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Harshbarger v. Pennsylvania Mutual Life Insurance Co.

United States District Court, E.D. Pennsylvania

April 11, 2014

DANIEL J. HARSHBARGER, et al., Plaintiffs,
v.
PENNSYLVANIA MUTUAL LIFE INSURANCE COMPANY, Defendant.

MEMORANDUM OPINION

NITZA I. QUIÑONES ALEJANDRO, District Judge.

INTRODUCTION

Before the Court is the motion to dismiss filed by Pennsylvania Mutual Life Insurance Company ("Defendant" or "Penn Mutual") [ECF 8], which seeks the dismissal of the complaint on abstention grounds and/or for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure (Rule) 12(b)(6). Plaintiffs Daniel J. Harshbarger and Edith M. Harshbarger, (collectively "Plaintiffs") have opposed the motion to dismiss [ECF 20], making it ripe for consideration.

For the reasons stated herein, the motion to dismiss is granted and the Court will abstain from exercising its jurisdiction in this matter.

BACKGROUND[1]

Penn Mutual is a Pennsylvania-domiciled mutual life insurance company. (Comp. ¶5). Plaintiffs, Daniel J. Harshbarger and Edith M. Harshbarger, are Pennsylvania residents who filed the complaint against Penn Mutual, on their own behalf and on behalf of a class of similarly situated participating policyholders of Penn Mutual, seeking damages and/or equitable relief for, inter alia, breach of contract, including the implied covenants of good faith and fair dealing, and for violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (the "Consumer Protection Law") for its alleged deceptive acts or practices in failing to pay the full amount of annual dividends from the divisible surplus due to Plaintiffs under their contracts, including all surplus (or profits) in excess of the maximum limit as defined by 40 P.S. § 614 (the "excess surplus"). (Comp. ¶ 1).

Plaintiffs have been policyholders of Penn Mutual participating whole-life insurance since at least 1973. ( Id. at ¶¶ 2-3).[2] A "participating" insurance policy is one that entitles the holder to a share in the mutual life insurer's annual surplus (profits), paid as a dividend. ( Id. at ¶7).

The Pennsylvania statutory scheme pertaining to participating insurance policies, like those owned by Plaintiffs, requires inclusion of the following language:

A provision that the policy shall participate in the surplus of the company, and that, beginning not later than the end of the third policy-year, the company will annually determine the portion of the divisible surplus accruing on the policy, and that the party entitled to elect such option shall have the right to have the dividend arising from such participation paid in cash, or applied in accordance with any one of such other dividend options as may be provided by the policy. If any such other dividend options are provided, the policy shall further state which option shall be automatically effective, if such party shall not have elected some other option.
In lieu of the foregoing provisions, the policy may contain a provision that the policy shall participate in the surplus of the company, and that, beginning not later than the end of the fifth policy-year, the company will determine the portion of the divisible surplus accruing on the policy, and that the party entitled thereto shall have the right to have the current dividend arising from such participation paid in cash, and that, at periods of not more than five years thereafter, such apportionment and payment, at the option of such party, shall be had.

Renewable term policies of ten years or less may provide that the surplus accruing to such policies shall be determined and apportioned each year after the second policy-year, and accumulated during each renewal period, and that at the end of any renewal period, or renewal of the policy by the insured, the company shall apply the accumulated surplus as an annuity for the next succeeding renewal term in the reduction of premiums.

40 P.S. §510(f).

Plaintiffs contend that their Penn Mutual insurance policies contain the language required by §51 O(f). In that regard, the policies provide:

This policy shall participate in divisible surplus while it is in force except as provided in the Benefits on Lapse provision and the Settlement Options section. Dividends of such surplus, if any, to be apportioned to this policy shall be determined annually by Penn Mutual. Each dividend shall be payable at the end of the policy year, unless this policy is in force under the Settlement Options section, except that any dividend for the first policy year shall not be payable until the premium for the second policy year has been paid.

(Comp. ¶ 12).

In their complaint, Plaintiffs further contend that Pennsylvania's "safety fund statute'', found in 40 P.S. §614, requires that a domestic mutual life insurance company, such as Defendant, pay all surplus that exceeds the safety fund limit to its participating policyholders. (Comp. ¶10). Specifically, section §614 provides:

Any mutual life insurance company, incorporated under the laws of this Commonwealth and transacting business therein, may establish and maintain, or, if already established, may continue to maintain, a surplus or safety fund to an amount not in excess of ten per centum of its reserve, or one hundred thousand dollars, whichever is greater, and the excess of the market value of its securities over their book value.
In cases where the surplus or safety fund at present existing, exclusive of all accumulations held on account of the outstanding deferred dividend policies, exceeds the limit above designated, the company shall be entitled to retain said surplus or safety fund, but ...

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