Kenneth Graham v. Stonebridge Life Insurance Co. ( 2017 )

United States Court of Appeals
For the Eighth Circuit
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No. 16-1161
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Kenneth Graham, on behalf of himself and all others similarly situated
lllllllllllllllllllll Plaintiff - Appellant
v.
Catamaran Health Solutions LLC, formerly known as Catalyst Health Solutions,
formerly known as Healthextras Inc.; Healthextras LLC; Alliant Services Houston Inc.
lllllllllllllllllllll Defendants
Stonebridge Life Insurance Company
lllllllllllllllllllll Defendant - Appellee
Virginia Surety Company Inc.
lllllllllllllllllllll Defendant
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Appeal from United States District Court
for the Eastern District of Arkansas - Little Rock
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Submitted: June 7, 2017
Filed: August 23, 2017
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Before LOKEN, MURPHY, and MELLOY, Circuit Judges.
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MELLOY, Circuit Judge.
Plaintiff Kenneth Graham, on behalf of himself and others similarly situated,
alleges the defendant insurance companies and marketing organizations advertised
and sold group disability insurance policies that were void ab initio due to a failure
to comply with applicable Arkansas insurance law. He seeks reimbursement of
premiums, enhanced damages, and fees, alleging claims of unjust enrichment, breach
of contract, and civil conspiracy. The district court granted a motion to dismiss,
concluding the policies were not void ab initio because an Arkansas savings statute
applied and thus rendered the policies enforceable even if not in compliance with
Arkansas law. See Ark. Code Ann. § 23–79–118. The district court held in the
alternative that Graham’s claims were time-barred. We affirm.
I.
Group insurance policies differ from individual insurance policies in that
individual underwriting is not required for group policies. Rather, by offering a one-
size-fits-all policy to members of a qualifying group (typically, employees of a
company or members of an organization formed for purposes separate and apart from
obtaining insurance), the insurer accepts that individualized risks will be spread
throughout the members of the group thus permitting group pricing. Often, the actual
policyholder is the group itself and the insured members receive only a certificate of
coverage rather than a copy of the policy.
Consistent with this theory and practice, the group itself is the “consumer” who
is presumed to comparison shop among insurers on behalf of its members to find
policies deemed valuable and appropriate. In part to prevent lapses in this practical
protective function, many states have passed laws defining what may qualify as an
insurable group. These states typically require registration of insurers and state
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approval of group policy forms under statutory or regulatory regimes that grant
various enforcement mechanisms to the state.
At issue in the present suit are allegations that a marketing entity, HealthExtras,
Inc., along with other entities, including different insurers, conspired to skirt these
practical and statutory group-policy protections. In broad strokes, Graham alleges
HealthExtras solicited names from credit-card issuers and advertised group accidental
disability policies to card holders even though these card holders were not members
of any stand-alone group created for a purpose apart from obtaining insurance.
HealthExtras then sold group policies to the interested card holders and billed card
holders through recurring charges on their cards. According to Graham, the policies
at issue were void ab initio because the insurers failed to comply with an Arkansas
statute defining permissible and qualifying “groups.” Ark. Code Ann. §§ 23–86–101
& 23–86–106(2)(A)(iii). He also alleges the defendants illegally failed to comply
with a statutory registration requirement. Id. §§ 23–86–102(b) & 23–79–109.
Graham’s complaint, read as a whole, alleges in the alternative that, to the extent the
policies were not void, they actually provided very little coverage at a vastly inflated
price. According to Graham, the conspiracy to skirt group insurance protections was
successful in that the card holders did not receive the benefit of oversight by either
state regulators or by a representative “group” that could have shopped for fair
coverage at a fair price.
Graham purchased coverage in 2001 and continued paying for coverage until
policy termination in December 2014. On October 6, 2014, Graham filed the present
class-action complaint, naming as a proposed class persons who had purchased
policies marketed by HealthExtras between 1999 and the time of filing, subject to
certain exclusions. Graham named as defendants the marketing organizations that
spearheaded the insurance program and two insurance companies that served as
underwriters, Virginia Surety Company, Inc., and Stonebridge Life Insurance
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Company (“Stonebridge”). The complaint raised four counts: violation of the
Arkansas Trade Practices Act, unjust enrichment, conversion, and civil conspiracy.
In November 2014, after Graham filed his suit, the defendants canceled the
group policy via letter, effective December 31, 2014, stating:
Thank you for being a long standing customer of the HealthExtras
Program. We are writing to notify you that the respective insurance
coverages in the Program, underwritten by Stonebridge Life Insurance
company (“Stonebridge Life”) and Virginia Surety Company (“Virginia
Surety”), are terminating as of December 31, 2014. As a result, we
regret that we cannot continue the HealthExtras Program.
In December 2014, the marketing organizations and both insurance companies filed
separate motions to dismiss, challenging Graham’s standing and challenging the
sufficiency of his pleadings. In their standing arguments, the defendants asserted that
Graham and the proposed class had not filed claims under their policies, the policies
were enforceable pursuant to the Arkansas savings statute, and Graham and the
proposed class, therefore, had not suffered any redressible injury. According to the
defendants, Graham and the proposed class members paid for and received
enforceable insurance, and the absence of claims meant allegations of invalidity were
mere abstractions rather than concrete and particularized injuries.
In its briefing to the district court, however, at least one defendant referenced
the fact that Graham had made a claim on a HealthExtras policy. Stonebridge
identified a prior federal district court lawsuit in which Graham alleged total
disability and contested a claim denial by Stonebridge. In fact, Stonebridge asked for
reassignment of the present case to the district court judge who had presided over that
earlier lawsuit between Graham and Stonebridge. See Graham v. Stonebridge Life
Ins. Co., No. 4:10-CV-02022-JHL (filed in state court Oct. 29, 2010, and removed to
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the United States District Court for the Eastern District of Arkansas on December 17,
2010).1
On January 7, 2015, Graham filed a first amended complaint in the present
case, eliminating his claim under the Arkansas Trade Practices Act and raising instead
a breach-of-contract claim. He asserted the defendants’ termination of the policy was
a breach of contract and alleged Stonebridge had sent the termination letter. Graham
did not attach a contract to his original complaint or to his first amended complaint.
In addition, he alleged no detailed facts about the insurance policy’s termination
provisions. Nor did he expressly allege that the insurance policy imposed a duty on
Stonebridge to continue its policy indefinitely. Rather he alleged Stonebridge “sold
. . . a policy,” “canceled the HealthExtras Policy,” and such “actions constitute breach
of contract.” He did, however, identify the insurance contract by policy and form
number and allege that a coverage description had disclosed limitations on coverage.
See First Amended Complaint, ¶ 58 (“Stonebridge underwrote and issued the Policy
1
Even when addressing a motion to dismiss, we may take judicial notice of
filings of public record and the fact (but not the veracity) of parties’ assertions
therein. Roe v. Nebraska, 861 F.3d 785, 788 (8th Cir. 2017) (“In addressing a
motion to dismiss, the court may consider the pleadings themselves, materials
embraced by the pleadings, exhibits attached to the pleadings, and matters of public
record. A district court may consider these materials without converting the
defendant’s request to a motion for summary judgment.” (citations and internal
quotation marks omitted)); Lustgraaf v. Behrens, 619 F.3d 867, 885–86 (8th Cir.
2010) (“[W]hen considering a motion to dismiss . . ., [a court] may take judicial
notice (for the purpose of determining what statements the documents contain and not
to prove the truth of the documents’ contents) of relevant public documents . . . .”
(alterations in original) (emphasis omitted)). For example, in Podraza v. Whiting,
790 F.3d 828, 833 (8th Cir. 2015), a case asserting securities fraud, our court took
judicial notice of a party’s representations made in SEC filings. In any event, in the
present case, after Stonebridge directed the district court’s attention to the prior
litigation, Graham presented no arguments suggesting it might be impermissible to
consider the prior litigation.
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number 25649 GM956 and Form 59U9B4921 to the Plaintiff and other Arkansas
residents for disability coverage without ever having applied for approval with the
Arkansas Department of Insurance.”); id., ¶ 55 (“Although the coverage description
disclosed some limitations on coverage under the policy . . . [no] Defendant[s] ever
disclosed the purported disability coverage was illusory.”). The policy and form
numbers he identified are the same as those provided to the court in the earlier
lawsuit. See supra note 1.
On January 26, 2015, the defendants filed motions to dismiss the first amended
complaint. They renewed the arguments from their first round of motions to dismiss
and again challenged Graham’s standing. In addition, they argued Graham failed to
state a claim for breach of contract under the plausibility standard of Bell Atlantic
Corporation v. Twombly, 550 U.S. 544, 555 (2007), because he did not allege
specific facts concerning a contractual duty to continue coverage. Virginia Surety
attached to its motion a sample policy and argued the attached policy was embraced
by the pleadings and could be considered by the court.2 Graham, in response,
2
After briefing was completed in our court for the present appeal, the parties
notified the court of a settlement with all defendants other than Stonebridge. We
granted permission to dismiss the appeal as to the defendants who settled, and
Stonebridge is the only remaining defendant. The first amended complaint, however,
does not clearly allege which particular defendant took which particular actions.
Further, it is undisputed that Virginia Surety had provided one type of insurance
whereas Stonebridge had provided a different type of insurance. In its motion to
dismiss, Virginia Surety attached a document it characterized as a HealthExtras
policy, but the policy identifies as the underwriter “National Union Insurance
Company of Pittsburgh, PA.”
As an aside, we note Graham also sought coverage under a policy issued by
Hartford Life and Accident Insurance Company. That claim for coverage resulted in
federal litigation leading to an appeal to our court. See Graham v. Hartford Life &
Accident Ins. Co., 677 F.3d 801 (8th Cir. 2012). The Eighth Circuit opinion in that
case made no reference to the Hartford policy being a part of the HealthExtras
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attached a sample Stonebridge policy he identified as the policy Stonebridge had
asserted as controlling in the prior action between Graham and Stonebridge.
In briefing, the parties placed primary emphasis on the question of whether the
Arkansas saving statute applied. The district court held the statute applied and
prevented the policy from being deemed void ab initio. In addition, the district court,
“in the alternative,” dismissed all claims as time barred without additional
explanation. Plaintiffs appeal.
II.
A. Standing
On appeal, Stonebridge challenges Article III standing. Stonebridge asserts the
class excludes persons who made claims on their policies and the policies were
enforceable pursuant to state law.3 According to Stonebridge, class members paid for
program. The opinion makes clear, however, that the injury alleged was the same
injury at issue in the earlier Stonebridge case, a July 5, 2005 accident allegedly
resulting in total blindness.
3
The class definition and Graham’s eligibility to serve as representative are
unclear. The class definition, phrased in terms of “persons,” lists several exclusions
that are not defined in terms of “persons.” For example, the definition excludes
“[c]laims for personal injury, wrongful death and/or emotional distress” and “[a]ctual
identifiable claims for disability benefits that have already arisen that may be payable
under the terms of said disability insurance policies.” As noted, however, Graham
made a claim on a HealthExtras policy alleging total blindness resulting from an
accident. See supra note 1. Notwithstanding Stonebridge’s and Graham’s knowledge
of this past litigation, all parties’ arguments as to standing in the present case appear
to adopt the position that Graham and the proposed class members had not filed
claims on their HealthExtras policies.
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and received insurance, but because class members did not make claims on their
policies, they did not suffer any concrete and particularized redressible injuries.
We conclude Graham has standing for two reasons. First, as to Graham’s
theory that the policies were void ab initio, Stonebridge’s standing argument relies
on the application of the Arkansas savings statute. Ark Code Ann. § 23–79–118.
Stonebridge asks us, in essence, to resolve the claims on the merits en route to
determining standing. A standing analysis, however, permits cursory examination of
a plaintiff’s legal theories only to the extent necessary to understand what is asserted,
whether the plaintiff has properly alleged an injury that is fairly traceable to the
named defendants, and whether that injury can be redressed by a judgment against
those defendants. See Duit Constr. Co. v. Bennett, 796 F.3d 938, 940 (8th Cir. 2015)
(“Standing requires (1) an injury that is concrete and particularized and actual or
imminent, not conjectural or hypothetical, (2) that the injury be fairly traceable to the
challenged action of the defendant, and (3) that it is likely, as opposed to merely
speculative, that the injury will be redressed by a favorable decision.” (quoting
Turkish Coal. of Am., Inc. v. Bruininks, 678 F.3d 617, 621 (8th Cir. 2012))).
Standing analysis does not permit consideration of the actual merits of a plaintiff’s
claim. See Am. Farm Bureau Fed’n v. U.S. Envtl. Prot. Agency, 836 F.3d 963, 968
(8th Cir. 2016) (“The standing inquiry is not, however, an assessment of the merits
of a plaintiff’s claim. In assessing a plaintiff’s Article III standing, we must assume
that on the merits the plaintiffs would be successful in their claims.” (citations and
internal quotation marks omitted)). Therefore, if a claim presents a question of
statutory interpretation under which one interpretation leads to possible relief and the
other does not, standing exists. See id. (“[W]hether a statute has been violated ‘is a
question that goes to the merits . . . and not to constitutional standing.’” (second
alteration in original) (quoting Muir v. Navy Fed. Credit Union, 529 F.3d 1100,
1105–06 (D.C. Cir. 2008))). We therefore conclude that, if the policy is deemed void
ab initio due to non-compliance with state law, then Graham will have suffered a
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compensable economic injury fairly traceable to the defendants’ actions. Whether the
policies actually were void goes to the merits, not the threshold standing analysis.
Second, as to allegations of injury even if the policies were not void, standing
exists. Although the complaint and its demands for relief are by no measure clear, we
understand Graham to allege that defendants (1) wrongfully terminated the policy as
an act of breach; (2) conspired to sell the policy in the absence of a qualifying group;
and (3) sold a policy different than advertised at an inflated price while shielding that
fact from any group oversight or state regulation. Graham alleges the overwhelming
majority of money he paid as premiums did not pay for insurance, and he seeks “an
order of restitution and all other forms of equitable monetary relief.” As just noted,
whether such claims may succeed on the merits is a question separate and apart from
our standing analysis. Id. Taken in the light most favorable to Graham, we
understand his claims to seek a refund of all or at least some portion of premiums
paid. Therefore, even if the policy were deemed enforceable, and Graham could
recover only a portion of his premiums, he has described a concrete and redressible
economic injury properly alleged to have been caused by the present defendants. As
to such claims, we conclude Graham has constitutional standing. See Carlsen v.
GameStop, Inc., 833 F.3d 903, 908-09 (8th Cir. 2016) (addressing standing in the
context of claims asserting a theory of overpayment and emphasizing “[i]t is crucial
. . . not to conflate Article III’s requirement of injury in fact with a plaintiff’s potential
causes of action, for the concepts are not coextensive.” (quoting ABF Freight Sys.,
Inc. v. Int’l Bhd. of Teamsters, 645 F.3d 954, 960 (8th Cir. 2011) (alteration in
original))); Wallace v. ConAgra Foods, Inc., 747 F.3d 1025, 1029 (8th Cir. 2014)
(“When the alleged harm is economic, the injury in fact question is straightforward.”
(citation and internal quotation marks omitted)).
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B. Statute of Limitations
Graham has abandoned his conversion claim and his Arkansas Trade Practices
claim. What remains are two claims (unjust enrichment and civil conspiracy) alleging
a conspiracy to sell policies of little or no value through a non-qualifying group and
one claim alleging breach of contract due to wrongful termination.
Claims for unjust enrichment in Arkansas are subject to a three-year statute of
limitations. See Ark. Code Ann. § 16–56–105. Civil conspiracy in Arkansas is not
a stand-alone claim; rather, claims alleging civil conspiracy are governed by the
applicable statute of limitations for the underlying wrong that is the object of the
conspiracy. See Varner v. Peterson Farms, 371 F.3d 1011, 1016 (8th Cir. 2004)
(“civil conspiracy . . . borrows its statute of limitations”). The limitations period
commences upon occurrence of the wrongful act. See id.; see also Quality Optical
of Jonesboro, Inc. v. Trusty Optical, L.L.C., 225 S.W.3d 369, 372 (Ark. 2006) (noting
the limitations period is triggered “when the injury occurs, not when it is
discovered”). Further, Arkansas has repeatedly and consistently rejected any
continuing-tort theory outside the context of continuing medical treatment
surrounding medical malpractice claims. See Quality Optical, 225 S.W.3d at 372
(“As we have repeatedly stated, this court does not recognize a ‘continuing tort’
theory.”); Chalmers v. Toyota Motor Sales, USA, Inc., 935 S.W.2d 258, 264 (Ark.
1996) (“[W]e have specifically rejected the continuing-tort theory of tolling the
statute of limitations as inconsistent with the General Assembly’s intent in stating that
limitations begin to run at the date of the wrongful act complained of and no other
time.” (citation and internal quotation marks omitted)). In Chalmers, for example, the
Arkansas Supreme Court rejected a continuing-tort theory as to claims of civil
conspiracy in the context of a business relationship even though the alleged
conspiracy and business relationship were ongoing when suit was filed. 935 S.W.2d
at 263–64. Notwithstanding the ongoing nature of the allegedly wrongful conduct,
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the court in Chalmers held the statute of limitations began to run when the allegedly
wrongful conduct began, many years prior to suit. Id.
Here, Graham filed suit in October 6, 2014. Therefore, if his claims accrued
prior to October 6, 2011, his claims are untimely. He alleges the marketing,
underwriting, and purchase of his policy occurred in 2001. Although he continued
paying premiums through 2014, the inapplicability of the continuing-tort theory
makes the ongoing nature of his payments and the insurance relationship immaterial.
The defendants have met their burden of raising the limitations period as a defense
and establishing when the limitations period commenced. Chalmers, 935 S.W.2d at
261 (recognizing that the defendant’s satisfaction of its burden may be “clear from
the face of the complaint”).
The concealment of a wrong through misrepresentations, however, may toll the
limitations period. See id. at 261–62; Varner, 371 F.3d at 1016–17 (“Where
affirmative acts of concealment by the person charged with fraud prevent the
discovery of that person’s misrepresentations, the statute of limitations will be tolled
until the fraud is discovered or should have been discovered with the exercise of
reasonable diligence.”). Graham, as the plaintiff, bears the burden of establishing the
applicability of this tolling theory. Chalmers, 935 S.W.2d at 261 (“[T]he burden
shifts to the plaintiff . . . .”). Here, Graham alleges the defendants’ overall scheme
employed the practical dynamics of group insurance to effectively conceal the non-
qualifying nature of the group and to avoid scrutiny of the allegedly overpriced or
wholly valueless nature of the policies. The core of his allegation is a theory of
concealment through systematic evasion of statutory disclosure and registration
requirements. See Ark. Code Ann. §§ 23–86–101 & 23–86–106(2)(A)(iii);
id. §§ 23–86–102 & 23–79–109.
Even assuming Graham’s allegations of concealment suffice to toll the
limitations period, the limitations period could only be tolled until such time that he
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learned of the wrong or was placed on objective notice of the need to investigate the
matter. Varner, 371 F.3d at 1017 (“Concealment of facts, no matter how fraudulent
or otherwise wrongful, has no effect on the running of a statute of limitations if the
plaintiffs could have discovered the fraud or sufficient other facts on which to bring
their lawsuit, through a reasonable effort on their part.”). This requirement is fatal
to Graham’s arguments. He alleges he was provided a certificate of insurance
identifying at least some exclusions soon after obtaining coverage. Further, the
documents of public record in his prior lawsuit demonstrate he submitted a claim in
2006 that Stonebridge denied the same year. Graham’s claim was not
inconsequential; he sought $1,000,000 alleging disability in the form of total
blindness. At that time, through his unsuccessful interactions with the insurer, he was
on notice of a need to examine the parameters of his coverage. It had become clear
that he did not receive the insurance he now alleges he thought he had purchased. It
was not until almost eight years later that he commenced the present action alleging
claims of civil conspiracy and unjust enrichment concerning that
insurance—allegations rooted in a theory that the insurance contained overly harsh
exclusions and did not actually provide valuable coverage. Obtaining the policy for
review or simply contacting the state’s director of insurance any time after the 2006
denials would have revealed the infirmities he now alleges as the basis for his claims.
Because no tolling can be found after 2006, his claims are untimely.
Turning to Graham’s breach-of-contract claim, the allegedly wrongful act was
the termination itself. This act occurred in November or December 2014, after
Graham filed his original complaint but before he filed his first amended complaint.
This claim, added after the initial filing of suit and based on an act that occurred after
the initial filing, cannot be deemed time barred.
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C. Failure to State a Claim
Stonebridge argues Graham fails to meet the minimal requirements of
Twombly because he did not allege an ongoing contractual duty to maintain coverage
indefinitely. Graham counters that he adequately alleged a breach of contract claim
and argues that Stonebridge improperly seeks to rely on the contract language in the
National Union policy submitted by Virginia Surety. That policy grants the insurer
an unconditional right to terminate the policy on thirty-days’ notice.
The parties’ arguments as to this issue are somewhat misplaced. Graham
himself, in the district court, submitted a Stonebridge policy as an attachment to his
February 16, 2015 “Consolidated Response in Opposition to Defendants’ Motions to
Dismiss Plaintiff’s Class Action Complaint.” That policy unambiguously grants the
insurer the same termination rights as the National Union policy, and by Graham’s
own allegations, Stonebridge provided the requisite thirty-days’ notice. We therefore
conclude Graham’s breach-of-contract claim fails as a matter of law.
For the reasons stated herein, we affirm the judgment of the district court.
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