 22.) Eberly explained to plaintiffs that Harper was an estate and tax expert who offered his services to financial advisors at Wachovia as part of a pilot program to generate additional fees for investment accounts. (Id. ¶ 23.) In addition, both Hartford and Wachovia touted Harper as an estate and tax expert who would represent plaintiffs' interests. (Id. ¶¶ 17, 26.)
Plaintiffs paint a much different picture of Harper, alleging that his sole objective was to sell insurance and not to provide expert estate or tax advice. (Id. ¶ 25.) Neither Wachovia nor Hartford revealed to plaintiffs that Harper's compensation was directly linked to his sales of Hartford products or that Eberly and Harper had a fee-sharing relationship. (Id. ¶¶ 24, 29, 32-33.)
In August of 2001, Eberly arranged for James, Hospodavis, and Kruse to meet with Harper to discuss business succession. (Id. ¶ 37.) Harper presented plaintiffs with composite illustrations of several insurance policies that could be purchased by the DC Plan as an aid to business succession.*fn4 (Id. ¶ 38.) One such policy was Hartford's Variable Universal Life Policy (hereinafter "VUL Policy"). The VUL Policy's illustration suggested that the DC Plan would be required to pay an initial premium of $149,000 to purchase the policy for all plan participants. (Id. ¶¶ 39-40.) A second option presented by Harper was a Pacific Life Policy. (Id. ¶ 42; Id., Ex. B.) However, plaintiffs allege that Harper never fully explained the Pacific Life Policy and presented the VUL Policy as the "superior" option because his goal was to take advantage of the fee-sharing relationship between Hartford and Wachovia. (Id. ¶¶ 27, 42-43.) The VUL Policies were not presented as insurance, but as short-term tax free investments that could be withdrawn at any time without incurring surrender charges.*fn5 (Id. ¶¶ 52-53; Id., Ex. H.)
In September of 2001, Harper presented plaintiffs with a second set of illustrations, which again stated that the initial premium for the VUL Policies would be $149,000. (Id. ¶¶ 39, 45, 48; Id., Ex. G.) Harper met with plaintiffs again in October and November of 2001, during which time he maintained that the initial premiums would be $149,000. (Id. ¶ 50.) On December 4, 2001, a Hartford Senior Account Executive met with Harper and presented revised initial premium figures. (Id. ¶ 55.) As a result, the initial premium estimate was increased from $149,000 to $635,200. (Id. ¶ 56, 59.)
On December 5, 2001, Hartford presented a third and final set of illustrations to plaintiffs. (Id. ¶ 54, 63; Id., Ex. I.) Plaintiffs chose to purchase the VUL Policies during the December 5 meeting. (Id. ¶ 60.) Although plaintiffs signed the third set of illustrations acknowledging that they had read and understood the VUL Policies, plaintiffs claim that they were "duped" in the execution of the policies. (Id. ¶¶ 78-79.) Plaintiffs explain that they were rushed into signing the policies and did not fully understand them.*fn6 (Id. ¶¶ 74, 87-88.) Plaintiffs allege that they were not made aware of the premium increase during the December 5 meeting and that Hartford amended the third set of illustrations to reflect the premium increase after the meeting. (Id. ¶¶ 54, 56, 63.) Plaintiffs also allege that they were provided with an "egregious and unnecessary" amount of insurance that differed from the amount that had been promised in previous illustrations. (Id. ¶¶ 18, 56-57.)
Harper executed plaintiffs' insurance applications during the December 5 meeting. (Id. ¶ 60.) The applications certified that Harper: (1) asked each application question separately and recorded the answers as given, (2) gave the "Proposed Insured(s) the appropriate Disclosure documents," and (3) "reviewed the purchase of this insurance policy as to suitability." (Id.) Plaintiffs allege that Harper did not fulfill these requirements and that they were "misled, misinformed, and confused at the time of the December Sale and execution of the Application." (Id. ¶ 61.) Specifically, plaintiffs allege that Harper failed to: (1) explain the VUL Policies or the final premium figures in simple non-technical terms, (2) meet with the plan participants individually to ask them the appropriate application questions, (3) "perform any due diligence as to whether the Plaintiffs could afford the VUL Policies," and (4) use "reasonable judgment" when advising the plan participants regarding their investment choices. (Id. ¶¶ 51, 62-63, 67-69, 79, 85-86.)
The policies were delivered to the plan participants on January 4, 2002. (Doc. 1 ¶ 81.) Upon receipt, each plan participant signed a disclosure acknowledgment and a policy delivery receipt. (Id.) The disclosure acknowledgments contained initial premium amounts for each plan participant,*fn7 and stated:
I have received a copy of this illustration and a prospectus. I understand that:
- Any non-guaranteed elements illustrated are subject to change and could either be higher or lower resulting in policy values that will either be higher or lower.
- The Registered Representative has told me that they are not guaranteed.
- In the future, I may need to modify my planned premium to obtain any initial death benefit and to obtain the non-guaranteed values shown on this illustration.
- This illustration demonstrates how the policy works and is not a guarantee of future performance.
- The policy values will fluctuate depending upon the performance of the actual investment Sub-Accounts I select.
- Hartford Life and Annuity Insurance Company and/or its representatives do not provide tax or legal advice. (Doc. 18, Ex. A.) Nevertheless, plaintiffs allege that they were not provided the opportunity to review the executed applications or ...