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Reassure America Life Insurance Co v. Midwest Resources

February 16, 2011

REASSURE AMERICA LIFE INSURANCE CO., PLAINTIFF
v.
MIDWEST RESOURCES, LTD., DEFENDANT



The opinion of the court was delivered by: Yohn, J.

Memorandum

Reassure America Life Insurance Company ("Reassure") brought this declaratory judgment action to determine its obligation to pay out benefits on a life insurance policy on the life of Samuel L. Miller, who transferred his interest in the policy to defendant, Midwest Resources, Ltd. ("Midwest"), in 2001. Midwest answered the complaint, asserting two counterclaims for Reassure's nonpayment of the life insurance benefits: breach of contract and bad faith. Currently before the court is Reassure's motion to dismiss Midwest's counterclaims for failure to state a cause of action upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, I will deny defendant's motion.

I. Factual and Procedural History

Midwest asserts the following factual allegations to support its counterclaims.*fn1 On December 8, 2000, the Midland, Reassure's predecessor in interest, issued a $500,000 life insurance policy to Samuel W. Miller (the "Miller Policy"). The Miller Policy contained a contestability clause that permitted Midland, and Reassure as its successor, to contest the validity of the policy for a period of two years from the issue date of the policy.

On May 7, 2001, Miller entered into a sales agreement with Midwest to assign and transfer all rights and interest in the Miller Policy for $12,155. Miller, acting on behalf of the Samuel W. Miller Revocable Trust, and Miller's wife separately executed two "Release and Consent to Change Beneficiary of Life Insurance Policy" forms on May 16, 2001, assigning all rights to the Miller Policy to Midwest. Then, on June 20, 2001, Miller submitted a form to Reassure to change the named owner and beneficiary of the Miller Policy. Reassure did not object to the transfer or raise any concerns regarding Midwest's insurable interest. Midwest paid Reassure semi-annual premiums on the Miller Policy from December 2001 to December 2008 totaling over $100,000.

Miller died on January 13, 2009. Midwest submitted a claim for death benefits under the Miller Policy on February 26, 2009. Per Reassure's request, Midwest, through its counsel, provided documents and information to Reassure regarding the Miller Policy in the summer of 2009. In the following months, Midwest made at least three demands for payment of the death benefits,*fn2 but Reassure "refused to pay the death benefits" to Midwest and failed to "timely make a decision on its claims." (Def.'s Answer & Countercls. ¶¶ 61, 63, 68, 69, 71.)

Reassure filed suit for declaratory judgment in state court on October 30, 2009, to determine whether Miller obtained the policy with the intention of selling his interest to Midwest as part of a "STOLI" scheme,*fn3 which it alleges would render the policy void ab initio under Pennsylvania law. Defendant removed the action to this court on November 23, 2009, and then filed a motion to dismiss for lack of jurisdiction and venue or, in the alternative, to transfer the action to the Northern District of Illinois. I denied the motion on June 14, 2010. Reassure Am. Life Ins. Co. v. Midwest Res., Ltd., 721 F. Supp. 2d 346 (E.D. Pa. 2010). Midwest answered the complaint, and raised two counterclaims. Reassure then filed the instant motion to dismiss Midwest's counterclaims.

II. Legal Standard

"To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'"

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949 (2009).

In evaluating a motion to dismiss, "the factual and legal elements of a claim should be separated." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). The court "must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Id. at 210-11. The assumption of truth does not apply to legal conclusions couched as factual allegations or to "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Iqbal, 129 S. Ct. at 1949. Rather, the complaint must contain "'enough factual matter (taken as true) to suggest' the required element. This 'does not impose a probability requirement at the pleading stage,' but instead 'simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary element." Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556) (internal citations omitted).

III. Discussion

Midwest argues that Reassure's refusal to pay benefits to Midwest under the Miller Policy constitutes a breach of contract because Midwest paid all premiums and satisfied all the terms of the contract, thus entitling it to full benefits under the Miller Policy. Midwest further argues that Reassure deliberately breached its contract in bad faith by denying benefits and failing to timely make a decision on its claims. In the instant motion to dismiss, Reassure insists that it never denied Midwest's claim for benefits; instead, it sought the court's assistance to determine its obligation under the contract. Reassure argues that because seeking declaratory judgment cannot in and of itself constitute a breach of contract or bad faith, Midwest cannot establish its counterclaims.*fn4 Because Midwest has ...


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