Margery Newman v. Metropolitan Life Insurance Co , 885 F.3d 992 ( 2018 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 17-1844
MARGERY NEWMAN, on behalf of herself and all others simi-
larly situated,
Plaintiff-Appellant,
v.
METROPOLITAN LIFE INSURANCE COMPANY,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 16 C 3530 — Thomas M. Durkin, Judge.
____________________
ARGUED SEPTEMBER 19, 2017 — DECIDED FEBRUARY 6, 2018
____________________
Before WOOD, Chief Judge, and EASTERBROOK and ROVNER,
Circuit Judges.
WOOD, Chief Judge. At age 56, Margery Newman pur-
chased a long-term care insurance plan from the Metropolitan
Life Insurance Company (“MetLife”). She opted for one of
MetLife’s non-standard options for paying her insurance pre-
miums; MetLife called the method she selected “Reduced-Pay
at 65.” When Newman was 67 years old, she was startled to
2 No. 17-1844
discover that MetLife that year more than doubled her insur-
ance premium. MetLife insists that the increase is consistent
with Newman’s insurance policy, including its Reduced-Pay-
at-65 feature. Newman was unpersuaded and brought this ac-
tion to vindicate her position. The district court dismissed for
failure to state a claim. We conclude, however, that Newman
is entitled to relief on her contract claim and that dismissal of
the remaining claims was premature. We therefore reverse
and remand for further proceedings.
I
Two documents lie at the heart of this case. The first is Met-
Life’s “Long-Term Care Facts” brochure, which Newman re-
viewed before purchasing her insurance plan. The brochure
describes long-term care generally and catalogs MetLife’s
non-standard payment options. Newman learned of MetLife’s
Reduced-Pay option from the brochure. The full description
reads as follows:
Reduced-Pay at 65 Option:
By paying more than the regular premium amount
you would pay each year up to the Policy Anniver-
sary on or after your 65th birthday, you pay half the
amount of your pre-age 65 premiums thereafter.
At the foot of the same page, MetLife instructs the reader that
the brochure is only a general overview of MetLife’s insurance
plans, and that the policy governs the terms of the agreement.
Equipped with this information, Newman purchased a
long-term care insurance plan from MetLife and selected the
Reduced-Pay option. Roughly a week later, she received the
policy—the second critical document. The policy is 29 pages
long. It includes just one reference to the Reduced-Pay option:
No. 17-1844 3
In addition, you have selected the following flex-
ible premium payment option: Reduced Pay at 65
Semi-Annual Premium Amount:
Before Policy Anniversary at age 65 $3231.93
On or after Policy Anniversary at age 65 $1615.97
Elsewhere, the policy reserves MetLife’s right to change
premiums. On the first page, MetLife announces that
“PREMIUM RATES ARE SUBJECT TO CHANGE.” The
same paragraph continues with the statement that “[a]ny
such change in premium rates will apply to all policies in the
same class as Yours in the state where this policy was issued.”
In a section titled “Premiums,” MetLife “reserve[s] the right
to change premium rates on a class basis.” Similar language
is included in the “5% Automatic Compound Inflation Protec-
tion Rider.” The policy defines more than 30 terms, but the
word “class” is not among them. And the appended “Contin-
gent Benefits Upon Lapse Rider,” which provides coverage
options in the event of a “Substantial Premium Increase,” in-
cludes a table illustrating that that term’s meaning varies with
the policyholder’s age at the time the policy was issued. The
table accounts for policyholders who were issued their policy
at ages up to “90 and over.” Newman had the opportunity to
review the policy for 30 days and return it for a full refund if
she was dissatisfied.
From the outset, Newman paid the elevated premium as-
sociated with her “Reduced-Pay” option. When she reached
age 65, her premium was cut in half. After Newman turned
67, however, MetLife doubled the premium. MetLife repre-
sents that this increase was imposed on a class-wide basis,
which it said at oral argument means all long-term care poli-
cyholders, including Reduced-Pay policyholders over the age
4 No. 17-1844
of 65. MetLife defends the increase by noting that Newman
still pays half the premium of a Reduced-Pay policyholder
who has not yet reached age 65, and far less than she would if
she had not purchased the Reduced-Pay option. Nevertheless,
at age 67, Newman’s semi-annual premium jumped to
$3,851.80, greater than it has been at any other point during
the life of the plan.
Newman filed a four-count complaint on behalf of herself
and a proposed class. She has alleged that raising her post-
anniversary premium is a breach of the policy, violates the
Illinois Consumer Fraud and Deceptive Business Practices
Act, and renders MetLife’s representations and practices
fraudulent. The district court granted MetLife’s motion to
dismiss for failure to state a claim. In its view, the contract
unambiguously permitted MetLife to raise Newman’s
premium, even after she reached age 65. This meant also that
she had no claim for deceptive or unfair business practices or
common-law fraud, because MetLife did nothing wrong.
Newman’s appeal from that decision is now before us.
II
We consider de novo the district court’s grant of a motion
to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6). Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736
(7th Cir. 2014). A complaint survives a motion to dismiss if it
states a claim that is plausible on its face. Id. The common-law
and statutory fraud claims must be pleaded with the detail
required under Rule 9(b)’s heightened standard. Id. The par-
ties agree that Illinois law governs this case.
No. 17-1844 5
A
Illinois normally treats insurance policies the same as any
other contract. Parties are held to the unambiguous terms of
their agreement. Hobbs v. Hartford Ins. Co. of the Midwest,
214 Ill. 2d 11, 17 (2005). Ambiguous insurance contracts, how-
ever, are construed in favor of the insured. Id. at 30–31. A pol-
icy is ambiguous if it is subject to more than one reasonable
interpretation. Thompson v. Gordon, 241 Ill. 2d 428, 443 (2011).
Importantly, an insured cannot manufacture ambiguity by
taking portions of a policy in isolation; the policy (like any
contract) must be read as a whole. Id. at 441.
Little in Newman’s policy elucidates the terms of the Re-
duced-Pay option. It offers one illustration with two numbers:
Newman’s “before policy anniversary” premium; and her “on
and after policy anniversary” premium. The first amount is
twice the second. Newman deduced from this example that
upon reaching her 65th birthday, her premium would drop to
half of what it was the day before. MetLife agrees that this is
what the policy says. The disagreement arises at the next level
of detail. MetLife takes the position that the only guarantee is
that from the policy anniversary following Newman’s 65th
birthday onward, Newman’s premium will be half that of a
Reduced-Pay policyholder who has not yet reached age 65.
Newman reads the policy differently. She understands it to fix
her post-65 premium at half the amount of her pre-65 pre-
mium.
Our independent review of the policy satisfies us that
Newman has offered one reasonable interpretation of its lan-
guage. The illustration, which was unexplained, reproduces
the cost of her personal premiums. It gives no indication
whether these are the same premiums that all Reduced-Pay
6 No. 17-1844
policyholders were paying, and would pay, or if they were
particular to Newman. A reasonable reader easily could
think, however, that “on and after” the policy anniversary fol-
lowing age 65, the policy holder (here, Newman) will pay half
of what she personally was paying prior to that anniversary
date. Since the person’s 65th birthday converts the pre-anni-
versary premium into a historical fact, a premium set at half
that number likewise becomes fixed. In other words, if N is
set in stone, so too is half of N.
MetLife responds that even if the portion of the policy re-
ferring to the Reduced-Pay option might be understood as we
just explained, that reading is supportable only if that passage
is divorced from the rest of the policy—an impermissible step.
While it is true that the Reduced-Pay excerpt cannot be read
alone, in this case the remainder of the contract does not win
the day for MetLife.
Four times in the policy MetLife reserves its right to
change premiums. Three of those instances reserve MetLife’s
right to do so on “a class basis” or for a “class as Yours.” These
passages do not resolve the ambiguity, because the word
“class” is undefined. It might mean age, in which case class
membership is independent of payment arrangements. But it
might refer to the payment arrangement, so that everyone in
the Reduced-Pay group comprises a single class and the effect
of class membership is defined by the terms of the Reduced-
Pay option.
Newman believes that it is the latter, and thus that the Re-
duced-Pay customers have purchased the right not to be
treated in the same way as ordinary policyholders. The pol-
icy’s inclusion of the Reduced-Pay illustration, terse as it may
be, supports her interpretation. Including language about
No. 17-1844 7
class-wide changes does not alert her that she is part of a class
that is broader than her Reduced-Pay group. Absent some
clarification, Newman had no reason to question her under-
standing that she had removed herself from the class of typi-
cal policyholders—those who had not purchased a frozen
premium after age 65. Even MetLife’s reservation of the right
to change premiums for all policies in a “class as Yours” does
not help matters. Newman knew that her premium, and those
of others whom she might regard as classmates, might in-
crease before she turned 65. But the only “class” to which she
thought she belonged was one that exchanged an increased
(and perhaps variable) premium pre-65 for the right to have a
stable and lower premium after 65. The baseline for a person
in this class was the premium she paid pre-65; nothing in the
policy tipped her off that the baseline was instead whatever
people of her age were ordinarily charged, no matter how of-
ten or when that number changed or what payment arrange-
ment was in place.
The fourth suggestion that premiums might change ap-
pears in the Lapse Rider. Though the rider countenances the
possibility of a “Substantial Premium Increase,” its illustra-
tive table shows that the definition depends on the policy-
holder’s age at the time of issuance. The rider accounted for
policyholders who purchased their long-term care policy at
ages greater than 65. How, then, could the rider speak to the
specifics of the Reduced-Pay option, which could be issued
only to people who had not yet reached their 65th birthday?
A reasonable person selecting the Reduced-Pay option could
conclude that the rider was beside the point.
8 No. 17-1844
In short, none of the four references in the policy to Met-
Life’s right to change premiums sufficed to disabuse a reason-
able person of the understanding that purchasing the Re-
duced-Pay option took her out of the class of policyholders
who were at risk of having their premium increased after their
post-age-65 anniversary. The policy is thus at least ambigu-
ous, because it can be read reasonably to fix such a person’s
premium, if she had opted for the Reduced-Pay option. That
means that Newman prevails on the liability phase of her con-
tract claim.
B
Newman separately alleges that MetLife violated the
Illinois Consumer Fraud and Deceptive Business Practices
Act (“ICFA”). The ICFA provides a remedy for consumers
who have been victimized by deceptive or unfair business
practices. 815 ILCS 505/2; Batson v. Live Nation Entm’t, Inc.,
746 F.3d 827, 830 (7th Cir. 2014). Newman accuses MetLife of
both. We assess these allegations mindful of the fact that the
ICFA is a mandate to provide consumers with the greatest
possible relief. Miller v. William Chevrolet/GEO, Inc., 326 Ill.
App. 3d 642, 654–55 (2001).
A deceptive-practice claim under the ICFA has five ele-
ments: “(1) the defendant undertook a deceptive act or prac-
tice; (2) the defendant intended that the plaintiff rely on the
deception; (3) the deception occurred in the course of trade
and commerce; (4) actual damage to the plaintiff occurred;
and (5) the damage complained of was proximately caused by
the deception.” Davis v. G.N. Mortg. Corp., 396 F.3d 869, 883
(7th Cir. 2005). MetLife argues that Newman’s allegations do
not satisfy the first two elements—deception and intent.
No. 17-1844 9
An allegedly deceptive act must be viewed “in light of all
the information available to plaintiffs.” Phillips v. DePaul Univ.,
2014 IL App (1st) 122817, ¶ 44 (emphasis in original). We must
therefore consult both the brochure and the policy. Deception
does not exist if a consumer has been alerted to the possibility
of the complained-of result. Davis, 396 F.3d at 884. In MetLife’s
view, the brochure was not deceptive because it is consistent
with what happened: after Newman reached age 65, her pre-
mium became half that of a policyholder who is not yet 65
years old. And even if the brochure was misleading, MetLife
adds, the policy resolved any confusion.
MetLife’s reading of the brochure is far from the only one
that is possible—indeed, we find it strained. The Reduced-Pay
option assures that after the anniversary date following the
policyholder’s 65th birthday, the holder will pay “half the
amount of your pre-age 65 premiums thereafter” (emphasis
added). This rationally can be read as an individualized re-
duction, tied to the consumer’s personal baseline. The bro-
chure never says that Newman’s premium is linked to those
of general policyholders. And for the reasons already dis-
cussed, MetLife’s insistence that the policy clarified matters is
unpersuasive.
This case is quite different from one in which the con-
sumer is warned about the undesirable result and simply mis-
construes the material offered by the insurance company. See,
e.g., Toulon v. Continental Casualty Co., 877 F.3d 725 (7th Cir.
2017). MetLife’s brochure did not warn Newman about the
possibility of a premium increase after her post-age 65 anni-
versary date, and as we already have held, her reading of the
policy is reasonable.
10 No. 17-1844
Turning to intent, Newman must show that MetLife in-
tended for her (and those in her position) to rely on the bro-
chure. Cuculich v. Thomson Consumer Elec., Inc., 317 Ill. App. 3d
709, 716 (2000). Noting the printed caveat that the brochure
was a general overview, MetLife argues that it did not intend
that she rely on that document. The actual terms, it stresses,
were in the policy. It cites Commonwealth Insurance Co. v. Stone
Container Corp., 351 F.3d 774 (7th Cir. 2003), where we ruled
that an insurance provider did not intend that consumers rely
on its policy summary. Id. at 779. The summary included a
disclaimer that the policy governed the actual terms of the
agreement. And that policy provided extensive details about
coverage. Id. at 777–79. MetLife argues that this case is the
same. But unlike the insurance provider in Commonwealth In-
surance, MetLife never described the Reduced-Pay plan any-
where outside the brochure. Newman could have parsed
every word in the insurance policy and never found infor-
mation that would have corrected her impression of the Re-
duced-Pay option. MetLife must have intended for consumers
to rely on its brochure: it was the only place that described the
Reduced-Pay option.
Nothing we have said conflicts with the U.S. Supreme
Court’s instruction in the analogous context of ERISA plans
that summary plan descriptions are not part of the ERISA plan
itself. See CIGNA Corp. v. Amara, 563 U.S. 421, 436 (2011).
Newman is not relying on the brochure to supply the terms
of her policy; she relies on it only as evidence of deception and
the subsequent unfairness of MetLife’s rate increase. In any
event, there is reason to pause before transposing every detail
of ERISA to ordinary insurance contracts. In CIGNA Corp.,
CIGNA had sent its employees a newsletter and plan
summary, as required under ERISA. The summary
No. 17-1844 11
inaccurately characterized upcoming changes in the pension
plan. Id. at 426; see also Amara v. CIGNA Corp., 775 F.3d 510,
515 (2d Cir. 2014). Eleven months later, CIGNA distributed the
actual plan, which filled in the details. CIGNA Corp., 563 U.S.
at 426–28. The Supreme Court ruled that only a violation of
the plan’s terms, as opposed to the summary’s description of
those terms, could support a lawsuit. Id. at 436–38.
The Court’s decision was faithful to language in the statute
that distinguishes between information about the plan from
the plan itself. 29 U.S.C. § 1022(a); CIGNA Corp., 563 U.S. at
436. ERISA divides responsibilities for drafting the terms of
the plan and drafting the plan summary. The plan’s sponsor
(the employer) is responsible for the plan, while the plan’s ad-
ministrator (a trustee-like fiduciary) drafts the summary.
§§ 1021(a), 1102; CIGNA Corp., 563 U.S. at 437. Nothing in the
statute conveys an intent to allow plan administrators indi-
rectly to set the terms of the plan. CIGNA Corp., 563 U.S. at
437. And the Court recognized that ERISA both requires plan
summaries and establishes their purpose, which is to describe
the plan “in a manner calculated to be understood by the av-
erage plan participant … .” § 1022(a); CIGNA Corp., 563 U.S.
at 437. If plan summaries were binding, plan administrators
would be forced to write summaries with a level of detail ill-
suited for their purpose.
Beyond the statutory distinction, Newman is in a different
position from that of an ERISA beneficiary. Unlike an ERISA
beneficiary, Newman is shopping on the open market. Met-
Life uses its brochure to compete for business. Pre-purchase,
it is all a potential customer has to rely on. An employer, in
contrast, is providing and describing an employment benefit.
MetLife’s situation is thus materially different from that of an
12 No. 17-1844
employer offering an ERISA plan. Our decision here thus
comfortably coexists with CIGNA Corp.
Returning to the Reduced-Pay policy, we must next con-
sider whether Newman has adequately pleaded that Met-
Life’s practices were unfair (as opposed to deceptive). Unfair-
ness under the ICFA depends on three factors: “(1) whether
the practice offends public policy; (2) whether it is immoral,
unethical, oppressive, or unscrupulous; [or] (3) whether it
causes substantial injury to consumers.” Robinson v. Toyota
Motor Credit Corp., 201 Ill. 2d 403, 417–18 (2002). A significant
showing that any of the three factors is met is enough; so too
are facts that, to a lesser degree, satisfy all three. Id. at 418.
Newman has alleged that MetLife engaged in a bait-and-
switch strategy, which (if proven) would offend Illinois’s pub-
lic policy. The State has twice condemned the very practice
Newman describes. See 215 ILCS 5/149(1) (forbidding insur-
ance companies from misrepresenting the terms of their poli-
cies); ILL. ADMIN. CODE tit. 50, § 2012.122(b)(4) (forbidding
misrepresentation in marketing of long-term care insurance
policies). MetLife does not dispute the applicability of the
statute or the administrative code. It simply reiterates its po-
sition that there is no violation because the brochure did not
misrepresent the policy. But we already have shown how both
the brochure and the policy can be understood in the way
Newman read them.
The second factor also supports Newman’s complaint.
Whether a practice is immoral, unethical, oppressive, or un-
scrupulous depends on whether it has left the consumer with
little choice but to submit to it. See Cohen v. Am. Sec. Ins. Co.,
735 F.3d 601, 610 (7th Cir. 2013). MetLife argues that once it
No. 17-1844 13
raised the premium, Newman had three options: accept re-
duced benefits, get a new plan, or let the policy lapse and rely
on the contingent coverage rider she purchased. Each of those
options fails to recognize the fact that by abandoning her Re-
duced-Pay plan, Newman would forfeit eight years of sunk
costs. Every dollar she spent pre-age 65 that exceeded what
she would have been paying under the normal long-term care
plan was an investment that could bear fruit only if she stayed
with the policy. Any of MetLife’s proposed alternatives would
cost her that entire investment.
Newman also alleged substantial injury. MetLife induced
her to pay a premium for eight years at a rate greater than she
would otherwise have paid. She did so to reap benefits later
in life. The injury lies in the difference between her elevated
pre-age-65 premium and the standard premium, as well as
the elevated premiums she has had to pay (so far) for over two
years. Newman’s complaint alleges facts that plausibly show
that MetLife’s policy was both deceptive and unfair.
C
Finally, Newman asserts that MetLife’s representations
about the Reduced-Pay option in its brochure and policy con-
stitute common-law fraudulent misrepresentation and fraud-
ulent concealment. The elements of misrepresentation largely
overlap with a deceptive-practices claim under the ICFA. The
plaintiff must allege:
(1) a false statement of material fact; (2) known or
believed to be false by the person making it; (3) an
intent to induce the plaintiff to act; (4) action by the
plaintiff in justifiable reliance on the truth of the
14 No. 17-1844
statement; and (5) damage to the plaintiff resulting
from such reliance.
Doe v. Dilling, 228 Ill. 2d 324, 342–43 ( 2008). Our discussion of
the ICFA claims subsumes the first, third, and fifth elements,
and so we need say no more about them. The second element
is not seriously at issue. In Illinois, a defendant knowingly
misrepresents a fact if it makes a statement “with a reckless
disregard for its truth or falsity.” Gerill Corp. v. Jack L. Hargrove
Builders, Inc., 128 Ill. 2d 179, 193 (1989); see also Wigod v. Wells
Fargo Bank, N.A., 673 F.3d 547, 569 (7th Cir. 2012) (finding the
elements of fraudulent misrepresentation satisfied because a
bank offered, but refused to honor, a permanent mortgage
modification). MetLife portrayed its policy as one that offered
a fixed premium after age 65. Newman has alleged that it did
so in bad faith, intending not to honor that representation. She
also asserts that MetLife disseminated information about the
Reduced-Pay option with at least reckless disregard for the
truth.
Newman had to provide enough in her complaint to make
a plausible case for reasonable reliance. Davis, 396 F.3d at 882.
Reliance is not justifiable if a consumer has reason and oppor-
tunity to question the truth of the alleged misrepresentation.
Id. For example, reliance on a loan agent’s account of the terms
of a loan agreement is unjustified when the consumer also has
documentation of the terms of the loan and those documents
conflict with the oral statement. Id. at 882–83. But it is reason-
able to rely on a misrepresentation if nothing impugns its ve-
racity. See Miller, 326 Ill. App. 3d at 651–52. Newman’s reli-
ance on the brochure was reasonable—it was the only infor-
mation available to her before she made her purchase. When
No. 17-1844 15
she received the policy, she looked at that too. The 30-day re-
fund provision gave her an opportunity to review the terms
of the policy and clarify any resulting confusion. But she
found nothing in the policy to undermine her understanding
of it. Indeed, she had no reason to doubt her interpretation
until the company raised her premium roughly a decade later.
Finally, Newman’s complaint alleges fraudulent conceal-
ment. For this claim, Newman must adequately plead that
MetLife concealed material information while under a duty to
disclose. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 500 (1996).
Such a duty may arise when a defendant makes a statement
“that it passes off as the whole truth while omitting material
facts that render the statement a misleading ‘half-truth.’”
Crichton v. Golden Rule Ins. Co., 576 F.3d 392, 397–98 (7th Cir.
2009). In Crichton, the insured did not meet this standard be-
cause the communications from the insurance provider never
purported to explain all the underwriting factors that might
affect premiums. Id. at 398. Newman’s fraudulent conceal-
ment claim, in contrast, stands on the policy and the brochure.
Together, she contends, they were the “whole truth.” The bro-
chure told Newman that her rate would be fixed. Though it
also instructed policyholders to look to the policy, the policy
did not reveal how MetLife intended to treat Reduced-Pay
policyholders. Newman thus alleges that she reasonably be-
lieved that her post-anniversary rate was fixed. That was
enough, under the pleading rules that prevail in federal court.
III
Newman asserts that MetLife lured her into a policy by
promising a trade of short-term expense for long-term stabil-
ity. She took the deal and spent nine years investing in a plan,
only to have MetLife pull the rug out from under her. Neither
16 No. 17-1844
MetLife’s brochure nor the terms of the policy forecast this
possibility. These allegations were enough to entitle her to
prevail on the liability phase of her contract claim, and they
are enough to permit her to go forward on her other theories.
We therefore REVERSE the district court’s grant of MetLife’s
motion to dismiss and REMAND for further proceedings.