LAWRENCE HANDORF BLACKOAK LIFE LIMITED AS GP FOR BLACKOAK INVESTORS LP PHT HOLDING II LP v. TRANSAMERICA LIFE INSURANCE COMPANY (2025)

ORDER

TABLE OF CONTENTS

I. FACTUAL BACKGROUND A. The Policies 1. The Blackoak Policy 2. PHT King Policy 3. PHT Roberts Policy 4. PHT Jackson Policy 5. Handorf Policy B. Defendant Raises COI C. Complaint II. SUMMARY JUDGMENT STANDARD III. DISCUSSION A. Remaining Breach of Contract Theories B. Choice of Law C. Merits Analysis 1. Mortality Factors Breach Theory (PHT King Policy) 2. Past Losses Breach Theory (Blackoak Policy) 3. Uniformity Breach Theory (All PHT Policies & Handorf Policy) IV. CONCLUSION 3 3 3 4 5 5 6 6 7 8 9 9 10 11 11 17 22 27

This matter is before the Court on defendant's motion for partial summary judgment. (Doc. 143). Plaintiffs filed a resistance (Doc. 151) and defendant filed a reply (Doc. 157). On March 24, 2025, the Court heard oral argument on defendant's motion for partial summary judgment and plaintiffs' motion for class certification.¹ (Doc. 161). For the following reasons, defendant's motion for partial summary judgment (Doc. 143) is denied.

I. FACTUAL BACKGROUND

The following facts are undisputed unless otherwise indicated. The Court will address additional facts below as they become relevant to the Court's analysis.

A. The Policies

This case involves monthly deduction rate (“MDR”) and cost of insurance (“COI”) rate increases on universal life (“UL”) insurance policies. Plaintiffs assert one claim for breach of contract, arguing under various theories that the way defendant raised the COI and MDR rates in 2022 and 2023 violated the terms of insurance policies. Plaintiffs currently are or were owners of the UL policies at issue here (collectively, the “Policies”).

1. The Blackoak Policy

In 1997, Transamerica Occidental Life Insurance Company (“TOLIC”)² issued policy number 60019286 (the “Blackoak Policy”) to Gary Schwander. The Blackoak Policy is a TransUltra 115 universal life insurance policy, which is also referred to as a TransUltra 1997. The Blackoak Policy was issued to Gary Schwander in California. (Doc. 143-3, at 71). The Blackoak Policy is currently owned by plaintiff Blackoak Life Limited, as GP for Blackoak Investors LP (“Blackoak”).

In a provision within the “General Provisions” section, the Blackoak Policy states:

No Dividends are Payable -- This is nonparticipating insurance. It does not participate in our profits or surplus. We do not distribute past surplus or recover past losses by changing the monthly deduction rates.3

(Doc. 151-1, at ¶ 45; 143-3, at 52).

2. PHT King Policy

In 1985, LIIC issued policy number 011020535 (the “PHT King Policy”) to Russell King. The PHT King Policy is a Uni-VIP HUB universal life insurance policy. The Uni-VIP HUB product was first issued in 1985 by LIICA. The PHT King Policy was issued to Russell King in Laramie, Wyoming. (Doc. 143-3, at 96). The PHT King Policy is currently owned by plaintiff PHT Holding II, LLC (“PHT”).

In a section titled “Cost of Insurance,” the PHT King Policy states:

At the beginning of each month on the Monthly Date, the Cost of Insurance is calculated based on the difference between the Death Benefit divided by 1.003274 and the Policy Value updated with interest to the next monthly date before applying the Monthly Deduction. The Cost of Insurance Rate is Based on the Insured's:

• Attained age, and

• Premium class shown on page 3.[4]

(Doc. 151-1, at 14; 143-3, at 82). The same section also provides:

The Monthly Guaranteed Cost of Insurance Rates are shown in the Insured's Guaranteed Cost of Insurance Table on page 9. We may use Cost of Insurance Rates lower than the guaranteed rates but will never charge rates in excess of the Guaranteed Cost of Insurance Rates. Any change in the Cost of Insurance Rates will be applied uniformly to all members of the same premium class.[5]

(Doc. 151-1, at 13; 143-3, at 82).

3. PHT Roberts Policy

In 1997, LIIC issued policy number 012168036 (the “PHT Roberts Policy”) to L.A. Roberts. The PHT Roberts Policy is an Ultimate Protector universal life insurance product. The Ultimate Protector product was first issued in 1996 by LIIC. The PHT Roberts Policy was issued in Little Rock, Arkansas. (Doc. 143-3, at 119). The PHT Roberts Policy is currently owned by PHT.

The PHT Roberts Policy contains a nearly identical provision to the Uniformity Provision found in the PHT King Policy. It states:

The Monthly Guaranteed Cost of Insurance Rates are shown in the insured's Guaranteed Cost of Insurance Table on pages 10 and 10A. We may use Cost of Insurance Rates lower than the guaranteed rates but will never charge rates in excess of the Guaranteed Cost of Insurance Rates. Any change in the Cost of Insurance Rates will be applied uniformly to all members of the same premium class.

(Doc. 151-1, at 15; 143-3, at 108).

4. PHT Jackson Policy

In 2007, LIIC issued policy number 013384333 (the “PHT Jackson Policy”) to investor Life Partners, Inc., insuring the life of Robert Jackson. Defendant asserts that the PHT Jackson Policy is a Lifetime Protector II universal life insurance product, but plaintiffs assert it is a Freedom Protector II policy. (Doc. 151-1, at 4–5). The Lifetime Protector II product was first issued by LIIC in 2002. The PHT Policy was issued in Waco, Texas. (Doc. 143-3, at 159). The PHT Jackson Policy is currently owned by PHT.

Like the PHT Roberts and PHT King Policies, the PHT Jackson Policy has a nearly identical Uniformity Provision that states:

The Policy Value at the beginning of each month is prior to the Monthly Deduction. The Monthly Guaranteed Maximum Cost of Insurance Rates are shown in the Insured's Guaranteed Maximum Cost of Insurance Table on pages 13 and 13A. We may use Cost of Insurance Rates lower than the guaranteed rates but will never charge rates in excess of the Guaranteed Maximum Cost of Insurance Rates. Any changes in the Cost of Insurance Rates will be applied uniformly to all members of the same premium class.

(Doc. 143-3, at 137).

5. Handorf Policy

In 2003, LIIC issued policy number 12930352 (the “Handorf Policy”) to Lawrence Handorf. Defendant asserts that the Handorf Policy is a Lifetime Protector II universal life insurance product, but plaintiffs assert it is a Freedom Protector II policy. (Id., at 5). The Handorf Policy was issued in Cincinnati, Ohio. (Doc. 143-3, at 190). Lawrence Handorf surrendered his policy in November 2022 and the Handorf Policy is no longer in force.

The Handorf Policy has a Uniformity Provision under the Cost of Insurance section that is nearly identical to the PHT Policies' Uniformity Provision. It states:

The Monthly Guaranteed Maximum Cost of Insurance Rates are shown in the Insured's Guaranteed Maximum Cost of Insurance Table on pages 13 and 13A. We may use Cost of Insurance Rates lower than the guaranteed rates but will never charge rates in excess of the Guaranteed Maximum Cost of Insurance Rates. Any change in the Cost of Insurance Rates will be applied uniformly to all members of the same premium class.

(Doc. 143-3, at 173).

B. Defendant Raises COI

All five of the Policies are flexible premium adjustable UL insurance policies. The parties have minor disagreements about what it means to be a flexible premium adjustable policy, with plaintiffs arguing the terms “flexible” and “adjustable” can have a more encompassing definition than defendant suggests. (Doc. 151-1, at 6–7). At a minimum, the parties appear to agree that “flexible” means a policy can vary the amount and timing of premiums, and “adjustable” means the policy allows the insurer to adjust the insurance rates used to calculate the monthly insurance charges and the interest rate credited to the policy value. (Id.). The insurance rates are called either the MDRs or the COI rates, depending on the policy. The Policies contain restrictions on how COI rates and MDRs can be raised or changed.

In August 2020, defendant hired an actuarial consultant, Milliman, Inc. (“Milliman”) to evaluate the performance of several of defendant's universal life products. The parties have significant disagreements about how Milliman approached and completed the performance evaluations, which largely serves as the basis of this lawsuit. The parties agree, however, that after Milliman completed the evaluations, defendant approved Milliman's adjustment factors and in 2022 and 2023 implemented rate increases that affected plaintiffs' Policies (the “2022/23 Rate Increase”). To implement the 2022/23 Rate Increase, defendant created new MDR and COI rate tables by applying the adjustment factor calculated by Milliman to the products grouped within the group's MDR and COI rate tables. The 2022/23 Rate Increase is the subject of this lawsuit and the parties have strong disagreements about whether the 2022/23 Rate Increase was permissible under the Policies.

C. Complaint

Plaintiffs' complaint alleges a single claim for breach of contract based on defendant's alleged failure to comply with the Policies' terms when it raised rates. Plaintiffs' breach of contract claim involves several different theories of how defendant breached the Policies. Plaintiffs have narrowed their remaining theories throughout the course of discovery, as discussed below.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The party moving for summary judgment bears “the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record which show a lack of a genuine issue.” Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Once the moving party has met this burden, the nonmoving party must go beyond the pleadings and by depositions, affidavits, or other evidence designate specific facts showing that there is a genuine issue for trial. See Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th Cir. 2005).

A fact is “material” if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “An issue of material fact is genuine if it has a real basis in the record,” Hartnagel, 953 F.2d at 395 (citation omitted), or “when ‘a reasonable jury could return a verdict for the nonmoving party’ on the question,” Woods v. DaimlerChrysler Corp., 409 F.3d 984, 990 (8th Cir. 2005) (quoting Anderson, 477 U.S. at 248)). In contrast, when “the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (internal quotation marks omitted). Summary judgment must therefore be granted against “a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322. “In such a situation, there can be ‘no genuine issue as to any material fact,’ since a complete failure of proof concerning an essential element of [a] party's case necessarily renders all other facts immaterial.” Id. at 322–23.

III. DISCUSSION

There are several issues the Court must decide in reviewing defendant's motion for partial summary judgment. The Court will first review the parties' positions on the breach of contract theories still at issue in this case and relevant to the partial summary judgment motion. This will help narrow the discussion and streamline the arguments. The Court will then analyze choice of law issues. Last, the Court will analyze the applicable Policy provisions in connection with plaintiffs' breach of contract theories and determine whether and to what extent partial summary judgment is appropriate.

A. Remaining Breach of Contract Theories

Plaintiffs' complaint asserts a single breach of contract claim. Plaintiffs allege several different theories in support of their breach of contract claim that involve four policy provisions that appear in different combinations across the five Policies at issue here. Plaintiffs did not respond to defendant's motion for partial summary judgment on several of these theories. At oral argument, plaintiffs clarified that, while they were not dropping their breach of contract claim, they were trimming their various theories to fit with what they had uncovered during discovery. Thus, plaintiffs' breach of contract claim is still intact, but has been narrowed down and is hereby limited to the following theories:

• Breach of the Mortality Factors Provision in the PHT King Policy;

• Breach of the Past Losses Provision in the Blackoak Policy;

• Breach of the Uniformity Provision in the PHT Policies and the Handorf Policy.

• Breach of Cost Factor Provision in the Blackoak Policy.

The Court will address each of these theories in turn, except for the plaintiffs' theory pertaining to the Cost Factor Provision because defendant has not moved for summary judgment on that theory here.

B. Choice of Law

The parties generally agree on the choice of law analysis. (Docs. 143-1, at 15–16; 151, at 15).

“[T]he law applicable to a diversity case does not change upon a transfer [under Title 28, United States Code, Section 1404(a)] initiated by a defendant.” Ferens v. John Deere Co., 494 U.S. 516, 523 (1990). Here, the case was transferred from the Central District of California under Section 1404(a), so this Court must apply California's choice of law rules. Under California law, “[a] contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.” Cal. Civ. Code § 1646. When an insurance contract does not indicate a place of performance, California courts typically use the place where the insured accepted the policy as “the place where it was made.” See, e.g., Evanston Ins. Co. v. On Point Events LP, Case No. CV 09-705-VBF(CTx), 2009 WL 10674304, at *3 (C.D. Cal. Sept. 22, 2009) (“As the policy does not indicate a place of performance and the policy was accepted by Defendant in Texas, Texas law governs Plaintiff's third claim for relief under [Section] 1646.”); Secondary Life Three LLC v. Transamerica Life Ins. Co., No. 21-cv-20-MAR, 2021 WL 5827105, at *5–6 (N.D. Iowa Dec. 8, 2021) (applying California choice of law rules to find Texas law applied when the insurance policy did not contain a choice of law or place of performance provision and the insureds lived in Texas when the policy was delivered and accepted by the insured).

Here, the insureds accepted the Policies in California, Ohio, Arkansas, Texas, and Wyoming, respectively. There are no material conflicts of law concerning the breach of contract elements in these states. There are some differences in contract interpretation, however, which the Court will address below as they apply to the individual policies.

C. Merits Analysis

Defendant filed its motion for partial summary judgment primarily based on interpretative issues of the relevant Policy provisions. Defendant argues the Court should adopt its interpretation of the relevant provisions and that there is no evidence of any violations when so interpreted. The Court will discuss each provision on which defendant moves for summary judgment in turn.

1. Mortality Factors Breach Theory (PHT King Policy)

Defendant moves for summary judgment on plaintiffs' breach of contract claim as it relates to plaintiffs' Mortality Factors Provision theory. (Doc. 143-1, at 17–22). Plaintiffs concede they are only pursuing their breach of contract claim relating to mortality factors under the PHT King Policy. (Doc. 151, at 9, 16 n.8). Plaintiffs argue that defendant breached this provision by considering factors other than mortality factors when it raised the COI rates of the PHT King Policy.

The PHT King Policy was issued in Wyoming. Under Wyoming law, “courts interpret insurance policies like other contracts but give the language the plain meaning a reasonable insured would understand it to mean.” N. Fork Land & Cattle, LLLP v. First Am. Title Ins. Co., 362 P.3d 341, 346 (Wyo. 2015). “If the language is unambiguous, [the] examination is confined to the ‘four corners’ of an integrated contract ․” Id. (quoting Doctors' Co. v. Ins. Corp. of Am., 864 P.2d 1018, 1023–24 (Wyo. 1993)). An insurance policy is ambiguous if it is capable of more than one reasonable interpretation. Id. “Because insurance policies represent contracts of adhesion where the insured has little or no bargaining power to vary the terms, if the language is ambiguous, the policy is strictly construed against the insurer.” Id. (quoting Doctors' Co., 864 P.2d at 1023–24).

The relevant portion of the PHT King Policy is in the “Cost of Insurance” section, described above as the “Mortality Factors Provision,” which states:

At the beginning of each month on the Monthly Date, the Cost of Insurance is calculated based on the difference between the Death Benefit divided by 1.003274 and the Policy Value updated with interest to the next monthly date before applying the Monthly Deduction. The Cost of Insurance Rate is based on the Insured's:

• Attained age, and

• Premium class shown on page 3.

(Doc. 151-1, at 14–15; 143-3, at 82). The second sentence of the provision is of particular importance, and the “attained age” and “premium class” are the mortality factors.

Defendant argues plaintiffs' Mortality Factors Provision breach theory conflates (A) changes to the MDR and COI rate tables, with (B) the process of selecting the applicable MDR and COI rate table for a specific insured. (Doc. 143-1, at 19). According to defendant, the PHT King Policy has a separate provision that explains the process for changing existing COI rate tables (i.e., the “Uniformity Provision”), and that provision does not have a restriction that defendant may only consider the mortality factors in changing rates. (Id.). The only restriction on changing COI rate tables is that the rates cannot exceed the guaranteed maximum cost of insurance rates shown in the tables. (Id., at 20). According to defendant, the factors in the Mortality Factors Provision only explain how to determine which COI rate table to use. (Id., at 21). That is, in selecting the correct COI rate table, the insurer can only consider the insured's attained age and premium class. (Id.). According to defendant, there is no evidence that defendant used anything other than the insured's age and premium class in determining which COI table to use. (Id., at 22).

Plaintiffs respond that the Mortality Factors Provision unambiguously states that COI rates can only be based on the mortality factors enumerated in the provision: age and premium class. (Doc. 151, at 17). Further, the plain text of the Mortality Factors Provision says nothing about the COI rate tables, and no reasonable reader could understand the provision to be referencing the COI rate tables. (Id., at 20). According to plaintiff, binding precedent affirms this interpretation and requires the same finding from the Court. (Id., at 17–18). Last, plaintiffs argue they have evidence that the 2022/23 Rate Increase was based on non-mortality factors, including future expenses and interest, which precludes summary judgment. (Id., at 18–19).

The Eighth Circuit Court of Appeals has addressed similar, but not identical, life insurance policy language on at least two recent occasions. In Vogt v. State Farm Life Ins. Co., 963 F.3d 753 (8th Cir. 2020), the Eighth Circuit analyzed language in a life insurance policy provision relating to monthly cost of insurance rates. The relevant language stated that monthly cost of insurance rates “for each policy year are based on the Insured's age on the policy anniversary, sex, and applicable rate class.” Id. at 761 (emphasis omitted). The court referred to the insured's age, sex, and applicable rate class as “mortality factors” because they relate to the insured's morality risk. Id. Like here, the underlying question before the court was whether, under the policy's language, the insurer could consider factors other than the mortality factors in setting the COI rate.

The court primarily focused its analysis on the plain meaning of the phrase “based on.” Id. at 763–64. The court found that “based on” was at least ambiguous because a lay person purchasing a life insurance policy would not read it and understand “that where the policy states that the COI fees will be calculated ‘based on’ listed mortality factors that the insurer would also be free to incorporate other, unlisted factors into this calculation.” Id. at 763–64. The court also acknowledged that other courts had come to different conclusions in similar circumstances, but this only provided additional support for its finding that “based on” is an ambiguous phrase. Id. at 764. The court concluded that because the phrase “based on” was ambiguous, it had to be construed against the insurer under applicable state law, and the monthly cost of insurance rate setting was therefore limited to the enumerated mortality factors. Id.

More recently, in Meek v. Kansas City Life Ins. Co., 126 F.4th 577 (8th Cir. 2025), the Eighth Circuit again analyzed similar mortality factor language, but primarily focused its analysis on the canons of contract construction to reach a similar conclusion the court reached in Vogt. The cost of insurance provision analyzed in Meek stated “ ‘[t]he cost of insurance ․ is based on the insured's sex, age[,] and risk class’ and ‘[Kansas City Life's] expectations as to future mortality experience.’ ” Id. at 586 (alterations in original). The Court first applied the canon of expressio unius est exclusio alterius, meaning “the expression of one thing is the exclusion of the other,” to find that because the provision listed specific factors, it intended not to include unenumerated factors. Id. The court then found that even if additional factors could be considered, the ejusdem generis canon would limit the additional factors to “things of the same kind or within the same classification” as those listed. Id. (internal quotation marks omitted). The court then concluded that to the extent there was any ambiguity in the provision, it had to be resolved against the insurer under the contra preferentem canon. Id. at 587–88. Thus, like in Vogt, the COI rate setting was limited to the enumerated mortality factors. Id. at 589.

Here, like in Vogt and Meek, the mortality factor provision states, “The Cost of Insurance Rate is based on the Insured's” attained age and premium class. The “based on” language here is at least ambiguous. More likely, however, it means the COI rate can only consider the two specifically enumerated factors. Many other courts have held that the phrase “based on” signifies an exhaustive list of factors. See Vogt v. State Farm Life Ins. Co., No. 2:16-cv-04170-NKL, 2018 WL 1747336, at *4 (W.D. Mo. Apr. 10, 2018) (collecting cases). There are no additional words or phrases that qualify “based on” to give it an expansive reading that goes beyond the enumerated mortality factors. An ordinary person would understand the inclusion of two specified items to be an exhaustive list of factors, with no unlisted factors to be considered as well. Vogt, 963 F.3d at 763–64.

This interpretation is also supported by the canons of construction. First, expressio unius est exclusio alterius, or “the expression of one thing is the exclusion of the other,” means that by including a list of factors, any factor that is not specifically listed is excluded. See Meek, 126 F.4th at 586. Here, defendant listed two specific factors— attained age and premium class—and in doing so, excluded any factors it did not list. Second, even if other factors are considered, under the ejusdem generis canon, the additional factors have to be “things of the same kind or within the same classification” as those listed. Id. Here, that means other factors can relate only to mortality. Plaintiffs have provided evidence that defendant based the COI increases on future expenses and interest, neither of which relate to mortality. (Doc. 151, at 19 n.13). Last, and significantly, under the contra perferentem canon and Wyoming law, ambiguities are resolved against the drafter. Meek, 126 F.4th at 587; N. Fork Land & Cattle, 362 P.3d at 346.

Thus, the Court concludes plaintiffs' interpretation of the Mortality Factors Provision is reasonable and defendant's interpretation, at best, shows the provision is ambiguous. Wyoming law requires the Court to strictly construe ambiguity against defendant and adopt the interpretation favorable to plaintiffs, which here limits defendant from considering anything other than the enumerated mortality factors.

Defendant makes several other arguments in support of its interpretation of the Mortality Factors Provision, none of which prevail. First, as mentioned above, defendant argues the mortality factors only relate to how to determine which rate tables to use, and the rate tables can be adjusted based on any factors so long as they do not exceed the maximum allowed rate. (Doc. 143-1, at 21–22). For this interpretation to make sense to a lay policyholder, the provision would have to convey that there are two distinct processes at issue: the actual rate setting and the selection of the correct rate table. The Mortality Factors Provision does not clearly separate these two processes. See Page v. State Farm Life Ins. Co., SA-20-CV-00617-FB, 2022 WL 718789, at *7 (W.D. Tex. Mar. 10, 2022) (rejecting similar argument on similar grounds). There is no language that suggests the mortality factors are only used to pick a table, and without such language, no layperson should be expected to understand as much.

In Bally v. State Farm Life Ins. Co., 536 F. Supp. 3d 495 (N.D. Cal. 2021), the court accepted defendant's interpretation of the Mortality Factors Provision in a case that involved similar policy language. That is, it found the mortality factors at issue there only pointed the policyholder to a rate chart that was organized by mortality factors, but the mortality factors were “not a promise to policyholders about how [the insurer] will conduct its underlying rate-making process.” Id. at 507. In Bally, however, the provision said the COI rates “can be adjusted for projected changes in mortality.” Id. (emphasis added). Here, however, the language says the COI rate is based on the mortality factors. “Can” is permissive and implies that the mortality factors may be used, along with other factors. “Is,” however, is mandatory and implies an exhaustive list that must be considered. Thus, there is at least one key difference in the language discussed in Bally such that the Court is not persuaded by the reasoning in Bally here.

Last, defendant argues there is already another provision, the Uniformity Provision, that covers how rate increases are determined, and the only restriction in that provision is that increases cannot exceed the maximum cost of insurance rates determined when the products were created. According to defendant, this shows there are two distinct processes: setting the rates and selecting the rates to use. (Doc. 143-1, at 19). In Meek, the court found the mortality factors provision in the policy at issue there was consistent with that policy's uniformity provision, which “simply clarifies how to implement changes to the cost of insurance: on a ‘uniform basis.’ ” Meek, 126 F.4th at 577 (emphasis in original). In other words, the mortality factors and uniformity provision supplemented each other by explaining how to determine rates and how to implement the rates. The Court agrees. The Uniformity Provision does not make the Mortality Factors redundant. Instead, a reasonable reading of the provisions shows the two provisions supplement each other.

Having interpreted the Mortality Factors Provision in a way that limits defendant from considering anything other than the enumerated mortality factors, the Court also finds plaintiffs have provided evidence that defendant considered factors other than those mortality factors. For example, plaintiffs' expert, Howard Zail (“Zail”), provided a report in which he concluded “mortality was neither the exclusive basis for changing COI rates nor even the main ingredient in the rate change.” (Doc. 151-3, at 146). This creates a genuine issue of material fact. Accordingly, defendant is not entitled to summary judgment with respect to plaintiffs' breach of contract claim as it relates to plaintiffs' Mortality Factors Provision theory. Because plaintiffs did not file a cross-motion for summary judgment, the Court will do no more than deny defendant's motion for summary judgment as to plaintiffs' contract claims.

2. Past Losses Breach Theory (Blackoak Policy)

Defendant moves for summary judgment on plaintiffs' Past Losses theory. (Doc. 143-1, at 22–26). Plaintiffs concede they are only pursuing their breach of contract claim relating to past losses under the Blackoak Policy. See (Doc. 151, at 9, 23 n.16). Plaintiffs allege that defendant breached the Blackoak Policy when it recouped past losses on the raised COI rates.

The Blackoak Policy was issued in California. Under California law, the “goal in construing insurance contracts, as with contracts generally, is to give effect to the parties' mutual intentions.” Minkler v. Safeco Ins. Co. of Am., 232 P.3d 612, 616 (Cal. 2010) (internal quotation marks omitted). “If the terms are ambiguous [i.e., susceptible of more than one reasonable interpretation], we interpret them to protect the objectively reasonable expectations of the insured.” Id. (alteration in original) (internal quotation marks omitted). “A court determining whether a contract is ambiguous must first consider extrinsic evidence offered to prove the parties' mutual intention.” Fremont Indem. Co. v. Fremont Gen. Corp., 55 Cal Rptr. 3d 621, 633 (Cal. Ct. App. 2007). “A court cannot determine based on only the four corners of a document, without provisionally considering any extrinsic evidence offered by the parties, that the meaning of the document is clear and unambiguous.” Id. “Instead, a court must provisionally consider extrinsic evidence offered by the parties.” Id. at 634. If these rules do not resolve a claimed ambiguity, then courts “resort to the rule that ambiguities are to be resolved against the insurer.” Minkler, 232 P.3d at 617.

The Blackoak Policy “Past Losses Provision” states:

No Dividends are Payable --This is nonparticipating insurance. It does not participate in our profits or surplus. We do not distribute past surplus or recover past losses by changing the monthly deduction rates.

(Doc. 151-1, at 13; 143-3, at 52).

Defendant argues the undisputed evidence shows it did not recover past losses and the 2022/23 Rate Increase was purely prospective under a correct reading of the Past Losses Provision. (Doc. 143-1, at 23). According to defendant, the provision's heading along with the provision's first two sentences mean the Blackoak Policy does not pay dividends to policyholders based on defendant's profits during a given year. (Id., at 23–24). At oral argument, defendant explained that some insurance policies pay dividends or offer rate refunds to policyholders based on the insurer's profits, so the Blackoak Past Losses Provision only states that it is not the type of policy that shares dividends. Defendant then argues the third sentence only means a rate deduction will not be used as a proxy for dividends and similarly, defendant will not raise rates because it had a bad year. (Id., at 24). According to defendant, there is no evidence that an identifiable past loss was passed through to Blackoak via the 2022/23 Rate Increase. (Id., at 24). Defendant also argues plaintiffs' reading of the Past Losses Provision requires impermissible technical, actuarial opinions that equate future profits with prior losses. (Id., at 25–26). Last, defendant argues the issues plaintiffs raise related to the Past Losses Provision are covered in other provisions of the Blackoak Policy. (Id., at 25–26).

Plaintiffs argue defendant's interpretation of the Past Losses Provision is incorrect. According to plaintiffs, the Past Losses Provision implements an actuarial principle that an insurer can only raise rates to cover previously unanticipated future losses, not past losses. (Doc. 151, at 23). Plaintiffs contend their actuarial expert and defendant's actuaries and experts alike explain that an insurer recovers a past loss if the future expected profitability after a change to a nonguaranteed element exceeds the future expected profitability based on the original pricing assumptions. (Id.). Thus, defendant is incorrect to say there is only a recovery of a past loss if the insurer specifically identifies a particular prior loss and expressly states that it is raising rates to recover that loss. (Id., at 24). Plaintiffs argue their interpretation of the Past Losses Provision, which is supported by caselaw, prevents summary judgment in favor of defendant on the Past Losses theory because there is evidence that defendant recovered past losses. (Id., at 26).

Defendant asks the Court to find it did not violate the Past Losses Provision because the COI rate increase at issue was forward looking and did not recoup past losses. The Court cannot do so for two reasons. First, defendant's interpretation of the Past Losses Provision is incorrect. Second, there is a factual dispute about whether the 2022/23 Rate Increase recovered past losses.

Defendant's interpretation that any profit labeled as forward-looking does not violate the Past Losses Provision is incorrect. The Past Losses Provision's language is, at first glance, relatively clear. The language plainly states the policy is a nonparticipation policy, a policyholder will not receive dividends or payment if defendant has a surplus, a policyholder will not receive a share in profits in the form of a reduced rate, and conversely, a policyholder will not pay a higher rate because defendant experienced losses. From the standpoint of an ordinary insured, this means defendant cannot change the cost of insurance based on profits or losses. Indeed, defendant appears to concede rates cannot be raised to compensate for past losses. (Doc. 143-1, at 23).

The Past Losses Provision is not so clear, however, on how to define the recovery of a past loss. For starters, the Past Losses Provision does not state how to measure the recovery of past losses. California law requires the Court to look at extrinsic evidence to determine whether there is an ambiguity. See Fremont Indem. Co., 55 Cal Rptr. 3d at 633. Here, plaintiffs have provided extrinsic evidence that shows there is ambiguity about how recovery of a prior loss is defined. For example, plaintiffs' expert, Zail, explained that an insurer recovers a past loss if the future expected profitability after a change to a non-guaranteed element exceeds the future expected profitability based on original pricing parameters and assumptions. (Doc. 151-3, at 63). Defendant's former CFO of Individual Life, David Hopewell, testified at his deposition that is the standard he would use for defining prior loss. (Doc. 151-3, at 533). The extrinsic evidence supports plaintiffs' definition of what it means to recover a prior loss, but at a minimum it shows there is ambiguity in the Past Losses Provision.

Further, defendant's interpretation of the Past Losses Provision is unreasonably broad. Even though defendant concedes it is not allowed to recover past losses, it also argues there are no restrictions on raising rates to increase future profitability. Under this interpretation, defendant could raise rates as much as it wanted (so long as it did not exceed the maximum allowed rates) and label the increase as future profit. For example, under defendant's interpretation, if plaintiffs suffered a loss of $100 one year, raised rates to increase profit by $100 the next year, and labeled the $100 as future profit, then there would be no violation. In this scenario, maybe defendant was increasing future profit, but it certainly appears they were recouping what was lost the previous year. Defendant's version does not include any limitation on how it can classify profit increases, and they could theoretically label any raise in rates as future profit when the reality is different. The Court finds this interpretation overly broad.

Thus, the Court concludes plaintiffs' interpretation of the Past Losses Provision is reasonable and defendant's interpretation, at best, shows the provision is ambiguous. California law requires the Court to strictly construe ambiguity against defendant and adopt the interpretation favorable to plaintiffs, which here includes plaintiffs' definition of calculation prior loss.

Second, plaintiffs have provided evidence that defendant violated the Past Losses Provision that is sufficient to preclude summary judgment. Plaintiffs' expert, Zail, opined that defendant violated the Past Losses Provision under plaintiffs' definition of a prior loss. Indeed, Zail thoroughly explained his methodology and explained his conclusion that defendant recovered past losses when it raised rates on the Blackoak Policy in at least six ways. (Doc. 151-3, at 75–130). This alone shows there is a factual dispute about whether defendant violated the Past Losses Provision.

The Court cannot grant summary judgment even if defendant's interpretation is correct because plaintiffs provide evidence that defendant made up past losses under defendant's interpretation. Specifically, Zail's report raises questions about whether defendant and Milliman used altered or fabricated pricing assumptions that make it appear as though additional profits from COI increases are not related to past losses, when in fact they are. (Doc. 151, at 28 n.28). The Court cannot and will not resolve this factual dispute at this stage.

Thus, defendant's motion for summary judgment on plaintiffs' breach of contract claim as it relates to the Past Losses Provision is denied.

3. Uniformity Breach Theory (All PHT Policies & Handorf Policy)

Defendant next moves for summary judgment on plaintiffs' breach of contract claim as it relates to plaintiffs' Uniformity Provision theory. (Doc. 143-1, at 26). Plaintiffs are pursuing their breach of contract claim as it relates to the Uniformity Provision in the PHT King, PHT Jackson, PHT Roberts, and Handorf Policies. (Doc. 151, at 9, 30 n. 35).

The relevant polices were issued in Wyoming, Arkansas, Texas, and Ohio, respectively. The laws of breach of contract and contract interpretation are substantially the same in each of these states. Specifically, Wyoming, Arkansas, and Ohio are “four corner” states that determine whether a contract is ambiguous by only looking within the “four corners” of the contract. See N. Fork Land & Cattle, 362 P.3d at 346; McGrew v. Farm Bureau Mut. Ins. Co. of Ark., 268 S.W.3d 890, 895 (Ark. 2007); Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256, 1261 (Ohio 2003). In each of these states, if ambiguity is found, extrinsic evidence is considered, along with the rule that an ambiguous insurance policy should be interpreted against the insurer. Texas law is different in that it allows courts to consider objective evidence of the surrounding circumstances of the agreement to determine whether there is an ambiguity. Great Am. Ins. Co. v. Primo, 512 S.W.3d 890, 894 (Tex. 2017). Texas, however, also construes ambiguities against the insurer. Cicciarella v. Amica Mut. Ins. Co., 66 F.3d 764, 768 (5th Cir. 1995).

The four policies at issue under plaintiffs' Uniformity Provision theory have a nearly identical “Uniformity Provision” under their respective “Cost of Insurance” sections that states, in essence, the following:

The Monthly Guaranteed Cost of Insurance Rates are shown in the Insured's Guaranteed Cost of Insurance Table on pages 10 and 10A. We may use Cost of Insurance Rates lower than the guaranteed rates but will never charge rates in excess of the Guaranteed Cost of Insurance Rates. Any change in the Cost of Insurance Rates will be applied uniformly to all members of the same premium class.

(Doc. 151-1, at ¶ 51; 143-3, at 108).⁶ The last sentence in the provision is of particular importance, as it is the focus of most of the parties' arguments.

Defendant argues that for several reasons, the Uniformity Provision can only be reasonably read to mean COI rates will be applied uniformly to all members of the same premium class within a specific product. First, applying COI rate increases for premium classes across products results in impermissible unfair discrimination because doing so would apply the redetermined rates for an insured of one product to an entirely different insured with a different product. Increasing rates only for members of a given premium class, in contrast, is legally permissible “fair discrimination.” (Doc. 143-1, at 30). Second, because insureds applied for specific products and specific amounts of coverage, the Uniformity Provision presumes existing, defined and priced premium classes with specific COI tables for the applied for product. Any references to premium class is thus tied to the pre-existing product-specific tables that apply to the product's premium class. (Id., at 30–31). Last, defendant contends that plaintiffs' interpretation is unworkable because it requires cross-product rate changes to other products that do not have the Uniformity Provision, and purchasers of those products had no expectation that their rates would change based on changes to an unrelated product. (Id., at 31). Defendant argues that when properly interpreted, there is no evidence that defendant violated the Uniformity Provision. (Id., at 29).

Plaintiffs contend defendant's interpretation of the Uniformity Provision is incorrect. (Doc. 151, at 31). Plaintiffs first argue the Uniformity Provision in the relevant policies does not contain any language that limits the scope of the provisions to a specific product and to read it otherwise requires adding words where they do not exist. (Id., at 31–32). According to plaintiffs, some of defendant's other products, in contrast to the Policies here, contain express language that limits uniformity provisions to premium classes within a specific product, so defendant knew how to limit the scope of a uniformity provision, and indeed elsewhere has actually done so, but defendant declined to do so here. Plaintiffs also disregard defendant's “fair discrimination” argument because it directly contradicts the definition of “uniformly,” which requires sameness and no variation, and because fair discrimination laws are not relevant to interpreting the Uniformity Provision. (Id., at 33, 36). Second, plaintiffs argue that if there is ambiguity about the correct interpretation of the Uniformity Provision, summary judgment should be denied to allow the fact-finder to weigh the competing evidence to resolve the ambiguity. (Id., at 34). Last, plaintiffs argue the evidence, including the testimony of defendant's witnesses, shows the “same product” interpretation is incorrect and that COI rates were not raised consistently across inter-product premium classes. (Id., at 34–35).

The Court finds the Uniformity Provision is ambiguous. The Court looks to the policy language as a starting point. The relevant language states, “Any change in the Cost of Insurance Rates will be applied uniformly to all members of the same premium class.” There is no definition of “premium class” in the provision. There is also no language that describes or qualifies “premium class.” As relevant to defendant's argument, there is certainly no language that says it is restricted to the premium class for that specific product. Further, there is nothing else in the provision that provides any indication that “premium class” is something that is product-specific. Simply put, there is nothing in the Uniformity Provision that would cause a reasonable insured to understand “premium class” is either limited to, or not limited to, their specific product.

The court in Advance Trust & Life Escrow Services, LTA v. Security Life of Denver Ins. Co., Civil Action No. 1:18-cv-01897-DDD-NYW, 2021 WL 62339 (D. Colo. Jan. 6, 2021), considered similar policy language that stated “any change in [cost-of-insurance] rates will apply to all individuals in the same premium class and whose policies have been in effect for the same length of time.” Id. at *6 (alteration in original). The court found the term “premium class” to be ambiguous. Specifically, the court found, “The question isn't so much what ‘premium class’ means, but to which policies and products does the uniformity requirement apply. The proper question is one of scope: what group of policies must comply with the uniformity requirement? The policies do not answer that question and are ambiguous as a result.” Id. at *7.

Though it is not binding on the Court, the Court finds the reasoning in Security Life of Denver persuasive. As in that case, here there is nothing in the Uniformity Provision that defines the scope of “premium class” or indicates to which products the uniformity requirements apply. Indeed, the language here is even more ambiguous than in Security Life of Denver, where the policy there at least limited “premium class” to the premium classes “whose polices have been in effect for the same length of time.” Here, there is nothing other than the phrase “premium class.”

Thus, the Court concludes the Uniformity Provision is ambiguous. Wyoming, Arkansas, Texas, and Ohio law requires the Court to strictly construe ambiguous provisions against defendant and adopt the interpretation favorable to plaintiffs, which here includes a definition of “premium class” that extends across products.

Defendant makes several other unavailing arguments. First, defendant argues when an insured applied for a specific product, they were put in a premium class with product-specific COI rate tables. Defendant argues the Uniformity Provision “presumes” existing, defined and priced premium classes with product-specific rate tables and any reasonable insured would understand “premium class” to include only those who also purchased the same product with the same rate tables. (Doc. 143-1, at 30). The problem with this type of argument is that it relies on the Uniformity Provision presuming something. The plain Policy language, however, does not actually say the Uniformity Provision depends on defined, product-specific rate table or product-specific premium class, even though it could have.

Next, defendant argues plaintiffs' cross-product definition for “premium class” is unreasonable because it is unworkable. The Court agrees that its application could be problematic. For example, it seems unreasonable that if the rates for a premium class within one product were raised, this automatically means the rates for a different insured who had purchased a completely different product, maybe even decades earlier, also had to be raised. It is also problematic that one product's rate increase would require a different product's rates to rise, and potentially rise above the guaranteed maximum rates. Defendant's argument, however, does not have any support in the plain Policy language. Challenges in implementing the provision do not allow the Court to rewrite the provision.

Last, defendant argues “fair discrimination” laws allow defendant to raise rates differently across products. It is possible fair discrimination laws permit defendant to do this, but defendant's own Policies do not. Indeed, the fair discrimination laws do not require an insurer to have different rate increases, it merely permits them to do so. Further, the fair discrimination laws do not explain how the Uniformity Provision's language should be interpreted. As the Court has already discussed, the language does not define the scope of “premium class,” and the fair discrimination laws do nothing to change the language.

The dispute about the scope of the ambiguous Uniformity Provision precludes summary judgment on this theory of breach. Thus, the Court denies defendant's motion for summary judgment on plaintiffs' claim of breach of contract as it relates to plaintiffs' Uniformity Provision theory.

IV. CONCLUSION

For these reasons, the Court denies defendant's motion for partial summary judgment. (Doc. 143).

IT IS SO ORDERED this 24th day of April, 2025.

FOOTNOTES

1.   Plaintiffs' motion for class certification (Doc. 142) will be addressed through a separate order.

2.   TOLIC merged with Life Investors Insurance Company of America (“LIIC”) in 2008 to become defendant Transamerica Life Insurance Company. (Doc. 151-1, at 6).

3.   This is referred to in the briefing as the “Past Loss Provision.”

4.   This provision is referred to in the briefing as the “Mortality Factors Provision.”

5.   This is referred to as the “Uniformity Provision.”

6.   The Court is using the Uniformity Provision from the PHT Roberts Policy as the example, but the parties agree all the relevant Uniformity Provisions are essentially the same.

C.J. Williams, Chief Judge United States District Court Northern District of Iowa