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Salopek v. Defendant American Life Insurance Co.

United States District Court, D. New Mexico

December 11, 2019



         On June 24, 2019, Defendant Zurich American Life Insurance Company (Defendant) filed a motion seeking judgment on the pleadings as to Counts III, IV, and V[1] of the Complaint filed by Plaintiff Marcie Salopek, Trustee for the Salopek Family Heritage Trust (Plaintiff).[2] On July 29, 2019, Plaintiff responded to Defendant's Motion, [3] and on August 23, 2019, Defendant replied.[4] The Motion is fully briefed. After considering the pleadings and the arguments of counsel, the Court will grant Defendant's Motion.


         The Complaint asserts the following uncontroverted facts:

         In southern New Mexico, the Salopek family runs one of the largest pecan farms in the southwest. At some point, the founder of the business, Tony Salopek (Tony), put the pecan farm in a trust which provides that only his male descendants could inherit and control the farm. Complaint (Doc. No. 1-1), ¶ 24. Tony's three sons, who have both sons and daughters, wanted to correct the unfairness to their daughters. Id. ¶¶ 25, 26, 27. To make their children's inheritance fairer, in 2015, the three sons created the Salopek Family Heritage Trust (SFHT), an entity from which their daughters could inherit in amounts equal to the males' inheritance in the pecan farm. Id. ¶ 28. Insurance policies funded SFHT, including two policies acquired by one of Tony's sons, Mark Salopek (Mr. Salopek). Id.

         In 2015, Mr. Salopek, age 68, had two fully vested life insurance policies with the John Hancock Life Insurance Company for 15 million dollars. Id. ¶ 31. For a reason unexplained in the pleadings, Mr. Salopek decided to get new life insurance policies. He filled out applications with other insurance carriers to replace his two vested policies with a new life insurance policy valued in the same amount. Id. In each application, he included the information that any policy issued would replace his vested John Hancock policies. Id. ¶ 35.

         On August 14, 2015, Mr. Salopek applied to Minnesota Life for life insurance. Id. ¶ 36. He used insurance agent Ahmed Hashemian (Hashemian). Id. His application included information that his father, Tony Salopek, died at 64 of cirrhosis and his mother died at 72 of pancreatic cancer. Id. ¶ 37. Mr. Salopek said he drank beer daily and, in the past, had used smokeless tobacco. Id.

         After conducting a physical examination and an evaluation of Mr. Salopek's medical records, on November 3, 2015, Minnesota Life rejected Mr. Salopek's application. Id. ¶ 38. Minnesota Life said it would reconsider the application if Mr. Salopek obtained a complete medical examination that included a prostate screening test and a colonoscopy. Id.

         The record shows that another insurance company, Ameritas, also denied Mr. Salopek's application at some time during this period. However, the record does not say when Ameritas denied Mr. Salopek's application or why. Id. ¶ 41.

         According to the pleadings, a Medical Information Bureau (MIB) records information provided by life insurance companies about rejections of applications and the reasons for the rejections. All life insurance companies may access that MIB information. Minnesota Life recorded its rejection of Mr. Salopek's application in MIB. Id. ¶ 39.

         The day after the rejection by Minnesota life, Hashemian, through his agent or employee, Luis Miguel Sisniega (Sisniega), filled out an application to Defendant for life insurance (Application). Id. ¶ 40. The Application disclosed that Mr. Salopek had been rejected for life insurance by Minnesota Life and by Ameritas. Id. ¶ 41. The Application had some inconsistencies. Id. ¶ 45. On one question in the Application, Mr. Salopek told Defendant that he was a former smoker but still used chewing tobacco occasionally, while in an answer to another question, he denied any tobacco use. Both Mr. Salopek and his wife signed the Application. See Response (Doc. No. 123-2), Exhibit 2 at 2. Mr. Salopek also signed a release allowing Defendant to obtain all of his insurance and medical information. Complaint (Doc. No. 1-1) ¶ 46. Defendant did not require Mr. Salopek to undergo a new examination or blood testing but relied on the August 14, 2015 medical examination conducted for Mr. Salopek's application with Minnesota Life. Id. ¶ 48.

         On December 28, 2015, [5] Defendant issued a life insurance policy on Mr. Salopek's life for 15 million dollars payable on his death to SFHT. Id. ¶ 49. The annual premium for this policy was $405, 915, which Mr. Salopek paid. Id. Subsequently, Mr. Salopek cancelled his policies with John Hancock. Id. ¶ 50.

         In January 2016, Mr. Salopek had severe stomach pains and went to the hospital. Id. ¶ 51. On January 15, 2016, he had exploratory surgery, which resulted in a diagnosis of metastatic colon cancer. Id. He died on August 21, 2016. Id. ¶ 52.

         The family submitted a claim to Defendant on the life insurance policy. Id. ¶ 54. Defendant interviewed Mr. Salopek's widow, Marcie Salopek, on December 20, 2016. Id. ¶ 55. The Defendant's interviewer read Ms. Salopek some information from Mr. Salopek's files and then asked for more information about Mr. Salopek. Id. ¶ 56.

         Ms. Salopek said that the medical records were incorrect that Mr. Salopek used snuff; he used chewing tobacco. At times he did not use chewing tobacco at all. Id. ¶ 58. Ms. Salopek said that during their marriage, Mr. Salopek drank beer daily. Sometimes he drank 5-6 beers a day, other times he drank 12 or more. Id. ¶ 59.

         On January 13, 2017, Defendant denied the request for payment of benefits under the life insurance policy, which was within the two-year contestability period. Id. ¶¶ 61-62. In its denial letter, Defendant named three inconsistencies in Mr. Salopek's Application:

1. An inconsistency between Mr. Salopek's saying that he used chewing tobacco and “dip now and then” and the “No” that was checked on another page denying other tobacco use.
2. Mr. Salopek's claim in his Application that he drank one or two beers a day at the time of the Application was inconsistent with representations of his previous alcohol use.
3. Mr. Salopek's failure to disclose the removal of a nonrecurrent skin cancer in July 2013, which Defendant stated should have been disclosed in response to a question about “Cancer, tumor, polyp or disorder of the skin or breast.”

         Complaint (Doc. 1-1) ¶ 62. Defendant indicated that points one and two would have made it decline the risk and did not cite the skin cancer as a reason supporting rescission. Id. ¶¶ 63, 64.

         On March 6, 2018, Plaintiff filed a Complaint in New Mexico state court against Defendant, alleging the following counts: Count I, Breach of Contract; Count II, Bad Faith Insurance Conduct; Count III, Violation of Unfair Insurance Practices Act; Count IV, Violation of Unfair Trade Practices Act; Count V, Negligence. On April 11, 2018, Defendant removed the case to federal court based on diversity of jurisdiction under 28 U.S.C. § 1332.[6] On April 11, 2018, Defendant answered the Complaint.[7]

         On July 7, 2018, Plaintiff filed a motion seeking to amend the Complaint to add an additional count of civil conspiracy and to join three additional Defendants, Ahmed Hashemian, Capital Aspects, LLC, and Luis Miguel Sisniega.[8] A second motion, filed on September 17, 2018, requested joinder of another Defendant, BGA Insurance.[9]

         On March 28, 2019, the Court denied both of Plaintiff's motions.[10] The Court concluded that Plaintiff's second motion was untimely. See Moo (Doc. No. 109) at 9. With respect to Plaintiff's first motion to amend, the Court held that it was improper because “all essential facts that would have supported Plaintiff's claim of civil conspiracy were known to Plaintiff when she filed the Complaint, ” and therefore, Plaintiff had not shown the joinder was proper. Id. at 13-14.


         At any time after the pleadings are closed, but before trial begins, a party may move for judgment on the pleadings under Federal Rule Civil Procedure (Rule) 12(c). A motion for judgment on the pleadings is evaluated under the same standard used in deciding Rule 12(b)(6) motions to dismiss. See Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1160 (10th Cir. 2000).

         A Rule 12(b)(6) motion “tests the sufficiency of the allegations within the four corners of the complaint.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994). When considering a Rule 12(b)(6) motion, the court must accept as true all well-pleaded factual allegations in the complaint, view those allegations in the light most favorable to the non-moving party, and draw all reasonable inferences in the plaintiff's favor. Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009). The allegations must “‘state a claim to relief that is plausible on its face.'” Id. (quoting Ridge at Red Hawk L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (further citation omitted). “The claim is plausible only if it contains sufficient factual allegations to allow the court to reasonably infer liability.” Moya v. Garcia, 895 F.3d 1229, 1232 (10th Cir. 2018) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The term “plausible” does not mean “likely to be true.” Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). The factual allegations must “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. A mere “formulaic recitation of the elements of a cause of action will not do.” Id. When analyzing the sufficiency of the allegation under 121(b)(6), a court may consider documents incorporated into the complaint by reference and undisputed at to authenticity. Smith, 561 F.3d at 1098.

         A federal court exercising diversity jurisdiction applies the substantive law of the forum state. Boyd Rosene & Assocs., Inc. v. Kansas Mun. Gas Agency, 123 F.3d 1351, 1352 (10th Cir. 1997). When determining whether dismissal of a cause of action is proper under 12(c) of the Federal Rules of Procedure, a federal court applies federal law. See Stickley v. State Farm Mut. Auto Ins. Co., 505 F.3d 1070, 1076 (10th Cir. 2007); see also Brokers' Choice of America, Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1099 (10th Cir. 2017) (applying federal standards to motion to dismiss).

         III. ANALYSIS

         As a preliminary matter, Plaintiff asks the Court to convert Defendant's motion from a request for judgment on the pleadings to a motion for summary judgment so the Court may consider documents extrinsic to the Complaint. She suggests three bases for doing so. First, according to Plaintiff, discovery has revealed several “new facts” that should be considered in evaluating Defendant's Motion.[11] In opposition, Defendant asserts that Plaintiff's “new facts” are not new to this Court but were facts offered in support of Plaintiff's proposed amended complaints, which the Court denied. While Plaintiff acknowledges that the Court denied her motions to amend her pleadings, she asserts that it is now proper for the Court to use her asserted new facts to fill gaps in her pleadings. She contends that the Court should do so whether the Court considers the Motion on the pleadings or on summary judgment.

         Although Plaintiff cloaks her argument as a request for the Court to convert the Motion to one for summary judgment, it is actually an invitation for the Court to reconsider its earlier ruling. The Court denied Plaintiff's motion to amend her Complaint based on its finding that Plaintiff had delayed too long in seeking her amendments. Significantly, the Court held the alleged new facts claimed in Plaintiff's motions to amend were facts either that the Plaintiff should have known or did know prior to the filing of her Complaint.[12] See Moo (Doc. No. 109) at 13. As before, none of Plaintiff's alleged new facts in this Motion are new. Consequently, Plaintiff offers no arguments previously unexamined by the Court that would substantiate reconsideration.

         Next, Plaintiff cites Rule 56(d) as a basis for converting this Motion to one for summary judgment. Rule 56 delineates the procedures parties must follow when seeking summary judgment. Under Rule 56(d), when a nonmovant cannot adequately respond to a summary judgment motion because material facts are inaccessible, the nonmovant may ask the court to defer its summary judgment ruling. Nowhere in Rule 56 does it say, nor does Plaintiff supply authority for the proposition that subsection (d) applies to a motion for judgment on the pleadings under Rule 12(c). As a summary judgment motion is not before this Court, Rule 56(d) is inapplicable.

         Alternatively, Plaintiff suggests that the Court should lower the pleading standard for this case because it was originally brought in state court, which has a lower standard. She supports this argument with the unpublished case Albuquerque Cab Co. v. Lyft, Inc., 2019 U.S. Dist. LEXIS 36800, ¶¶ 22, 23 (D. N.M. Mar. 7, 2019). Albuquerque Cab does not support the Plaintiff's argument. In Albuquerque Cab, the court did not lower the pleading standard but granted the plaintiff leave to amend a complaint based on the differences between federal and state pleading standards. Id. Here, the Court denied Plaintiff's earlier motions to amend. As previously stated, the Court will not now reassess that ruling.

         Defendant seeks judgment on the pleadings as to Count III, Violation of Unfair Insurance Practices Act; Count IV, Violation of Unfair Trade Practices Act and Count V, Negligence. All events relevant to this matter occurred in New Mexico, so New Mexico state law applies. Much of Plaintiff's allegations in all three counts rest on a premise that in New Mexico, before issuing Mr. Salopek a policy, Defendant had a legal duty to perform an underwriting investigation that would have exposed any of Mr. Salopek's potential misrepresentations. The substance of a Defendant's duty to a life insurance applicant is an essential element of Plaintiff's Count V Negligence claim. For this reason, the Court will turn first to that question.

         A. Count V, Negligence

         In Count V, Plaintiff alleges negligence. “A negligence claim requires that the plaintiff establish four elements: (1) defendant's duty to the plaintiff, (2) breach of that duty, typically based on a reasonable standard of care, (3) injury to the plaintiff, and (4) breach of duty as cause of the injury.” Zamora v. St. Vincent Hosp., 335 P.3d 1243, 1249 (N.M. 2014) (citing Herrera v. Quality Pontiac, 73 P.3d 181, 186 (N.M. 2003).

         To prove negligence, a plaintiff must first prove as a matter of law, the defendant owed plaintiff a duty. Calkins v. Cox Estates, 792 P.2d 36, 38 (N.M. 1990). “A duty is a legal obligation [by a party] to conform a certain standard of conduct to reduce the risk of harm to an individual or class of persons.” Baxter v. Noce, 752 P.2d 240, 243 (N.M. 1988). In New Mexico, “a duty exists only if ‘the obligation of the defendant [is] one to which the law will give recognition and effect.'” Herrera, 73 P.3d at 187 (internal alterations in original) (quoting Ramirez v. Armstrong, 673 P.2d 822, 825 (N.M. 1983). When considering whether a duty exists, a court should examine legal precedent, statutes, and other principles of law. Herrera, 73 P.3d at 186; see also Calkins, 792 P.2d at 39 (saying “[t]he existence of a duty is a question of policy to be determined with reference to legal precedent, statutes, and other principles comprising the law.”).

         New Mexico recognizes that an insurer owes an insured an implied contractual duty of good faith and fair dealing. Watson Truck & Supply Co. v. Males, 801 P.2d 639, 642 (N.M. 1990) (observing “[w]hether express or not, every contract imposes upon the parties a duty of good faith and fair dealing in its performance and enforcement.”) (further citation omitted). “This implied covenant is an exception to the general rule that only those obligations contained in the written agreement will be imposed upon the parties.” Ambassador Ins. Co. v. St. Paul Fire & Marine Ins. Co., 690 P.2d 1022, 1024 (N.M. 1984). But New Mexico law does not recognize an implied negligence standard in insurance contracts. See Id. (observing that because the implied covenant is an exception to the general rule “[t]o impose a negligence standard on the insurer would violate this general rule and impose a duty that is not expressly provided for in the contract of insurance.”).

         In her pleadings, Plaintiff does not allege that Defendant's duty toward Plaintiff arose from the insurance contract between them. Rather, Plaintiff asserts that Defendant's duty toward Plaintiff began before the parties' contractual relationship, when Mr. Salopek was an applicant. Plaintiff alleges that Defendant was negligent by doing or not doing the following:

a. Engaging in underwriting practices that violated its own or industry practices;
b. Upon information and belief, choosing not to review the MIBs data concerning Mr. Salopek;
c. Choosing not to have Mr. Salopek undergo an independent medical evaluation and blood testing performed by a [sic] Zurich;
d. Choosing not to have Mr. Salopek obtain a current medical evaluation from its own primary care provider, including a ...

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