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Principal Life Insurance Company v. Mark Derose

March 16, 2012


The opinion of the court was delivered by: (Judge Conner)


Presently before the court is the Motion to Stay Payment of Premiums filed by defendant First Priority Bank ("First Priority") against plaintiff Principal Life Insurance Company ("Principal Life"). (Doc. 172).*fn1 First Priority contends that it is prejudiced by having to pay premiums on contested life insurance policies and asks to be relieved of this obligation pending the lawsuit's conclusion. For the reasons that follow, First Priority's motion (Doc. 173) will be denied.

I. Statement of Facts and Procedural History

The court set forth the pertinent facts in this case in its previous October 5, 2011 decision. (Doc. 208). In brief, Principal Life seeks a declaratory judgment to determine its rights and obligations under three insurance policies issued on the life of JoAnn DeRose ("Mrs. DeRose"). (Doc. 1). Principal Life contends that these policies were fraudulently procured, rendering them void ab initio. Principal Life argues that these policies lacked an insurable interest at inception and that Mrs. DeRose, and others assisting her, made material misrepresentations to Principal Life in the application process. (Id. at 8). Principal also seeks to retain some or all of the premiums paid as an off-set to its incurred costs and expenses. (Id. at 9). First Priority currently pays approximately $50,000 bimonthly in premiums. (Doc. 173). On May 17, 2011, First Priority filed the instant motion to stay payment of premiums pending the lawsuit's resolution (Doc. 172).*fn2 The motion has been fully briefed and is ripe for disposition.

II. Standard of Review

Principal Life seeks a declaratory judgment pursuant to 28 U.S.C. § 2201. (Doc. 1). Section 2201 provides, in part, the following:

In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such. 28 U.S.C. § 2201(a). An action for declaratory judgment is procedural in its nature and purpose. Federal Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 351 (3d Cir. 1986) ("[A declaratory judgment action] provides a unique procedural remedy to the litigants that choose to utilize it."). Accordingly, federal law must be applied to a request for declaratory judgment relief because federal courts apply federal procedural rules in diversity cases. Id. at 352 ("It is settled law that, as a procedural remedy, the federal rules respecting declaratory judgment actions, apply in diversity cases.").*fn3

III. Discussion

First Priority argues that the court should stay insurance premiums pending the lawsuit's resolution on grounds that the continued payments are prejudicial to it. (Doc. 173). Rather than citing case law to support its position, First Priority simply states, "The prejudice to First Priority is obvious." (Doc. 173, at 5). First Priority reasons that these payments create additional risk because Principal Life seeks to retain the premiums paid on the DeRose Policies as damages. (Id. at 4). In addition, First Priority argues that Principal Life would not be prejudiced by the stay of premiums because First Priority would pay the accrued premiums if the court finds that the insurance contracts are valid and enforceable.*fn4 (Id. at 4).

The court will deny First Priority's motion. Not only has First Priority failed to show that its position is legally tenable, but relevant case law suggests the opposite. In Travelers Ins. Co. v. Davis, the Third Circuit Court of Appeals analyzed the objectives of an action for declaratory judgment. 490 F.2d 536, 543-44 (3d Cir. 1974). The Third Circuit explained that one of the primary purpose of a declaratory judgment action is to "clarify legal relationships before they have been disturbed or a party's rights violated." Id. at 543 (emphasis added). Accord Step-Saver Data Systems, Inc. v. Wyse Technology, 912 F.2d 643, 649 (3d Cir. 1990) ("The idea behind the [Declaratory Judgment] Act was to clarify legal relationships so that plaintiffs (and possibly defendants) could make responsible decisions about the future."); Beacon Const. Co. v. Matco Elec. Co., 521 F.2d 392, 397 (2d Cir. 1975) (stating that a declaratory judgment is meant to settle legal rights 'without awaiting a violation of the rights or a disturbance of relationships' (quoting Aetna Casualty & Surety Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937))).

With these cases in mind, the court concludes that an order to stay payments on insurance premiums would run counter to the intended purpose of an action for declaratory judgment. Until a final judgment is rendered, the contractual rights and obligations of both parties remain in full force and effect. First Priority provides no factual or legal basis to rule otherwise. See Principal Life Ins. Co. v. Minder, No. 08-5899, 2009 WL 1917096, at *4 (E.D. Pa. July 1, 2009) (finding that an insured's obligation to make premium payments on a life insurance policy "cannot be excused" pending the outcome of a declaratory judgment action).

IV. Conclusion

For the foregoing reasons, First Priority's Motion to Stay Payment of Premiums (Doc. 172) will be denied. ...

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