Kamies Elhouty v. Lincoln Benefit Life Company , 886 F.3d 752 ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
KAMIES ELHOUTY, No. 15-16740
Plaintiff-Appellant,
D.C. No.
v. 1:14-cv-00676-
LJO-JLT
LINCOLN BENEFIT LIFE COMPANY, a
Nebraska corporation,
Defendant-Appellee. OPINION
Appeal from the United States District Court
for the Eastern District of California
Lawrence J. O’Neill, Chief Judge, Presiding
Argued and Submitted May 19, 2017
San Francisco, California
Filed March 27, 2018
Before: Andrew J. Kleinfeld and Kim McLane Wardlaw,
Circuit Judges, and Cathy Ann Bencivengo,* District Judge.
Opinion by Judge Kleinfeld;
Concurrence by Judge Bencivengo
*
The Honorable Cathy Ann Bencivengo, United States District Judge
for the Southern District of California, sitting by designation.
2 ELHOUTY V. LINCOLN BENEFIT LIFE
SUMMARY**
Diversity Jurisdiction
The panel affirmed the district court’s summary judgment
in favor of Lincoln Benefit Life Company in a diversity
declaratory judgment action concerning an insurance policy.
The panel considered sua sponte whether the district court
had subject matter jurisdiction. The panel held that in this
declaratory judgment action where the controversy relates to
the validity of the policy, the insurance policy’s $2 million
face amount is the value of the matter in controversy. The
panel concluded that the district court properly exercised
diversity jurisdiction.
Turning to the merits, the panel held that the district court
did not abuse its discretion in striking the plaintiff’s expert
witness. The panel also held that it was entirely proper for
the district court to read the insurance policy, determine that
there were no material facts genuinely at issue, and conclude
that the policy was unambiguous. The panel held that the
district court did not err in granting summary judgment in
favor of the insurer, and did not abuse its discretion in
denying plaintiff’s request to delay consideration of the
summary judgment motion.
District Judge Bencivengo concurred with the majority’s
opinion on the merits, and the conclusion that the district
court properly exercised subject matter jurisdiction, but did
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
ELHOUTY V. LINCOLN BENEFIT LIFE 3
not join the majority’s analysis concerning the proper
measure of the amount of controversy in this case.
COUNSEL
Shani Kochav (argued) and David P. Beitchman, Beitchman
& Zekian P.C., Encino, California, for Plaintiff-Appellant.
Katherine L. Villanueva (argued), Ryan S. Fife, and Jason
Gosselin, Drinker Biddle & Reatch LLP, Philadelphia,
Pennsylvania, for Defendant-Appellee.
OPINION
KLEINFELD, Senior Circuit Judge:
We address subject matter jurisdiction and other issues in
this declaratory judgment action about an insurance policy.
I. Facts
Kamies Elhouty owned a life insurance policy issued by
Lincoln Benefit Life Company. The policy had a $2 million
face amount. Lincoln Benefit takes the position that the
policy lapsed because Elhouty did not pay what the policy
required. Elhouty sued Lincoln Benefit for a declaratory
judgment that the policy remained in full force and had not
lapsed.
Elhouty’s policy was a “flexible premium adjustable life
insurance policy.” Under its terms, the policy owner was
scheduled to pay an annual premium of $125,896 for
4 ELHOUTY V. LINCOLN BENEFIT LIFE
12 years. If the owner so desired, he could terminate the
policy and receive its “surrender value,” which was
calculated by a formula stated in the policy. If the net
surrender value fell below a certain amount, however, the
owner had to make up the deficit within a 61-day grace
period. If sufficient payment was not made by the end of the
grace period, the policy would lapse.
On July 23, 2013, Lincoln Benefit mailed Elhouty a
notice that his policy’s net surrender value was below the
required level. The letter said that the policy would terminate
on September 22 if Elhouty did not pay $55,061.49. It
warned that even though Elhouty might still receive regular
premium notices during the grace period, his policy would
lapse unless he paid the $55,061.49.
Elhouty did not pay anything during the grace period. On
September 22, Lincoln Benefit sent Elhouty a letter informing
him that his policy had lapsed. Elhouty tried to pay his
regular premium amount of $31,250 on September 24. But
on October 1, Lincoln Benefit mailed Elhouty a letter stating
that his policy was no longer active, that Lincoln Benefit
would return his September 24 payment, and that he would
have to pay $55,880.08 by October 31 if he wished to
reinstate the policy. Elhouty did not pay the $55,880.08.
Elhouty sued Lincoln Benefit in California state court.
Lincoln Benefit removed the case to the Eastern District of
California under diversity jurisdiction.
Once litigation was underway, the district court issued a
scheduling order that included a deadline for designating
expert witnesses. Under Federal Rule of Civil Procedure
26(a)(2)(B), expert designations had to include the expert’s
ELHOUTY V. LINCOLN BENEFIT LIFE 5
report. Although Elhouty designated his proposed expert by
the deadline, he did not include his expert’s report. The
expert had not yet prepared one. When Lincoln Benefit
moved to strike the designated expert, Elhouty did not file an
opposition. The district court struck the expert designation.
In so doing, the court noted that Elhouty had not explained
his failure to comply with the discovery order, shown that his
failure to comply was substantially justified or harmless, or
given his expert enough materials to consider in preparing a
report. Elhouty moved for reconsideration of the order to
strike, but he did not produce a report from the proposed
expert witness or sufficiently explain his failure to oppose the
motion to strike. The district court denied his motion for
reconsideration.
The district court ultimately granted summary judgment
for Lincoln Benefit. The court also rejected Elhouty’s request
to defer consideration of the motion until he had deposed the
Lincoln Benefit official most knowledgeable about lapsed
policies. The court ruled that Elhouty had failed to
demonstrate that any evidence elicited in the deposition could
possibly be dispositive of the summary judgment motion.
Elhouty appeals.
II. Jurisdiction
We consider sua sponte whether the district court had
subject matter jurisdiction.1 Under 28 U.S.C. § 1332(a),
district courts have jurisdiction in diversity cases only if “the
matter in controversy exceeds the sum or value of $75,000,
exclusive of interest and costs.” The parties here are
1
See United States v. S. Pac. Transp. Co., 543 F.2d 676, 682 (9th Cir.
1976).
6 ELHOUTY V. LINCOLN BENEFIT LIFE
completely diverse. But the contours of our amount in
controversy jurisprudence are not entirely clear,2 so we
address that requirement sua sponte here.
Whether a case is about an insurance policy or a
declaratory judgment does not control jurisdiction one way or
the other. For example, if the issue is whether certain
installments should be paid under a disability policy, the
policy’s face amount does not establish the value of “the
matter in controversy.” Rather, the “value of the object of the
litigation”3 is the amount of the unpaid installments allegedly
due.4
That rule does not apply in this case, however. The issue
is not whether Elhouty owes Lincoln Benefit some amount of
money. Elhouty had the option of paying to keep the policy
in force, but he was entitled to not pay and to let the policy
lapse. The issue is also not whether Lincoln Benefit owes
Elhouty any particular policy benefits. There is no claim that
either party owes the other some sum of money. Instead, this
case concerns whether the policy remains in force or was
instead properly terminated.
2
See, e.g., Mass. Mut. Life Ins. Co. v. Chang, No. 16-cv-03679-EMC,
2016 WL 6778664, at *3 (N.D. Cal. Nov. 16, 2016); Bank of Am. Grp.
Benefits Program Fiduciary v. Riggs, No. cv06-02805-PHX-NVW,
2007 WL 1876589, at *2 (D. Ariz. June 28, 2007).
3
Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002) (per
curiam) (quoting Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S.
333, 347 (1977)).
4
See N.Y. Life Ins. Co. v. Viglas, 297 U.S. 672, 676 (1936); Keck v.
Fidelity & Cas. Co. of N.Y., 359 F.2d 840, 841 (7th Cir. 1966).
ELHOUTY V. LINCOLN BENEFIT LIFE 7
Therefore, this case is not like New York Life Insurance
Co. v. Viglas5 or Keck v. Fidelity & Casualty Co. of New
York.6 In Viglas, the insurance company did not repudiate the
policy, and the policy survived as an enforceable obligation
for many purposes.7 Likewise in Keck, the insurance policy’s
continuing validity was not in dispute, so the controversy was
limited to accrued disability payments.8 Keck expressly
distinguished itself “from [a case] where the controversy
relates to the validity of the policy and not merely to liability
for benefits accrued.”9
This case is more like Bankers Life Co. v. Jacoby.10
There, we held that when a case is about the ownership of a
policy (rather than liability for certain benefits), the amount
in controversy “is necessarily the face [amount] of the policy”
in addition to the benefits due.11 Similarly, we wrote in
5
297 U.S. 672 (1936).
6
359 F.2d 840 (7th Cir. 1966).
7
297 U.S. at 676–77.
8
359 F.2d at 841.
9
Id. at 842 (quoting Mut. Life Ins. Co. of N.Y. v. Moyle, 116 F.2d 434,
435 (4th Cir. 1940)); see also Viglas, 297 U.S. at 676 (“Upon the showing
made in the complaint there was neither a repudiation of the policy nor
such a breach of its provisions as to make conditional and future benefits
the measure of recovery.”).
10
192 F.2d 1011 (9th Cir. 1951).
11
Id. at 1012 n.1 (9th Cir. 1951) (quoting Prudential Ins. Co. of Am.
v. Battershill, 154 F.2d 947, 950 (5th Cir. 1946)); see also N.Y. Life Ins.
Co. v. Kaufman, 78 F.2d 398, 401 (9th Cir. 1935).
8 ELHOUTY V. LINCOLN BENEFIT LIFE
Budget Rent-A-Car, Inc. v. Higashiguchi that when a policy’s
validity is at issue, the policy limit is the amount in
controversy.12
Indeed, it is long-established that in declaratory judgment
actions about whether an insurance policy is in effect or has
been terminated, the policy’s face amount is the measure of
the amount in controversy.13 One can imagine other possible
measures, perhaps the face amount discounted by the life
expectancy of the named insured, or the policy’s surrender
value. But no court of which we are aware has used those
measures. And because they would generate complexity,
uncertainty, and litigation unrelated to the merits, there is no
good reason to adopt them. Clarity and predictability are
more valuable than whatever theoretical precision some more
subtle measure would provide, and no court has adopted any
measure other than the face amount of the policy.
This case is the one that Keck distinguished: “one where
the controversy relates to the validity of the policy and not
merely to liability for benefits accrued.”14 Therefore, the
policy’s $2 million face amount is the value of the matter in
12
109 F.3d 1471, 1473 (9th Cir. 1997).
13
See 14AA CHARLES ALAN WRIGHT, ARTHUR R. MILLER &
EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3710, at
786–91 (4th ed. 2011); see also, e.g., In re Minn. Mut. Life Ins. Co. Sales
Practices Litig., 346 F.3d 830, 834–35 (8th Cir. 2003); Mass. Cas. Ins.
Co. v. Harmon, 88 F.3d 415, 417 (6th Cir. 1996); Stephenson v. Equitable
Life Assur. Soc. of U.S., 92 F.2d 406, 410 (4th Cir. 1937); Bell v. Phila.
Life Ins. Co., 78 F.2d 322, 323 (4th Cir. 1935); N.Y. Life Ins. Co. v. Swift,
38 F.2d 175, 177 (5th Cir. 1930).
14
359 F.2d at 842 (quoting Mut. Life, 116 F.2d at 435).
ELHOUTY V. LINCOLN BENEFIT LIFE 9
controversy. The district court properly exercised
jurisdiction.
III. Merits
Elhouty argues that the district court abused its discretion
in striking his expert witness. But he missed the deadline for
disclosing expert reports, and he did not timely oppose the
motion to strike. The district court did not abuse its
discretion in deciding to strike Elhouty’s expert report. And
Elhouty has not shown how an expert opinion could have
helped his case. To this day, we know only the general
subject matter his expert would have addressed. The district
court therefore did not abuse its discretion in denying
Elhouty’s motion to reconsider.15
Elhouty also argues that summary judgment was
inappropriate.16 More specifically, he argues that the district
court should not have interpreted the policy terms and that
there was a genuine issue of material fact about whether
Lincoln Benefit properly mailed the policy termination
notice. But it is undisputed that Lincoln Benefit mailed
Elhouty a letter on July 23 stating that his policy would lapse
on September 22 unless he paid $55,061.49. As required by
the policy, Lincoln Benefit sent the notice to Elhouty’s “most
15
See Goodman v. Staples The Office Superstore, LLC, 644 F.3d 817,
822 (9th Cir. 2011) (reviewing discovery rulings for abuse of discretion);
Do Sung Uhm v. Humana, Inc., 620 F.3d 1134, 1140 (9th Cir. 2010)
(reviewing the denial of a motion for reconsideration for abuse of
discretion).
16
See Nat’l Union Fire Ins. Co. of Pittsburgh v. Argonaut Ins. Co.,
701 F.2d 95, 96 (9th Cir. 1983) (reviewing grant of summary judgment de
novo).
10 ELHOUTY V. LINCOLN BENEFIT LIFE
recent address . . . at least 30 days prior to the day coverage
lapse[d].” The notice complied with the California Insurance
Code.17 Elhouty suggests that he did not receive the notice,
but the policy only required that Lincoln Benefit mail a
notice—not that Elhouty receive it. According to Jensen v.
Traders & General Insurance Co., California law does not
require that the insured actually receive the notice.18
Elhouty’s argues that notice of the grace period cannot also
constitute notice of the lapse, but that argument is not
supported by either the law or the contract terms.
In short, there is no genuine issue about whether Elhouty
needed to pay $55,061.49 to keep his policy from lapsing or
whether Lincoln Benefit mailed the required notice at least
30 days before the policy lapsed. Those are the only facts
that matter. It was entirely proper for the district court to read
the policy, determine that those were the only material facts,
and determine that they were not genuinely at issue. The
policy was unambiguous. Accordingly, the district court did
not err in granting summary judgment for Lincoln Benefit.
17
The relevant statutory provision reads:
A notice of pending lapse and termination of a life
insurance policy shall not be effective unless mailed by
the insurer to the named policy owner, a designee
named pursuant to Section 10113.72 for an individual
life insurance policy, and a known assignee or other
person having an interest in the individual life insurance
policy, at least 30 days prior to the effective date of
termination if termination is for nonpayment of
premium.
Cal. Ins. Code § 10113.71(b)(1).
18
345 P.2d 1, 5–8 (Cal. 1959) (in bank).
ELHOUTY V. LINCOLN BENEFIT LIFE 11
And because there was nothing to gain by deposing the
Lincoln Benefit official most knowledgeable on policy lapses,
the district court did not abuse its discretion in denying
Elhouty’s request to delay consideration of the motion.19
AFFIRMED.
BENCIVENGO, District Judge, concurring:
I join in the majority’s opinion on the merits of the
appeal. I also agree with the majority’s conclusion that the
district court properly exercised subject matter jurisdiction.
I write separately, however, because I disagree with the
majority’s reliance on Bankers Life Company v. Jacoby,
192 F.2d 1011 (9th Cir. 1951), and Budget Rent-A-Car, Inc.
v. Higashiguchi, 109 F.3d 1471, 1473 (9th Cir. 1997), as
applicable to the analysis of subject matter jurisdiction here.
Neither case holds that the face value of an insurance policy
is always the proper measure of the amount in controversy.
I also disagree with the implication that the complexity
and uncertainty of using other measures to determine the
amount in controversy is a relevant consideration to the
analysis of subject matter jurisdiction. A defendant’s burden
to establish removal jurisdiction is not supposed to be easy.
To the contrary, “[i]t is to be presumed that a cause lies
outside” of a federal court’s limited jurisdiction. Kokkonen
v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).
Moreover, there is a “strong presumption” against removal
19
See Morton v. Hall, 599 F.3d 942, 945 (9th Cir. 2010) (reviewing
the decision not to permit additional discovery for abuse of discretion).
12 ELHOUTY V. LINCOLN BENEFIT LIFE
jurisdiction. Gaus v. Miles, 980 F.2d 564, 566 (9th Cir.
1992). Thus, “[w]e strictly construe the removal statute
against removal jurisdiction, [and] [f]ederal jurisdiction must
be rejected if there is any doubt as to the right of removal in
the first instance.” Id. It is not for the court to allow a
defendant to use a less accurate measure of the amount in
controversy simply to ease the defendant’s burden or the
court’s obligation to assure itself that subject matter
jurisdiction exists.
In sum, I concur in the result on the merits and the
conclusion that the district court had subject matter
jurisdiction, but I do not join in the majority’s analysis that
because it is an easier measure it is the proper measure of the
amount in controversy here.