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Barnes v. Security Life of Denver Insurance Co.

United States Court of Appeals, Tenth Circuit

December 23, 2019

ROBERT BARNES, Plaintiff - Appellee,
v.
SECURITY LIFE OF DENVER INSURANCE COMPANY, Defendant - Amicus Curiae. JACKSON NATIONAL LIFE INSURANCE COMPANY, Movant - Appellant.

          Appeal from the United States District Court for the District of Colorado, D.C. No. 1:18-CV-00718-WJM-SKC

          Waldemar J. Pflepsen, Jr. (Shaunda Patterson-Strachan, with him on the briefs), Drinker Biddle & Reath, LLP, Washington, DC, appearing for Appellant.

          J. Toji Calabro, Stueve Siegel Hanson, LLP, Kansas City, Missouri (Daniel C. Girard, Jordan Elias, and Elizabeth A. Kramer, Girard Sharp, LLP, San Francisco, California; Norman E. Siegel, Stueve Siegel Hanson, LLP, Kansas City, Missouri; and John J. Schirger and Matthew W. Lytle, Miller Schirger, LLC, Kansas City, Missouri, with him on the brief), appearing for Appellee.

          Kathryn A. Reilly and Chuan (Cici) Cheng, Wheeler Trigg O'Donnell LLP, Denver, Colorado; Clark C. Johnson and Michael T. Leigh, Kaplan Johnson Abate & Bird LLP, Louisville, Kentucky, for amicus curiae Security Life Insurance Company.

          Before BRISCOE, EBEL, and HARTZ, Circuit Judges.

          BRISCOE, CIRCUIT JUDGE

         Plaintiff Robert Barnes filed this putative class action against defendant Security Life of Denver Insurance Company (SLD) alleging that SLD, in the course of administering life insurance policies purchased by Barnes and other similarly-situated class members, breached its contractual duties and committed the tort of conversion by imposing certain administrative costs that were not authorized under the terms of the policies. Jackson National Life Insurance Company (Jackson) moved to intervene, asserting that, as a result of reinsurance agreements entered into by SLD, Jackson was actually the entity responsible for administering Barnes's policy and numerous other policies listed within the putative class. The district court denied Jackson's motion. Jackson now appeals.

         We have jurisdiction over Jackson's appeal pursuant to 28 U.S.C. § 1291 "[b]ecause an order denying intervention is final and subject to immediate review if it prevents the applicant from becoming a party to an action . . . ." WildEarth Guardians v. United States Forest Serv., 573 F.3d 992, 994 (10th Cir. 2009) (quotations and brackets omitted). After reviewing the parties' briefs and the record on appeal, we conclude that Jackson has established the requirements for intervention as of right, and accordingly reverse the decision of the district court and remand with directions to grant Jackson's motion to intervene.

         I

         Plaintiff Barnes is a citizen of the State of North Carolina. Defendant SLD is a corporation incorporated under the laws of the State of Colorado, with its principal place of business in Denver, Colorado.

         In 1984, Barnes, who was then 29 years of age, purchased from Southland Life Insurance Company (Southland) a "Flexible Premium Adjustable Life Insurance Policy" (the Policy), Policy Number 851502124, with an effective date of May 20, 1984, and an initial specified amount of $50, 000. Aplt. App., Vol. 1 at 13, 32. In addition to a death benefit, the Policy provides Barnes with "an investment, savings, or interest-bearing component that accumulates value over time ('the Cash Value')." Id. at 14. When Barnes receives an account statement, this component is referred to as "Accumulated Value." Id.

         The Cash Value on the date the Policy was issued was equal to the amount of the initial net premium. Thereafter, the Cash Value for any given month was, and continues to be, "calculated by: (a) adding a percentage of each monthly premium received to the prior month's Cash Value; (b) subtracting from that amount the amounts of any charges assessed and deducted by [SLD]; and (c) adding to that total one month's interest earned on the difference between the prior month's Cash Value minus the current month's charges assessed and deducted by [SLD]." Id. at 15.

         The Policy states that the insurer "may assess and deduct only those charges allowed by the Policy," and it in turn "expressly defines the specific charges that [the insurer] may assess and deduct from the Policy's Cash Value." Id. The permissible deductible costs under the Policy include "the cost of insurance for the policy month," "the sum of the monthly expense charges," and "the cost of any supplemental benefits provided by rider." Id. at 16. Under the terms of the Policy, "[t]he cost of insurance rate is based on the sex, attained age, and rate classification of the Insured." Id. at 17.

         On July 1, 2002, Southland entered into an indemnity reinsurance agreement with the Life Insurance Company of Georgia (LOG). Under the terms of that agreement, Southland ceded and transferred certain liabilities arising under a group of its life insurance policies (the Transferred Policies), including Barnes's Policy, to LOG as reinsurer. On that same date, Southland and LOG also entered into an Administrative Services Agreement covering the Transferred Policies. Together, these agreements required LOG to assume certain administrative duties on behalf of Southland, including determining the cost of insurance rates and other administrative charges. LOG also expressly assumed liability arising out of or relating to the manner in which LOG set those rates and charges.

         In 2004, Southland merged into Security Life of Denver Insurance Company (SLD). As a result of this merger, SLD became the effective and liable insurer of the Policy. But LOG continued to reinsure and administer the Policy and all of the other Transferred Policies.

         On May 25, 2005, SLD and LOG entered into an Amended and Restated Administrative Services Agreement. Under the terms of that amended agreement, LOG's authorization to perform certain administrative functions relevant to the Transferred Policies continued.

         In 2005, Jackson acquired LOG and assumed the administration of the Transferred Policies, including the authority to set non-guaranteed elements, such as the cost of insurance.

         On December 22, 2010, SLD and Jackson entered into an Amended and Restated Indemnity Reinsurance Agreement. The purpose of that agreement was, in part, "to make certain changes to the Original Agreement to reflect the results of [the] mergers." Id. at 102. A year later, on December 22, 2011, SLD and Jackson entered into a Second Amended and Restated Indemnity Reinsurance Agreement in order to make certain changes mandated by New York state insurance laws. These agreements expressly continued Jackson's authority to administer the Transferred Policies. Id. at 235 ("the Company [SLD] continues to desire that the Reinsurer [Jackson] perform certain administrative functions on behalf of the Company with respect to the Policies in accordance with the terms of the Administrative Services Agreement entered into by Southland and LOG").

         Thus, for many years now, SLD and Jackson have independently administered separate groups of life insurance policies that were originally issued by SLD. There is no indication "that SLD and Jackson made the same subjective, discretionary decisions with respect to policy administration, or that such decisions were supported by identical reasoning and analysis." SLD Br. at 3.

         II

         On March 27, 2018, Barnes initiated this action by filing a complaint against SLD in the United States District Court for the District of Colorado. The complaint asserted subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d)(2).

         Section I of the complaint, titled "NATURE OF ACTION," stated, in pertinent part: "This is a class action for breach of contract and conversion to recover amounts that [SLD] charged Plaintiff and the proposed class in excess of the amounts authorized by the express terms of their life insurance policies." Id. at 11. Section I further stated that "[t]he terms of Plaintiff's life insurance policy provide for a 'Cash Value' consisting of monies held in trust by [SLD] for Plaintiff, and [SLD] is contractually bound to deduct from the Cash Value only those charges that are explicitly identified and authorized by the policy's terms," yet, "[d]espite unambiguous language in the policy, . . . [SLD] breaches the policy by deducting charges from Plaintiff's Cash Value in amounts exceeding those specifically permitted by the policy, and those breaches are continuous and ongoing." Id. at 12. More specifically, the complaint alleged that, although SLD was authorized under the Policy "to use only its 'expectations as to future mortality experience' when determining Cost of Insurance Rates," SLD actually "used other factors not authorized by the Policy when determining such rates, including without limitation: expense experience, persistency, taxes, profit assumptions, investment earnings, capital and reserve requirement, and other unspecified factors." Id. at 18.

         The complaint identified the class as

[a]ll persons who own or owned a life insurance policy issued or administered by [SLD], or its predecessors in interest, the terms of which provide or provided for: 1) an insurance or cost of insurance charge or deduction calculated using a rate that is determined based on [SLD]'s expectations as to future mortality experience; 2) additional but separate policy charges, deductions, or expenses; 3) an investment, interest-bearing, or savings component; and 4) a death benefit.

Id. at 20.

         Counts I through III of the complaint asserted distinct breach of contract claims. Count I alleged, in pertinent part, that, "[b]y including unauthorized and undisclosed factors in the monthly Cost of Insurance Rates, [SLD] deducts amounts in excess of those contractually authorized under the terms of the [p]olicies" owned by the class members. Id. at 23. Count II alleged, in pertinent part, that, "[b]y including unauthorized expense factors in monthly Cost of Insurance Rates, [SLD] impermissibly deducts expense charges from the Cash Values of Plaintiff and the class in amounts in excess of the fixed and maximum expense charges expressly authorized by their policies." Id. at 24. Count III alleged, in pertinent part, that SLD's "failure to lower" the monthly Cost of Insurance Rates for the policies owned by the class members, "even though its expectations of future mortality experience improved[, ] constitutes a breach of the [p]olicies." Id.

         Count IV of the complaint asserted a claim for conversion. Id. at 25. It alleged that "Plaintiff and the class had a property interest in the funds [SLD] deducted from the Cash Values in excess of the amounts permitted by the terms of the Policies" and that, "[b]y deducting Cost of Insurance charges and expense charges in unauthorized amounts from the Cash Values of Plaintiff and the class, [SLD] assumed and exercised ownership over, and misappropriated or misapplied, specific funds held in trust for the benefit of Plaintiff and the class, without authorization or consent and in hostility to the rights of Plaintiff and class members." Id. Lastly, Count V of the complaint asserted a claim for declaratory and injunctive relief.

         On August 1, 2018, Jackson filed a motion for leave to intervene in the proceedings. Jackson argued that it should be allowed to intervene as of right because it has an interest related to the property or transaction that is the subject of plaintiff's action. Jackson explained that, "as the entity that currently administers and reinsures the [plaintiff's] Policy, [it] has a direct, substantial, and legally protectable interest in defending the manner in which the Policy has been administered by it." Id. at 69. In other words, Jackson stated that, "[a]s administrator, [it] has responsibility for certain administrative functions, including the authority to set the [cost of insurance] rates and other charges at issue" in this lawsuit. Id. at 69-70. Jackson in turn asserted that its interest might be impaired or impeded if intervention was not permitted. Jackson noted, for example, that the complaint effectively "challenges current activities and decision making by Jackson and seeks declaratory and injunctive relief that seek to mandate that Jackson make material changes to its administrative practices, specifically, its administration and management of the relevant policies, including the ongoing determination of the policy rates and charges at issue." Id. at 70 (emphasis in original). Jackson noted that "[f]or Plaintiff to obtain this prospective relief would require Jackson to stop collecting charges and expenses in the amounts it determines are contractually permissible, because Jackson is the entity currently responsible for administering the [plaintiff's] Policy." Id. at 71 (emphasis in original). Jackson argued that it "would [also] be ultimately responsible for damages awarded to Plaintiff and the putative class for the past amounts [it] collected . . . ." Id. Lastly, Jackson argued that SLD could not adequately represent Jackson's interest. Jackson emphasized that there were "two groups of policies implicated here [by the complaint's class definition]- those Jackson administered and those it did not," and it noted that, as a result of this, "the manner in which the charges and expenses at issue have been administered for the two groups of policies . . . would have varied, and likely significantly so as different entities were independently responsible for the actions alleged in the Complaint . . . ." Id. Thus, Jackson argued, "there is a distinct possibility that [its] and SLD's interests and defense strategies may diverge in this litigation." Id.

         Jackson also argued that it met the requirements for permissive intervention. Jackson noted that it sought "to intervene to defend its conduct with regard to the administration of the reinsured policies" and that its "defense [wa]s central to the essence of this case, which will turn on questions about how Jackson (or LOG before it) administered the Policy and whether those acts constitute a breach of the Policy terms." Id. at 72. Jackson further argued that its "presence in this case w[ould] add value to this litigation" because it "holds documents and controls witnesses that bear on the administration of the rates and charges for Plaintiff's Policy and other Jackson-administered Southland policies challenged in this litigation." Id. at 73.

         Barnes opposed Jackson's motion for leave to intervene. From a factual perspective, Barnes asserted that he "never entered into a contract with Jackson," and that "SLD remain[ed] the insurer obligated to pay any insurance claims arising under his policy." Id. at 107-08. Barnes also asserted that the reinsurance agreement afforded Jackson "the right to 'assume the defense and control' of the litigation," as well as the right to approve any settlement entered into between SLD and Barnes. Id. at 111. In addition, Barnes noted that the reinsurance agreement required "Jackson . . . to cooperate with any litigation against SLD relating to the policies subject to the reinsurance agreement, including by producing documents and witnesses for deposition." Id.

         As for his legal arguments, Barnes argued that Jackson's "interest, if any, relate[d] only to a subset of policies within the putative class period, and only for a portion of the time relevant here." Id. at 112. Barnes argued that he "should not be required to litigate separately against Jackson . . . when Jackson . . . can direct the defense of [his] claims and its interests in avoiding liability under the form policy language are derivative of-and thus adequately represented by-SLD." Id. In terms of Jackson's purported interest in the action, Barnes argued that Jackson's "assumption of liability would give it an indirect derivative interest, at most, in the outcome of [his] claims." Id. at 113. Barnes also argued that Jackson's "objectives in this litigation would be no different from SLD's" because "[b]oth entities . . . [we]re interested in successfully defending Plaintiff's claim of breach of a form contract, and hence in obtaining a ruling that the policy's provisions permitted SLD (whether acting through Jackson . . . or otherwise) to make the deductions it did." Id. at 117.

         On October 29, 2018, Jackson filed a motion for leave to file a supplemental brief in support of its motion for leave to intervene. Jackson noted in its motion for leave "that recent [factual] developments in the litigation," specifically a September 18, 2018 "Discovery Hearing" before the magistrate judge, "further confirm[ed] that intervention . . . [wa]s appropriate." Id. at 314. Those "discovery developments," Jackson asserted, "reveal[ed] that . . . Jackson, not having been served with either party or non-party discovery, nevertheless [wa]s placed in an untenable position of being without an appropriate forum in which to fully protect its interest as the current parties proceed[ed] to make discovery demands on it." Id. at 315. "For example," Jackson noted, it "lack[ed] appropriate standing under the Federal Rules of Civil Procedure" to dispute the parties' "contract interpretation" regarding Jackson's discovery obligations. Id.

         On November 21, 2018, the district court issued a written order denying Jackson's motion to intervene and denying as moot Jackson's motion to supplement. At the outset of its order, the district court recounted the relevant factual history and noted, in pertinent part, that "[i]n 2005, Jackson acquired LOG and assumed responsibility for the administration and reinsurance of the Barnes Policy and others." Id. at 362. The district court in turn concluded that "[t]he administrative services and reinsurance agreement" that Jackson inherited from LOG "address[ed] SLD and Jackson's rights and obligations when faced with litigation over the Jackson-administered policies." Id. The district court proceeded to describe those rights and obligations. "Generally," the district court noted, "Jackson 'shall sue or defend, at its own expense and in the name of [SLD] when necessary . . . any action brought upon a Policy.'" Id. (quoting ECF No. 42-5 at 14, § 2.3(c)). "However, SLD retains 'the exclusive right to exercise control of and direction over any claim or litigation involving Retained Liabilities.'" Id. "When SLD makes a timely notice of a third-party claim, Jackson may 'assume the defense and control' of the litigation and may, under certain circumstances, settle litigation without the consent of SLD." Id. at 362-363 (quoting ECF No. 42-6 at 42, § 1). "Importantly, however, SLD cannot settle litigation without Jackson's prior written consent," and "[i]f Jackson exercises its right to assume defense and control of the claim, SLD has the right (but not the obligation) to reasonably participate in (but not control) the defense of claims with its own counsel and at its own expense." Id. at 363.

         The district court in turn noted that "[o]n April 26, 2018, SLD sent a notice of claim to Jackson informing Jackson of Barnes' claim implicating life insurance policies for which Jackson had assumed responsibility." Id. The district court further noted that, "[o]n May 7, 2018, Jackson responded to SLD's letter acknowledging its responsibility to indemnify SLD with respect to the Barnes Policy." Id.

         The district court then proceeded to analyze Jackson's request to intervene as of right, concluding that "Jackson . . . fail[ed] to establish inadequate representation, thus foreclosing intervention as of right." Id. at 366. The district court explained that "[t]wo facts persuade[d] [it] that Jackson's interests [we]re already adequately protected by SLD." Id. at 367. "First," the district court stated, "Jackson and SLD have identical interests in the litigation: defending the cost of insurance coverage, as well as the administration of the subject policies, including the Barnes Policy, from 1984 to present." Id. Second, the district court noted that "Jackson ha[d] failed to show that its interests would be inadequately represented [by SLD] absent intervention," and that, in fact, "Jackson has a contractual right to control this litigation." Id. at 368 (emphasis in original). Although the district court acknowledged "Jackson['s] conten[tion] that SLD ha[d] prevented it from exercising its contractual right to direct and control the litigation," the district court concluded that Jackson's remedy was to "assert a separate breach of contract claim in an independent action against SLD," or to "possibly assert breach of contract as a defense if SLD [wa]s ultimately held liable in this litigation." Id.

         As for Jackson's request for permissive intervention, the district court concluded "that Jackson ha[d] not shown that permissive intervention would contribute to the just resolution of this lawsuit." Id. The district court acknowledged that "Jackson's control of documents and witnesses [wa]s admittedly complicated by its ambiguous status (neither third party nor defendant)." Id. "However," the district court stated, "Jackson ha[d] not adequately addressed why party status [wa]s preferable for the purposes of discovery, particularly in light of the availability to Barnes of the issuance of third-party subpoenas, as well as Jackson's contractual obligations during litigation under the reinsurance and administrative service contracts." Id.

         On December 20, 2018, Jackson filed a notice of appeal from the district court's ...


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