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Lomma v. Ohio National Life Assurance Corp.

United States District Court, M.D. Pennsylvania

September 6, 2017

NICHOLAS LOMMA, and J.L., a Minor, by ANTHONY LOMMA, Guardian Plaintiffs,
v.
OHIO NATIONAL LIFE ASSURANCE CORPORATION, and OHIO NATIONAL LIFE INSURANCE COMPANY, Defendants.

          MEMORANDUM OPINION

          Robert D. Mariani United States District Judge.

         Before the Court is Defendants', Ohio National Life Assurance Corporation and Ohio National Life Insurance Company, ("Defendants"), motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. 4). For the reasons that follow, Defendants' motion will be granted in part and denied in part.

         I. INTRODUCTION AND PROCEDURAL HISTORY

         Plaintiffs Nicholas Lomma and J.L., a minor, by his guardian, Anthony Lomma, ("Plaintiffs"), seek to recover $100, 000 as beneficiaries of a replacement term life insurance policy issued by Defendants (the "Replacement Policy") on the life of their mother, Lora Marie Lomma ("Ms. Lomma"). Ms. Lomma committed suicide in May of 2009 and Defendants have denied payment of full death benefits based on a suicide exclusion in the Replacement Policy.

         Plaintiffs commenced this action on November 2, 2016, in the Court of Common Pleas of Lackawanna County. The complaint ("Complaint") asserts five causes of action: (1) breach of contract; (2) unjust enrichment; (3) promissory estoppel; (4) breach of implied covenant of good faith and fair dealing; and (5) statutory bad faith pursuant to 42 Pa. C.S.A. § 8371.[1] (Doc. 14). Defendants removed the action to this Court on December 2, 2016, (Doc. 1), and promptly moved to dismiss the Complaint in its entirety on December 9, 2016. (Doc. 4).

         II. FACTUAL ALLEGATIONS

         Plaintiffs' Complaint and the exhibits attached thereto allege the following facts:

         Plaintiffs, Nicholas Lomma and J.L., are or were minors residing in Scranton Pennsylvania and are the surviving children of Ms. Lomma. (Doc. 1-4, at ¶¶ 1-2). Anthony Lomma ("Mr. Lomma") is the natural parent of Nicholas Lomma and J.L and is the surviving former husband of Ms. Lomma and is also J.L.'s guardian. (Id. at ¶¶ 3-4). Defendants are Ohio corporations with registered addresses in Cincinnati, Ohio and are licensed to sell insurance in Pennsylvania. (Id. at ¶ 5).

         In September 1986, Ms. Lomma applied for, and was issued, a life insurance policy (the "Original Policy") by Pennsylvania National Life Insurance Company with a coverage amount of $25, 000. (Id. at ¶ 6). The Original Policy contained a suicide exclusion.[2]Although the facts surrounding Defendants' purchase of the Original Policy from Pennsylvania National Life Insurance Company are not entirely clear, Plaintiffs allege Defendants "purchased or otherwise acquired the Original Policy from Pennsylvania National Life Insurance Company." (Id. at ¶ 7).

         On December 4, 1995, Ms. Lomma applied to increase the amount of coverage under the Original Policy from $25, 000 to $100, 000. (Id. at ¶ 8). In order to do so, she executed a "Request For Universal Life Policy Change" with Defendants. (Doc. 1-4 at 30-32). Ten days later Defendants informed Ms. Lomma that "[u]pon written request... the stated amount is hereby increased from $25, 000 to $100, 000 effective December 4, 1995." (Id. at 32). The Original Policy was set to expire on September 4, 2028.

         Ms. Lomma filed an application for a new life insurance policy with Defendants with a coverage amount of $100, 000 on June 6, 2007.[3] (Doc. 1-4 at 33-49). On the application, a box is checked indicating that the "proposed policy" would "replace or cause change in any existing policy." (Doc. 1-4 at 35). It identified the "existing policy" that the "proposed policy" would replace as "Ohio National, " "Universal, " "$100, 000, " and again a box is checked indicating that the existing policy will "be replaced." (Id.). Written on the application was that the "replacement date" would be "upon issue of this policy." (Id.)

         On August 15, 2007, Defendants issued the Replacement Policy to Ms. Lomma with a benefit value of $100, 000. (Id. at ¶ 13). Both the amount of insurance coverage and the beneficiaries are identical to those under the Original Policy.[4] (Id.). The Replacement Policy identifies the "Contract Date" as August 10, 2007, and the "Issue Date" as August 15, 2007. (Doc. 1-4 at 51). It also contains a definition of "Contract Months and Years, " and states: "[t]his contract takes effect on the contract date shown on page 3. Contract months and years are marked from the contract date. The first day of the contract year is the contract date and its anniversaries." (Id. at 60).

         The Replacement Policy, like the Original Policy, contains a suicide exclusion. The two exclusions, however, do not contain the same language. The suicide exclusion in the Replacement Policy provides:

If the insured dies by suicide while sane or insane or by intentional self-destruction while insane, we will not pay any death proceed payable on amounts of insurance which have been in effect for less than 2 years. If the suicide or intentional self- destruction is within the first 2 contract years, we will pay as death proceeds the premiums you paid.

(Doc. 1-4 at 62). Although the Replacement Policy defines the term "contract years, " it does not contain a definition for "amounts or insurance" and does not provide guidance for determinations of whether those "amounts of insurance" have or have not "been in effect for less than 2 years." (Id.).

         Ms. Lomma committed suicide on May 24, 2009. (Doc. 1-4 at ¶ 15). At the time of her death she had timely paid all premiums due under both the Original Policy and the Replacement Policy and no premiums were due. (Id. at ¶ 26). Shortly after her death, Mr. Lomma filed a claim for death benefits under the Replacement Policy on behalf of Nicholas Lomma and J.L., requesting the $100, 000 full death benefit. (Id. at ¶ 16). On August 31, 2009, Defendants' informed Mr. Lomma that they were denying the claim "on the grounds that Ms. Lomma's suicide violated the provisions of the policy." (Id. at ¶ 17). Specifically, Defendants wrote that "[b]ased on the information we have received and in accordance with" the suicide exclusion in the Replacement Policy, "the death proceeds for death due to 'Suicide' within the first two contract years is a refund of premiums paid." (Doc. 1-4 at 69). Enclosed with the letter were two checks each in the amount of $144.27 (totaling $288.54) representing the premiums Ms. Lomma paid on the Replacement Policy plus 4.5% interest. (Id.).

         III. STANDARD OF REVIEW

         A complaint must be dismissed under Federal Rule of Civil Procedure 12(b)(6) if it does not allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009).

         "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Twombly, 550 U.S. at 555 (internal citations and alterations omitted). In other words, "[f]actual allegations must be enough to raise a right to relief above the speculative level." (Id.) A court "take[s] as true all the factual allegations in the Complaint and the reasonable inferences that can be drawn from those facts, but... disregard[s] legal conclusions and threadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Ethypharm S.A. France v. Abbott Laboratories, 707 F.3d 223, 231 n.14 (3d Cir. 2013) (internal citations and quotation marks omitted).

Twombly and Iqbal require [a court] to take the following three steps to determine the sufficiency of a complaint: First, the court must take note of the elements a plaintiff must plead to state a claim. Second, the court should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally, where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.

Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013).

         "Under Federal Rule of Civil Procedure 8, a complaint need not anticipate or overcome affirmative defenses; thus, a complaint does not fail to state a claim simply because it omits facts that would defeat" an affirmative defense. Schmidt v. Skolas, 770 F.3d 241, 248 (3d Cir. 2014) (citations omitted). "Technically, the Federal Rules of Civil Procedure require a defendant to plead an affirmative defense... in the answer, not in a motion to dismiss." (Id. at 249) (citing Robinson v. Johnson, 313 F.3d 128, 134-35 (3d Cir. 2002)). However, in limited circumstances an affirmative defense may properly be raised in a Rule 12(b)(6) motion to dismiss. But when the affirmative defense "is not apparent on the face of the complaint, then it may not afford the basis for a dismissal of the complaint under Rule 12(b)(6)." Robinson, 313 F.3d at 134-35 (internal citations and quotation marks omitted).

         "To decide a motion to dismiss, courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record." Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (citations omitted); accord Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010). "If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion." Fed.R.Civ.P. 12(d). "However, an exception to the general rule is that a document integral to or explicitly relied upon in the complaint may be considered without converting the motion to dismiss into one for summary judgment." Schmidt, 770 F.3d at 249 (internal citations and quotation marks omitted).

         IV. ANALYSIS

         Defendants move pursuant to Rule 12(b)(6) to dismiss each of the five counts alleged in Plaintiffs' Complaint. In resolving Defendants' motion, the Court considers the following exhibits attached to the Complaint: (1) the Original Policy; (2) Ms. Lomma's 1995 application with Defendants to increase coverage under the Original Policy from $25, 000 to $100, 000; (3) Ms. Lomma's application to obtain the Replacement Policy; (4) the Replacement Policy; and (5) Defendants' letter denying Plaintiffs' claim. (Doc. 1-4 at 12-69). Defendants also attach these documents to their motion to dismiss.[5] (Docs. 4-1 at 9-60; 4-2).

         The Court has jurisdiction over this diversity action pursuant to 28 U.S.C. § 1332 because Plaintiffs are citizens of Pennsylvania and Defendants are citizens of Ohio and the amount in controversy is over $75, 000. The parties, and the Court, agree that Pennsylvania law applies to this action. See Canal Ins. Co. v. Underwriters at Lloyd's London, 435 F.3d 431, 434 (3d Cir. 2006) ("Under Pennsylvania choice-of-law rules, an insurance contract is governed by the law of the state in which the contract was made.") (citations omitted). The Court will address each Count in turn.

         A. Breach of Contract

         In Count I, Plaintiffs allege that Defendants breached the Replacement Policy by refusing to pay the full $100, 000 death benefit upon Ms. Lomma's death. Defendants seek dismissal of Count I on the theory that the Replacement Policy's suicide exclusion unequivocally establishes that the $100, 000 death benefit was not payable to Plaintiffs. In opposition to Defendants' motion. Plaintiffs raise two principal arguments. First, they claim the suicide exclusion is ambiguous and therefore must be construed against the Defendants. Second, Plaintiffs argue that the facts alleged in the Complaint and the totality of circumstances plausibly demonstrate that Ms. Lomma had a reasonable expectation of coverage. In either case, because Defendants are relying on affirmative defenses to defeat Count I, it is Plaintiffs' position that Defendants' Rule 12(b)(6) motion must be denied. Before addressing the parties' contentions, the Court will discuss Pennsylvania law governing the interpretation of insurance policies.

         1. Pennsylvania Law

         "Insurance policies are contracts, and the rules of contract interpretation provide that the mutual intention of the parties at the time they formed the contract govern its interpretation." Am. & Foreign Ins. Co. v. Jerry's Sports Ctr., Inc., 606 Pa. 584, 2 A.3d 526, 540 (2010) (citations omitted). "It is well-established that three elements are necessary to plead a cause of action for breach of contract: (1) the existence of a contract, including its essential terms, (2) a breach of the contract, and (3) resultant damages."[6] Meyer, Darragh, Buckler, Bebenek & Eck, P.L.L.C. v. Law Firms of Malone Middleman, P.C., 635 Pa. 427, 137 A.3d 1247, 1258 (2016) (citations omitted).

         "The interpretation of an insurance contract regarding the existence or non-existence of coverage is generally performed by the court." Minnesota Fire & Cas. Co. v. Greenfield, 579 Pa. 333, 344, 855 A.2d 854 (2004) (internal citations and quotation marks omitted). In interpreting an insurance contract, the Court must "ascertain the intent of the parties as manifested by the terms used in the written insurance policy." Donegal Mut. Ins. Co. v. Baumhammers, 595 Pa. 147, 155, 938 A.2d 286 (2007) (citing 401 Fourth Street, Inc. v. Investors Ins. Grp., 583 Pa. 445, 454, 879 A.2d 166, 171 (2005)). "[W]hen a written contract is clear and unequivocal, its meaning must be determined by its contents alone. It speaks for itself and a meaning cannot be given to it other than that expressed." Lesko v. Frankford Hosp.-Bucks Cnty., 609 Pa. 115, 15 A.3d 337, 342 (2011) (internal citations and quotation marks omitted); see also Ins. Adjustment Bureau, Inc. v. Allstate Ins. Co., 588 Pa. 470, 905 A.2d 462, 481 (2006) ("When the terms of a contract are clear and unambiguous, the intent of the parties is to be ascertained from the document itself.") (citations omitted).

         If a term in an insurance policy is ambiguous, "parol evidence is admissible to explain or clarify or resolve the ambiguity, irrespective of whether the ambiguity is patent, created by the language of the instrument, or latent, created by extrinsic or collateral circumstances." Insurance Adjustment Bureau, 588 Pa. at 481 (citations omitted). "While unambiguous contracts are interpreted by the court as a matter of law, ambiguous writings are interpreted by the finder of fact." (Id.). When a provision in an insurance policy is ambiguous, courts applying Pennsylvania law must construe the language against the insurer. See, e.g., West v. Lincoln Benefit Life Co., 509 F.3d 160, 169 (3d Cir. 2007) ("An unclear, ambiguous provision will be construed against the insurer and in favor of the insured."); Baumhammers, 595 Pa. at 155 ("However, when a provision in the policy is ambiguous, the policy is to be construed in favor of the insured ... and against the insurer, as the insurer drafts the policy and controls coverage.") (internal citations and quotation marks omitted). "Pennsylvania's courts have long recognized that insurance contracts are not freely negotiated agreements entered into by parties of equal status." Reliance Ins. Co. v. Moessner, 121 F.3d 895, 905 (3d Cir. 1997) (internal citations and quotation marks omitted). "In recognition of the unique dynamics between insurer and insured, courts have attempted to favor the insured in a number of ways, including adapting the contra proferentem principle of interpretation to the insurance context, by which ambiguities in policies are construed against the insurer." (Id.) (emphasis in original).

         Under Pennsylvania law, "the insurer bears the burden of proving the applicability of any exclusions or limitations on coverage, since disclaiming coverage on the basis of an exclusion is an affirmative defense." Koppers Co., Inc. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1445 (3d Cir. 1996) (citations omitted); see also Canal, 435 F.3d at 436 ("Where an insurer relies on a policy exclusion as the basis for its denial of coverage and refusal to defend, the insurer has asserted an affirmative defense and, accordingly, bears the burden of proving such defense.") (internal citations and quotation marks omitted). "An exclusion in an insurance policy is a 'limitation of liability or carving out of certain types of loss to which the coverage or protection of the policy does not apply.'" Borough of Moosic v. Darwin Nat'l Assurance Co., 556 F.App'x 92, 97 (3d Cir. 2014) (quoting 17 Williston on Contracts § 49:111 (4th ed.)). "Exclusionary clauses generally are strictly construed against the insurer and in favor of the insured." Swarner v. Mut. Benefit Grp., 72 A.3d 641, 645 (Pa. Super. 2013) (citations omitted).

         "[E]ven the most clearly written exclusion will not bind the insured where the insurer or its agent has created in the insured a reasonable expectation of coverage." Moessner, 121 F.3d at 903 (citations omitted). Pennsylvania law thus "dictates that the proper focus for determining issues of insurance coverage is the reasonable expectations of the insured." (Id.). "In most cases, the language of the insurance policy will provide the best indication of the content of the parties' reasonable expectations." (Id. (internal citations and quotation marks omitted). "Courts, however, must examine 'the totality of the insurance transaction involved to ascertain the reasonable expectations of the insured.'" (Id.) (quoting Dibble v. Sec. of Am. Life Ins. Co., 404 Pa. Super. 205, 590 A.2d 352, 354 (1991)).

         2. Defendants' Motion Must Be Denied Because The Suicide Exclusion Is Ambiguous And, Even If The Suicide Exclusion Was Unambiguous, Plaintiffs Have Alleged Sufficient Facts Demonstrating That Ms. Lomma Had A Reasonable

         Expectation Of Coverage The parties propose two different interpretations of the Replacement Policy's suicide exclusion. The suicide exclusion consists of two sentences. The first sentence provides: "[i]f the insured dies by suicide while sane or insane or by intentional self-destruction while insane, we will not pay any death proceed payable on amounts of insurance which have been in effect for less than 2 years." (Doc. 1-4 at 62). The second sentence, in turn, states: "[i]f the suicide or intentional self-destruction is within the first 2 contract years, we will pay as death proceeds the premiums you paid." (Id.).

         Defendants principally rely on the second sentence of the suicide exclusion in support of their motion. They claim the second sentence is clear and unambiguous and unequivocally requires dismissal of Count I. The second sentence of the suicide exclusion provides that in the event the insured commits suicide within the first two contract years, as explicitly defined in the Replacement Policy, Defendants will not pay the full death benefits due under the Replacement Policy. Instead, Defendants will only pay death benefits representing the premiums paid by the insured.

         The first sentence of the suicide exclusion is less clear. Unlike the term "contract years" in the second sentence, which is explicitly defined in the Replacement Policy, key terms in the first sentence of the suicide exclusion are not defined. The Replacement Policy neither defines "amounts of insurance" nor does it use a defined term like "contract years" to indicate whether those "amounts of insurance", which Defendants will not pay in the event of suicide, have or have not "been in effect for less than 2 years." (/of.). Plaintiffs thus take the position that the first sentence renders the entire suicide exclusion ambiguous and, under Pennsylvania law, ambiguities in an instance policy must be interpreted against the insurer. They also claim that, because Ms. Lomma maintained $100, 000 in life insurance coverage with Defendants since 1995, she had a reasonable expectation of coverage because the suicide exclusion would not apply.

         Defendants, in contrast, interpret the first sentence as applying "if a policyholder increased his or her death benefits from $100, 000 to $500, 000 during the 25th year of the policy and then committed suicide within the next two years." (Doc. 11, at 3). They also argue that Plaintiffs' interpretation of the suicide exclusion is untenable because it would effectively nullify the second sentence of the suicide exclusion. In support, Defendants direct the Court to the Pennsylvania Supreme Court's decision in Capek v. Devito, 564 Pa. 267, 767 A.2d 1047 (2001). With respect to Plaintiffs "reasonable expectations" argument, Defendants theorize that any expectation of coverage was unreasonable and that the Original Policy is entirely irrelevant to the issues in this case.

         As an initial matter, the Court rejects Defendants' reliance on Capek. The argument that Plaintiffs' proposed interpretation would, in effect, render the second sentence of the suicide exclusion a nullity does not mean that Defendants' interpretation, therefore, must prevail. In Capek, an attorney brought suit against his former client seeking recovery of a contingency fee and the Court was called upon to interpret the parties' contract. The Pennsylvania Supreme Court noted that when construing a contract, courts "must determine the intent of the parties and give effect to all the provisions therein." Capek, 564 Pa. at 274. Accordingly, "[a]n interpretation will not be given to one part of the contract which will annul another part of it." (Id.) (internal citations and quotation marks omitted). Capeks conclusion that a court may not interpret one part of a contract to annul another does not apply when a court interprets an insurance policy because, as discussed, Pennsylvania law requires any ambiguities in the policy to be interpreted against the insurer and in ...


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