The California Court of Appeal, Second Appellate District, affirmed the trial court's order denying a motion for class certification in a case alleging violation of California's Unfair Competition Law in connection with the marketing of universal life insurance policies. The Court of Appeal held plaintiffs failed to establish the insurer used a common marketing scheme with respect to all members of the class or that materiality of the alleged misrepresentations was subject to common proof.
Plaintiffs filed suit on behalf of themselves, and similarly situated purchasers of universal life insurance policies from Farmers New World Life Insurance Company and Farmers Group, Inc. (collectively "Farmers"), alleging violations of the Unfair Competition Law (California Business & Professions Code section 17200 et seq., hereinafter "UCL"), negligent misrepresentation and fraudulent inducement. Plaintiffs alleged both fraudulent and unfair business practices as the basis for their UCL claims.
Plaintiff's fraudulent business practice claims included allegations that Farmers supplied its agents with marketing materials and computerized sales illustrations that misled insureds to believe that universal life insurance policies provided permanent insurance when, in reality, the policies were likely to lapse before they matured. In addition, plaintiffs alleged that Farmers encouraged its insureds to minimize premium payments, making policy lapse more likely. Plaintiffs also contended Farmers engaged in unfair business practices including basing premiums on unrealistic interest rates and encouraging insureds to replace policies when doing so was not in their interest.
Plaintiffs moved for class certification only as to a single unified allegedly fraudulent scheme involving a combination of practices. Plaintiffs did not seek certification with respect to their unfair practices claims.
Farmers opposed certification on the ground that plaintiffs' theory of relief would require independent, not common, evidence. Farmers' evidence showed that its agents were not required to use the model marketing materials provided and were taught to tailor their presentations to the objectives of each prospective insured. Farmers' evidence included survey results that showed many of the putative class members had no expectation of permanence and, therefore, representations of permanence were not material to their decision to buy the universal life policies.
The trial court denied certification, finding that predominant questions of law or fact did not exist. The Court of Appeal affirmed concluding that substantial evidence supported the trial court's ruling.
Certification of a class requires an ascertainable class and a well-defined community of interest exhibited by three factors: (1) predominant common questions of fact or law, (2) class representatives with claims typical of the class, and (3) class representatives who can adequately represent the class. Farmers did not dispute that the trial court had erred in assuming plaintiffs had to prove that every putative class member must suffer injury in fact because the California Supreme Court rejected this requirement in In re Tobacco II Cases, 46 Cal.4th 298 (2009). As a result, the Court of Appeal considered whether the trial court's order could be upheld on any other basis.
To state a claim under the UCL for false advertising plaintiffs need to show only that members of the public are likely to be deceived, not that they have actually been deceived. But, a class action alleging such a claim can be brought only when common evidence can establish that representations likely to deceive were actually made to each putative class member. The Court of Appeal found that evidence that Farmers distributed standardized marketing materials to its agents was insufficient, in light of Farmers' evidence, to show that each class member was presented with the same information. Standard policy language also did not establish commonality of the alleged misrepresentations because under the theory plaintiffs advanced, the policy language had to be considered in the context of the other information provided.
The Court of Appeal also affirmed the trial court's determination that materiality of the alleged misrepresentations was not subject to common proof. To be actionable, a misrepresentation must be material, meaning "a reasonable [person] would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question." One difference between term life insurance and universal life insurance is that the latter can be permanent when sufficiently funded. However, Farmers' evidence showed that permanence was not important to every insured as some may have selected universal life policies because of other features of those policies including the option to skip premium payments or change the amount of such payments or death benefits.
The Court of Appeal also rejected plaintiff's arguments that a class should have been certified on grounds plaintiffs did not raise before the trial court, including assertions relating to unfairness and plaintiff's contention on appeal that the policy language, standing alone, was misleading.
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This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.
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