Correy E. Stephenson, Special to Missouri Lawyers Media//October 1, 2024//
Prejudgment interest should be added to a jury award of $28 million in a breach of contract class action brought against an insurer, the Western District Court of Appeals ruled on September 24, affirming the verdict and reversing denial of prejudgment interest.
David B. Karr filed a class action against Kansas City Life Insurance Company (KCL), asserting three claims for breach of contract related to how the accumulated cash value for the policies was calculated.
He argued that KCL breached the policies by reducing each policy’s monthly cash value by an overstated monthly deduction comprised of a “cost of insurance” amount and a “monthly expense charge.”
Specifically, Karr contended that the cost of insurance (COI) provision in the policies required that the monthly COI rate — a factor used to calculate the monthly cost of insurance — be based on mortality risk factors and KCL breached the policies by considering non-mortality factors (like expense recovery and profit generation, for example) to determine the monthly COI rate.
As for the monthly expense charge provisions, the policies specified a fixed dollar amount that could be included in the monthly deduction subtracted from cash value, but KCL breached the policies by also considering expense recovery in calculating monthly COI rates, Karr told the court.
The policies also required the COI rate to be calculated based on KCL’s expectations regarding future mortality experience, Karr alleged, but KCL breached the policies by failing to adjust monthly COI rates as its expectations regarding future mortality experience improved.
On Karr’s motion, the trial court certified a class of more than 8,000 policies and granted summary judgment in favor of the class. After a trial on the issue of damages, the jury awarded $28,362,830.96 on each of the three breach of contract claims. It was undisputed that Karr and the class were only entitled to recover one of the awards by virtue of the duplicative verdicts.
Karr sought prejudgment interest but the trial court denied the motion.
KCL appealed the grant of summary judgment and the jury award, while Karr cross-appealed the denial of prejudgment interest.
Judge Cynthia L. Martin sided with Karr, denying all of KCL’s numerous points on appeal.
The trial court did not err in granting Karr’s motion for partial summary judgment on the issue of liability on Karr’s breach of contract claims because the uncontroverted facts established that KCL breached the unambiguous COI and monthly expense charge provisions in the policies, the court said.
Although KCL contended that the absence of a specified formula in the policies reserved the insurer the discretion to set rates using its “complex, holistic actuarial process,” this position ignored that the factors permissibly considered in that calculation were set forth in the policies.
“An ordinary purchaser of insurance would have no reason to conclude from this plain language that non-mortality factors will be considered in determining monthly COI rates,” the court wrote. “The plain language of the policies does not alert an ordinary purchaser of insurance that non-mortality factors like profit generation and expense recovery will be considered in calculating COI rates.”
KCL’s attempt to reverse the trial court’s denial of its motion for summary judgment met a similar fate, despite its argument that policyholders could have known their COI rates, and seen changes in COI rates over time, from the annual reports.
“Though the annual reports disclose the cost of insurance, the reports do not disclose how the cost of insurance is determined and in particular do not disclose the COI rate (a factor used in calculating the cost of insurance) or how the COI rate is determined,” the court said. “Policyholders would not know their COI rate, whether it has changed over time, or what is considered in determining their COI rate, from KCL’s annual reports.”
The court was also unpersuaded by KCL’s argument that the doctrine of primary jurisdiction required a stay of the case pending a referral to the Department of Insurance (DOI) for policy interpretation.
Missouri statutes have not established the DOI as a tribunal for resolution of breach of contract claims involving insurance policies, the court explained, and “[t]he trial court was constitutionally authorized to entertain and determine Karr’s civil action untethered by nonexistent statutory exclusivity vested in the DOI.”
Further, Karr presented sufficient evidence of damages at trial (the amount of damages awarded by the jury was precisely the amount opined by Karr’s expert witness) and KCL’s complaint about the evidence went to its weight, an issue determined by the jury, the court said.
Common issues predominated over individualized issues, making denial of KCL’s motion to decertify the class correct, and the trial court did not commit an error when it denied the insurer’s motion for a new trial.
After rejecting all of KCL’s arguments on appeal, the court turned to Karr’s request for prejudgment interest.
Karr sought an award of prejudgment interest from and after the date that the policies terminated or were surrendered prior to his expert’s interest calculation, as well as for policies still in force at the time of the interest calculation.
“The breach of contract damages against which this continuing prejudgment interest award is sought are no less liquidated or capable of ascertainment for the periods now sought by Karr than they were for the periods included in [his expert’s] classwide damage calculation,” the court wrote, remanding to the trial court to calculate a prejudgment interest award and amend the judgment accordingly.
Patrick J. Stueve of Stueve Siegel Hanson in Kansas City, who represented Karr, said he was “pleased, but not surprised” by the court’s decision.
“There have been three federal district courts, two Missouri state courts and now the Missouri Court of Appeals that have all found our interpretation of the policy is reasonable,” he said.
A spokesperson for KCL provided a statement about the decision: “We are aware of the ruling. We believe that the Appellate Court’s opinion contains a number of errors. The company is in the process of appealing this ruling.”
- The case is Karr v. Kansas City Life Ins. Co., No. WD86566.
This article credit to MOLawyersMedia