individual life insurance sales practice case: A litigation primer, The

Egler, Frederick N Jr

1.

INTRODUCTION

The recent spate of litigation against life insurers arising from claims of deceptive sales practices has attracted considerable unwanted attention, as one major insurer after another settles class action suits for huge payouts.' Lost in the large numbers of these class settlements are two overlooked factors which life insurers contemplating them would do well to keep in mind. First, the factors giving rise to these claims are, in large part, rooted in market forces and consumer expectations, both of which are largely beyond the insurers' control. Second, the opt-out settlement classes' certified by these settlements cannot and will not cut off claims by policyholders who are determined to bring individual actions, some of which can be as costly as the class actions themselves.' Insurers must therefore be aware of the claims and defenses raised in a typical individual action alleging deceptive acts in connection with the sale of life insurance. This article will catalogue the issues that have arisen in this litigation to date and offer suggestions on successfully defending and containing these claims.

II.

A BRIEF HISTORY OF LIFE INSURANCE SALES PRACTICES

A. Origins of Consumer Dissatisfaction

The seeds of the current harvest of sales practice litigation were sown in the early 1980's. High inflation and record-high interest rates hit life insurers with a double whammy. Policyholders took advantage of low contract interest rates to borrow money from insurers and invest at the much higher rates available in the market.' Others surrendered their policies outright. With most of their money in fixed-income investments and with inflation boosting their own expenses, the financial performance of life insurers cratered. Some companies experiencing negative cash flow for the first time since the depression of the 1930's.1 Insurers began to develop new, interest-rate sensitive products to combat this phenomenon, which became known as "disintermediation."I Products such as universal life and variable life offered the policyholder a chance to benefit fiom higher market rates, while at the same time maintaining the death benefit, the primary feature of the life contract.

In addition to these financial forces, insurers found themselves buffeted by winds of change from another direction. Expectations of their policyholders were changing. Low to stagnant growth of personal income caused them to spend their dollars more carefully and analyze their finances and investment vehicles like never before.' Besides competing with banks who no longer were subject to ceilings on deposit interest rates and with stockbrokers offering mutual funds to individuals who would have never previously considered investing in the stock market, insurers faced stiff competition from new types of life insurance companies. Led by the infamous A. L. Williams, thousands of newly commissioned life insurance agents spread out across the country with the message: "Buy term and invest the difference."'

These developments required not only new products from insurers, but new approaches to selling as well. Agents began to propose policies that would pay for themselves after the policyholder paid premium for a certain number of years - the so-called "vanishing premium." Now the selling agent could compete with the "buy term and invest the difference" crowd by selecting a different investment vehicle for the policyholder's funds once the premium on the life contract "vanished." Agents also looked to a policyholder's cash value and accumulated dividends in an existing policy, often earning interest at a belowmarket rate, as a source of funding for new, variable-rate policies. The resulting conflict over policy replacement and its advantages and disadvantages to the consumer continues today. Finally, agents began to place more emphasis on use of life insurance as a vehicle for saving for retirement - and in so doing placed themselves squarely in competition with the numerous other financial planners, stockbrokers, and bankers who sought to service that growing market. These three sales approaches - "vanishing premium," replacement, plus savings and retirement - form the factual pattern for the majority of claims alleging deceptive sales practices. In analyzing each of these patterns separately, it is worth noting that these approaches have at least one thing in common - all of them, pursued properly, are perfectly legal. At the same time, each of them presents the potential for abuse that a sophisticated plaintiffs' lawyer can use to form the basis of a punitive damage claim against the insurer.

B. Recurring Fact Patterns

1. "Vanishing Premium"

The "vanishing premium" sales approach can differ slightly depending on whether the agent is proposing a whole life or universal (or other flexible premium) life contract. These differences can have legal significance in a sales practice lawsuit. In the case of a whole life policy, the agent proposes that a policyholder make premium payments on the contract for a certain time which is less than the maturity period of the contract.10 Because the insurer declares annual dividends on a whole life insurance policy, the insured has the option of using all or a portion of the annual dividends to reduce the annual premium. When the policy reaches a point at which the accumulated dividends together with future declared dividends become sufficient to fund the annual premium requirements of the policy, the premium "vanishes."

The usual battleground in this type of "vanishing premium" claim is on the degree and nature of disclosures made by the insurer and agent about the nature of the dividends payable on the contract. In extremely simplified fori-ii, dividends are the product of a company's investment experience, mortality experience, and operating expense experience." As such, they are not guaranteed and virtually every whole life contract in the United States provides that the insurer, in its discretion, may pay dividends, but is not required to. The insurance industry's generally positive investment and operating experience has become its own worst enemy in the "vanishing premium" cases, however, as dividends actually paid exceeded future dividends illustrated at the point of sale for most companies for many years. 11 Agents using illustrations prepared by the insurers are frequently alleged to have watered down the disclaimers in those documents by telling the policyholders that the policy would be "paid up" after the initial payment period or that the insurer would "never" reduce its dividends."

A second type of vanishing premium transaction involves a purchase of a universal life insurance policy with the expectation that the policy will become self-sufficient after the payment of premiums in excess of the minimum premium required by the policy for a short period of time. The theory behind this category of "vanishing premium" transaction was that by making greater payments at the beginning of the policy life, a greater amount of the premium would be distributed into the accumulation fund of the universal life insurance policy, thus allowing the cash value of the policy to accumulate at a faster pace. 14 Once the policyholder paid enough into the policy's accumulation fund, usually a certain number of years projected on the then-current interest rates, the cash value of the policy would earn enough interest so that the future mortality charges and administrative costs associated with the policy could be paid entirely from the accumulation fund. The policyholder would not be required to make any further out-of-pocket payments. As interest rates have fallen, many with expectations of "vanishing premiums" have been disappointed.

While the complexities of dividend computation are absent from cases arising out of universal life policies, the main area of dispute again centers on the degree and nature of disclosure to the policyholders. Some may allege that the non-guaranteed nature of the plan was not disclosed; that the interest rates used to illustrate contract performance were unrealistically high; or that the agent misrepresented the basic nature of the plan as a flexible premium contract. 15

Both types of "vanishing premium" marketing fell victim to the great reduction of market interest rates in the 1990's. As dividends and universal life crediting rates fell with interest rates, whole life policyholders who had expected to stop paying premiums were disappointed. Furthermore, universal life policyholders sometimes discovered that large mortality charges (which grew along with their age even as interest rates declined) now required large additional premium payments to keep the policy in force. Policyholders sued and claimed fraud. In response, some industry observers have noted that arrangements policyholders now attack saved them considerable sums in the early years of the contracts. The decisions of the policyholders to rely on dividends or interest rates to pay future premiums effectively transferred to them the risk of higher payments in the event of an interest rate decline - the very risk they are now attempting to avoid through litigation."

2. Replacement

Few issues in the life insurance industry have been as hotly contested as the appropriateness of policy replacement. Critics of the practice noted that in most life insurance contracts administrative and selling costs of the policy are charged against the premiums paid in the early years. A policyholder purchasing a new policy is therefore paying those costs a second time. " Contestability and suicide clauses also begin to run anew under a new policy, although insurers will often waive the effect of the new provision if requested." Others point out that new policies generally offer lower mortality charges and higher investment returns than do many older contracts." Changes in an insured's health, a large number of loans on an existing policy, or other factors unique to a particular case can likewise make policy replacement appropriate.20

Thus while every state regulates policy replacement, virtually all have adopted some version of the National Association of Insurance Commissioners' Model Replacement Regulation.21 The NAIC regulation does not forbid replacement, but instead has opted for a rule of disclosure. The replacing agent must supply the policyholder with a Replacement Notice warning of the possible disadvantages of replacement; notify the replaced insurer if it differs from the replacing insurer;22 and, in some states, provide a Comparative Information Form detailing the relative performance of both policies .21 Various states exempt different transactions from the regulation that would otherwise be considered to be replacement.'

An existing policy need not be surrendered in order to trigger the requirements of a state replacement regulation. In general, a replacement transaction occurs when an existing life insurance policy (1) is completely surrendered or allowed to lapse, (2) is changed and the premium on that policy is reduced, or (3) is depleted by a loan taken against the existing policy with the intention of using the proceeds to fund a new life insurance policy. For purposes of this litigation, policyholders have attempted to expand the general definition of replacement transactions to also include the use of dividends from an existing life insurance policy to fund a new policy. They usually allege that the replacement transaction (or "churning" or "twisting" as it is sometimes called) is proposed by the agent solely in order to generate commissions. These allegations are usually coupled with ones of misrepresentation. The claim is that either that the insured was unaware that the policy was being replaced, that the consequences of the transaction were not adequately disclosed, or that the replacement transaction, while intended by the policyholder, did not achieve the results represented by the agent.21

3. Saving and Retirement

The plaintiff who alleges that a life insurance policy was sold to him as a savings and retirement plan is initially met with the well-recognized proposition that life insurance is an accepted part of any retirement plan and a traditional vehicle for savings.26 While not expressly denying this proposition, policyholders contend that life insurance companies developed various marketing plans regarding life insurance policies that were intended for use in soliciting the savings and retirement markets. They claim that advertising and sales literature used by the insurance companies and their agents promoted certain life insurance products as savings and retirement plans by describing them as investment vehicles, using words like "deposits" to describe premium payments. These policyholders contend that the advertising used by the insurance companies made little or no mention of life insurance and was devised to mislead the them into believing that they were purchasing savings and retirement plans, even though the sole purpose was to sell life insurance." As in the case of the other theories, the case tends to turn on the amount and nature of disclosure provided by the agent to the policyholder.

III.

CAUSES OF ACTIONA AND THEORIES OF LIABILITY

Because an individual sales practice lawsuit is very fact specific, the combination of causes of action brought by plaintiff-policyholders will differ from one type of transaction to another. Subtle differences in the facts may also even change the various causes of action used by policyholders within the same type of fact pattern.

A. Most Common Causes of Action

1. Fraud and Deceit

The predominant cause of action used by policyholders in nearly every life insurance sales practice lawsuit is common law fraud/deceit. In this action, plaintiffs simply contend that the life insurance companies, through their agents, made fraudulent statements to or concealed material information from them in an attempt to sell life insurance products. Often, they attempt to bolster this cause of action in order to seek punitive damages by alleging that the fraudulent statements or concealment were part of a company-wide scheme devised by the life insurance companies to increase the sale of life insurance products."

2. Breach of Fiduciary Duty

Another cause of action that is pleaded in many life insurance sales practices lawsuits is breach of fiduciary duty. The plaintiffs contend that life insurance companies and their agents assumed a fiduciary duty in the context of the policyholder's relationship with an agent. Three (3) recurring fact patterns urged in support of this cause of action are:

(1) Policyholders cannot understand or appreciate the meaning or legal significance of the documents they are signing, and must therefore rely on the agents for advice and information about the transactions. This is often supplemented with references to the advertising of the life insurers that stresses their concern about the policyholder's interests.29

(2) Policyholders signed applications or other documents in blank, relying on the assurances of the agents that they or the life insurance companies would complete the documents in a manner which would best serve the their interest; or

(3) Policyholders have some handicap known to the agent - such as illiteracy, low intelligence or speaking a foreign language that requires them to rely exclusively on the agents' representations in purchasing the policy.10

3. Negligence

A cause of action for negligence has also been used by policyholders. In this claim, they argue that the life insurance agents, and sometimes the actual life insurance companies, held themselves out as financial advisors, thus assuming the duty to exercise reasonable care, skill and diligence in advising and recommending appropriate life insurance products. Additionally, they contend that the agents, and sometimes the life insurance companies, had a duty to supply full and correct information regarding the life insurance products being purchased. They allege that these duties were breached with reckless disregard for their rights.31 These claims are sometimes styled as negligent misrepresentation claims in reliance on the Restatement of Torts .32

4. Negligent Supervision

Another negligence-based cause of action which policyholders commonly use is negligent supervision. In this claim, they contend that the life insurance companies had a duty to use reasonable care in training and supervising their agents whom the policyholders allege were acting within the scope of their employment when the alleged improper sales conduct occurred. They further aver that the life insurance companies knew of and actually trained their agents to use improper means of selling life insurance products and that this constituted action by the insurers which was in reckless disregard of the rights of consumers.33

5. Negligence Per Se

Certain plaintiffs have used a third negligence-based cause of action, negligence per se, to help impose liability on the life insurers and their agents. In this claim they allege that the companies violated applicable state statutes, such as unfair insurance practice acts, and that those violations constitute negligence per se by the life insurers and their agents."

6. Breach Of Contract

Another cause of action pleaded in sales practice lawsuits is a claim for breach of contract. While plaintiffs' breach of contract claims have been tweaked to reflect the specific circumstances of an individual transaction, two predominant theories of liability have emerged.

a. Written Contract

One theory of liability based on a cause of action for breach of contract is that the life insurance companies breached the terms of the actual life insurance policy when they accepted funds from an existing policy to fund a new policy. This theory is premised upon the existence of a question that is required by law in most applications for life insurance. It inquires as to whether proceeds from existing life insurance policies will be used to finance all or a portion of the new policy at the time of the sale. Relying on the statute that, in most states, requires policy applications to be made part of the insurance contract, plaintiffs allege that the use of funds from existing policies to fund the new policy violates the contract term created by the answer to this so-called "replacement" question."

b. Oral Contract

Another theory of liability for breach of contract is that the life insurance companies breached an oral contract for insurance. Specifically, the contention is that an oral contract for life insurance was formed when the agents made representations about the life insurance being purchased and the policyholders accepted those oral representations when they executed the application for insurance. A breach of the oral contract for insurance is alleged to have occurred when the policy issued differed from the representations made by the agent regarding the proposed life insurance poliCy.16

7. Breach of Implied Covenant of Good Faith and Fair Dealing Another contract-based claim that is used widely in individual sales practice

litigation is the cause of action for breach of the implied covenant of good faith and fair dealing. Policyholders contend that this cause of action arises from the contracts of insurance entered into with the life insurers which were allegedly breached by the agent misrepresenting the terms of the proposed contract."

B. Other Causes of Action

While the foregoing causes of action are common to most individual sales practice lawsuits, others have been and continue to be used by policyholders in certain individual lawsuits in order to impose liability on life insurance companies.

1. Conversion/Constructive Trust

The gist of claims for conversion and for constructive trust, sometimes pleaded in replacement cases, is the allegation that values present in individual life insurance policies are the property of the policyholders. This property, it is claimed, was unlawfully taken from them to fund new policies. The agents were doing this by means of fraudulent representations or omissions. The conversion claim (attractive to policyholders because of the possibility of punitive damages) and the constructive trust claim both seek return of a plaintiff's values to an existing policy.'8

2. Rescission of Contracts Due To Material Mistake of Fact Policyholders have devised two theories of liability, which are very similar to their breach of written contract theory, in order to sustain a cause of action based on material mistake of fact.

a. Mutual Mistake Of Fact

This theory of liability is premised upon the belief that the agents of life insurance companies falsely completed the answer to the so-called "replacement" question in the application for insurance in order to make the sale. The agent made the false answer it is alleged, to both the policyholder and the insurance companies. It is contended that the new policies purchased were voidable because a mistake existed on the part of both the policyholder and the insurer as to what was actually being purchased.

b. Unilateral Material Mistake of Fact

Almost identical to the theory of mutual material mistake of fact is the theory of unilateral material mistake of fact. The only difference between them is that the unilateral mistake of fact claim contends that the life insurance companies knew of the false statements made by their agents and did nothing to rectify the mistake of fact."

3. Unjust Enrichment

Another contract-based theory of liability, which is occasionally used in individual sales practice cases, is unjust enrichment. Specifically, policyholders contend that because life insurance policies were purchased upon false representations, the life insurer and its agent were unjustly enriched by receipt of premiums and commissions.40

4. Violation of Securities Exchange Act

If the sale in question involved a variable life insurance product, some policyholders have filed claims alleging that the life companies and their agents violated Section 10 of the Securities Exchange Act and Rule 10(b)-5. A full analysis of claims involving the Securities Exchange Act which originate from a life insurance transaction is beyond the scope of this article.41

IV.

DEFENSES

While numerous causes of action are used to impose liability on life insurance companies, insurers do have viable defenses to them. Because the fact pattern of a specific case may render some defenses inapplicable, other defenses may prove successful in defeating particular causes of action or even a policyholder's entire complaint as a matter of law.

A. Defenses to Common Causes of Action

1. Fraud and Deceit

Because a plaintiff's claims for fraud and deceit usually depend upon the oral testimony of the agent and the plaintiff, this cause of action is least susceptible to dismissal as a matter of law. However, several defenses do exist.

a. Justifiable Reliance

It may be argued that the policyholder cannot allege justifiable reliance on the alleged fraudulent misrepresentations of the agent. This argument has been accepted in some cases in which an agent's oral representations contradict express written policy terms."

b. Extent of Duty to Disclose

Applicable law does not impose any duty upon life insurers and their agents to disclose every fact and circumstance about a proposed life insurance policy. Allegations of a duty to disclose specific commission and expense levels may not state a claim absent other allegations of fraud. Allegations of failure to disclose commissions of agents may fail for lack of materiality when commission levels have no direct effect on policy performance.43

c. Representations As To Future Events

In many states a representation or prediction concerning the occurrence of some future event is not actionable.44 Allegations of fraudulent statements about future dividend levels or premium levels may fall within this rule.

2. Breach Of Fiduciary Duty

The cause of action for breach of fiduciary duty is one that life insurance companies most vigorously defend. Life insurers contend that their relationship with a policyholder is no more than an arms-length sales transaction. This cause of action, if sustainable, imposes a broad duty to disclose and, in many states, permits the recovery of punitive damages. Because of the possible ramifications associated with this cause of action, life insurance companies have devised multiple defense theories.

a. No Fiduciary Duty Between The Parties

Virtually all applicable case law rejects the existence of any fiduciary relationship between a life insurance company and its policyholders.45 Most states accept the contention that the relationship is arms-length.46

b. Allegations Actually Negate Any Fiduciary Relationship

The second theory of defense is that the allegations in a plaintiff's complaints cannot manufacture, and actually negate, any fiduciary relationship between the policyholder and the life insurer. This general theory is divided into several arguments.

i. Reliance on Advice

Life companies contend that no fiduciary duty arises if a policyholder claims reliance on advice of the company or its agents. A basic legal principle precludes a fiduciary duty based on a party's subjective reliance on the advice of another. More must be alleged to establish a fiduciary relationship than merely the placement of trust in the advice of another.47

ii. Pre-Existing Relationship

Life insurance companies will further contend that no fiduciary duty arises if a plaintiff claims a pre-existing relationship existed with the insurer. Applicable case law has held that no fiduciary relationship exists between a policyholder and an insurance company because the relationship is only an armslength relationship, even if a pre-existing relationship existed."

iii. Control of Funds

Life insurers will contend that no fiduciary duty arises merely from policyholder's allegations that the company controlled his or her funds. A life insurer exercises no more control over a policyholder's funds than an entity such as a bank does over the funds of its depositors .41

iv. Fiduciary Obligations Not Accepted

A final defense theory against a cause of action for breach of fiduciary duty is that the plaintiff's own allegations show that the life company and its agents did not accept any obligation to act solely for the policyholder. Without an express undertaking by the purported fiduciary, no fiduciary relationship is created.10

3. Negligence

The cause of action for negligence in individual sales practices lawsuits can be generally defended on two theories.

a. Economic Loss Doctrine

The initial and strongest defense theory is that the plaintiff failed to plead that he or she suffered any personal injury or property damage. Many states accept a broad version of the Economic Loss Doctrine that bars recovery in negligence for purely economic loss."

b. Not In Business of Providing Information

Some policyholders have proceeded on a negligent misrepresentation theory under section 552 of the Restatement of Torts .51 Life companies, in turn, have claimed that they are sellers of products, not providers of information, and therefore not subject to the principles of section 552.53 Courts have also rejected claims for expectation or "benefit of the bargain" damages under section 552 claims, holding that a plaintiff in negligence is limited to out-of-pocket loss."

4. Negligent Supervision

a. Economic Loss Doctrine"

b. Absence of Conduct Outside Scope of Employment

Another theory of defense is the absence of allegations in a complaint that the agent was acting outside of the scope of his or her employment or authority. Actually, to impose liability on the life insurer for the acts of their agents, plaintiffs contend that, at all times material, the agents were acting within the scope of their employment or authority. Absent pleading of conduct that was outside of the scope of employment or authority, a cause of action for negligent supervision cannot be established."

5. Negligence Per Se

a. Economic Loss Doctrine 51

b. No Private Cause of Action

Plaintiffs premise the negligence per se cause of action on the fact that the life insurance companies violated state unfair insurance practices statutes. However, certain relevant statutes are enforceable exclusively by state agencies, not by private plaintiffs such as policyholders. State law varies widely on this issue.58

6. Breach of Contract

a. Written Contract

To negate a contention that the life insurer breached the written contract of insurance when it permitted funds from existing policies to be used towards the payment of new policies, insurers contend that the question and answer on application regarding "replacement" do not become contract terms. Thus, they cannot be breached by subsequent transactions. To support this argument, two theories are set forth:

i. Effect of Integration Clause

The first theory is that the integration clause of every life insurance contract does not convert every application question and answer into contract terms.19 Most states treat answers to application questions as inducing the execution of the contract, not as additional contract terms.60

ii. Right to Use Policy Values

The second theory is that a policyholder had a statutory and contractual right to use values from existing policies regardless of any representations made on the application for insurance.61

b. Oral Contract

Life insurance companies have used multiple arguments to resist the cause of action for breach of oral contract.

i. Written Contract Required

The first theory is the simple proposition that life insurance policies must be in writing to be enforceable. Many states have such an express statutory requirement, which some case law has interpreted as preventing the enforcement of anv oral contract.62

ii. Limited Authority of Agents

Life insurers will next argue that the agents cannot create binding contracts of insurance through their oral representations when the application clearly states that the agents are without authority to do so.63

iii. Parol Evidence Rule

Most life insurance policies contain an integration clause barring reliance on prior oral statements to vary the terms of the written contract.64

iv. Ratification

Virtually every state requires a policyholder to be given a period of time, the so-called "free look" period, in which he or she may return the policy for a refund. Some life insurance companies have been successful in arguing that the policyholder's retention of a policy after the expiration of that period amounts to a ratification of any of the terms of the written contract, even though it may contain terms different or additional to prior oral representations.65

6. Breach of Implied Covenant of Good Faith and Fair Dealing

Life insurance companies have attacked the cause of action for the breach of the implied covenant of good faith and fair dealing on two fronts.

a. Applicable Only to Contractual Obligations

The cause of action for beach of implied covenant of good faith and fair dealing only applies to performance of contractual obligations and not to contract formation." Since policyholders allege that the subject conduct occurred only prior to the actual formation of the life insurance contract, no implied covenant of good faith and fair dealing could be deemed to have existed.

b. No Breach

The second defense that may be utilized is simply that the life insurer did not breach any term of the contracts of life insurance between itself and the policyholder. The duty of good faith does not impose any obligation on a party to a contract beyond that contained in the contract itself.67 If no breach of any contractual term is pleaded or established, no cause of action for any breach of an implied contractual covenant could exist.

B. Defenses to Other Causes of Action

1. Conversion/Constructive Trust

The basic defense to the cause of action for conversion and constructive trust is the absence of any identifiable res, or subject of the trust or the alleged taking." The alleged "takings," moreover, almost always occur pursuant to written authorizations signed by the policyholder. Because the policyholder retained this right to control, the insurer will contend, it was doing no more than that which the plaintiff directed them to do in connection with the disposition of values associated with the life insurance policies.

2. Rescission of Contracts Due to Material Mistake of Fact

Life insurance companies will contend that because answers to questions on an application for insurance concerning replacement are statements made by the policyholder, not the agents or the company, those answers cannot form the basis for relief from a "mistake." That relief is available only when a party to a contract would otherwise accept a risk which he or she could reasonably be expected to bear.69 At best, a policyholder can establish only a mistake about a matter collateral to the contract - the source of funds from which premiums will be paid - and not a mistake as to an essential term which would justify relief.'O

3. Unjust Enrichment

This cause of action can be attacked under the general principle of law that the doctrine of unjust enrichment is inapplicable when the relationship between the parties is premised upon a written agreement or express contract." If a policyholder is proceeding on an express contract theory, the claim for unjust enrichment is improper.

C. Miscellaneous Defenses to All Causes of Action

1. Statute of Limitations

A defense that may be applicable in many individual sales practice lawsuits is that the claim of the plaintiff is barred by the applicable statute of limitations. Even though the statute of limitations for each specific cause of action described above will differ from state to state, this affirmative defense may prove successful. Because a great deal of the life insurance sales practice litigation involves improper conduct which allegedly occurred from the mid 1980s until the early 1990s, the applicable statutes of limitation on many causes of action may have run. Many courts have held that receipt of a written policy, or even an illustration, which conflicts with the oral representations on which the plaintiff is relying in support of his or her claim is sufficient to start the statute of limitations running."

2. Ripeness of Claims

A universal defense, which may be available to life insurers in particular factual circumstances, deals with the ripeness of the plaintiff's claims. This defense may be most applicable in transactions involving vanishing premiums. In vanishing premium transactions, the policyholder will contend that the agents made representations that the proposed policy would not require any additional premiums after a certain date. Often these are dates in the future and the plaintiff is claiming that the policy would not perform as promised even though the subject date has not been reached. Therefore, a life insurance company will contend that because the subject date has not been reached, any claims premised on facts which may or may not exist as of that future date are not ripe for adjudication."

3. Election of Remedies

The doctrine of election is another defense that may be available in an individual sales practice lawsuit. Under the election of remedies doctrine, a party to a contract believes that he or she has been harmed because of misrepresentations that were made to induce him or her to enter into the contract, or because the contract had been breached. He or she may elect either to rescind the agreement or to sue for damages. If a party elects to rescind a contract, that party is precluded from later suing on the same contract to recover damages for fraud or breach of contract. Frequently a policyholder will have complained to the life insurance company prior to suit, and may have requested and received a refund in exchange for cancellation of the policy. Such an election can be viewed as inconsistent with affirmance of the contract, a prerequisite in many states for an action in deceit and its concomitant punitive damages. If the plaintiff already rescinded the contract, there may be no actual or punitive damages to recover. 74

4. Accord and Satisfaction

A final general defense available to the life insurance companies is the doctrine of accord and satisfaction. An accord and satisfaction is a substitute contract entered into by parties to a previously existing contract for the settlement of a dispute by some alternative performance other than full performance of the existing contract. For accord and satisfaction to apply, the existence of offer, acceptance and consideration is necessary. Accordingly, a payment tendered in full satisfaction of a claim or dispute operates as an accord and satisfaction if the payment is accepted and received. Although the doctrine of accord and satisfaction is typically applied in disputes between debtors and creditors, it can be applied by analogy to other contractual relationships. Thus, if a policyholder accepts payment in any form in response to a claim or dispute originating from a life insurance transaction, that person may be precluded by the doctrine from any recovery."

V.

CONCLUSiON

Individual life insurance sales practice litigation is still in the developmental stage. Few cases involving these fact patterns have been tried in a courtroom. New causes of action are being created by policyholders in an attempt to impose liability upon life insurance companies and their agents. Likewise, life insurers are constantly devising new legal arguments and theories in order to defend themselves against this potentially costly litigation. The answers to many of the questions raised in connection with this article will not be answered in most states for years to come.

'The most well publicized settlement may cost Prudential Insurance Company of America, the nation's largest life insurer, in excess of $1 billion. The settlement was approved by the Third Circuit Court of Appeals last summer. In re Prudential Ins.. Co. of America, 148 F.3d 283 (3d Cir. 1998). Other insurers have spent tens or hundreds of millions of dollars on similar

settlements. E.g., State Farm Settles Vanishing Premium Lawsuit, Is Expected to Return $200 Million to Insureds, 2 No. 25 MEALEY'S INS. L. WKLY. I (Sept. 8, 1998); Phoenix Home Life Offers Settlement in 'Vanishing Premium' Class Action, 8- 16-96 West's Legal News 8530, 1996 WL 461296; New York Life Offers Settlement with ADR for Class-Action Suit Over 'Vanishing Premiums,' 9-15-95 West's Legal News 1163, 1995 WL 908882.

2An "opt-out" or so-called "spurious" class action binds all class members, but only on the condition that reasonable notice is given to the class and that individuals are provided with a chance to avoid the preclusive effect of the class action judgment by opting out and pursuing their own individual actions. See, FED. R. Civ. P. 23(b)(3) and Advisory Committee note thereto.

@E.g., $50 Million Damages Awarded over 'Vanishing Premiums' Insurance Sales, 9-13-95 West's Legal News 1914, 1995 WL 909490.

4. K BLACK & H. SKIPPER, LIFE INSURANCE (12th Ed. 1994) [hereinafter BLACK & SKIPPER]. 5Id.

6Id.

7ld. at 75-76.

8 Known for its agents' disparagement of traditional cash value policies and encouragement of replacement of those policies with term, A. L. Williams became the subject of considerable industry criticism and regulatory actions for its high-pressure sales tactics. See, The King of Term, July, 1993 CONSUMER REPORTS at 440. While Williams himself was forced to leave the company, it continues to do business today under the name Primerica Life Insurance Company. Id.

`Vanishing premium" refers not to the policy itself, but to the manner in which it is sold. As one commentator has observed, "[I]t has no contractual or legal meaning with respect to the way that life insurance policies have been, and continue to be, structured." H. Saks, Vanishing Life Insurance Premium Continues to be Misunderstood by Many Planners and Insureds, 22 EST. PLAN. 310, 312 (September/October 1995).

"Almost all whole life policies sold in the United States provide that premiums are payable until the insured reaches age 100. BLACK & SKIPPER, supra note 4, at 98. Variations on whole life, such as "Life Paid up at 95," require payments for a somewhat shorter time span.

"H. Saks, Universal Life, Whole Life, or Minimum Deposit as Alternatives for Vanishing Premium Plans, 12 EST. PLAN. 372 (Nov. 1985).

"BLACK & SKIPPER, supra note 4, at 100-01.

"A typical disclaimer reads, "Dividend results are based on the 1985 dividend scale. They are not guaranteed ... [and] reflect investment earnings on funds attributable to policies issued since January 1, 1983 and will be sensitive to fluctuations in rates of return on new investments. They also reflect current mortality and expense experience. Changes in this experience, including changes in Federal income tax laws, could result in dividends that are higher or lower than those illustrated."

"In a universal life policy, the term insurance and savings functions of the policy are expressly divided from one another. A portion of the insured's premium goes to pay the mortality charge - essentially a term premium - and other expenses associated with the policy. The balance is paid into an accumulation fund - a savings vehicle to which the company credits interest based on then-current market rates. All of these factors, along with the insured's premiums, are subject to change. See generally, BLACK & SKiPPER, supra note 4, at 36-37.

"For examples of "vanishing premium" claims, see, e.g., In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996) [hereinafter collectively referred to as "In re: Prudential Sales Practices Litigation"]; Goshen v. The Mutual Life Ins. Co. of N.Y., Index No. 600466/95-006, slip op. (N.Y. Sup. Ct. October 21, 1997); Cole v. Equitable Life Ins. Soc., Index No. 10861-1-95-001, slip op. (N.Y. Sup. Ct. June 28, 1996); Ihnat v. Pover, Part 11, 146 P.L.J. 299, 301 (Pa. Allegh. Cty. C.P. 1997).

16 D. Fischel & R. Stillman, The Law and Economics of Vanishing Premium Litigation, 22 DEL. J. CORP. L.1, 11 (1997).

11BLAcK & SKIPPER, supra note 4, at 271. 18M.

19D. Goodwin, "Replacement: a Sin or a Service, BEST's REviEw (Life/ Health), Jan. 1990 at 48, 87.

"J. Moyse, The Ethics of Replacement, J. Am. SOC. OF CLU & CHFC, Nov. 1991, 76-77. `B. HARNETT & 1. LESNICK, THE LAW OF LiFE AND HEALTH INSURANCE, 12.04 at 12-33 (1996). 121f the policy being replaced is issued by a different insurer than the one issuing the new

policy, the transaction is referred to as "external replacement." If both policies are issued by the same insurer, the transaction is referred to as "internal replacement."

"Replacement of Life Insurance and Annuities Model Regulation, National Association of Insurance Commissioners (1994) [hereinafter NAIC Replacement Regulation].

"Virtually all states exempt transactions where the replaced policy is credit life, group term life, or life insurance replacing a binder or conditional receipt. NAIC Replacement Regulation 4. Many states exempt all internal replacement. E.g., 31 PA. CODE. 81.3 (1999). Some states exempt transactions where the only values used from the replaced policy are dividends. E.g., WNA. CODE STATE R. tit. 114 8-2 (1999).

"For examples of replacement claims, see, e.g., State eX Tel. Metropolitan Life Ins. Co. v. Starcher, 474 S.E.2d 186 (W.Va. 1996); Ihnat v. Pover, Part 11, 146 P.L.J. 299, 301 (Pa. Allegh. Cty. C.P. 1997).

- 2'ln re Turner, 186 B.R. 108, 115 n. 10 (9th Cir. B.A.P. 1995) ("Life insurance policies have also been used as investment and savings devices"); American Deposit Corp. v. Schacht, 887 F. Supp. 1066 (N.D. 111. 1995) ("Retirement CM was subject to regulation by state Insurance Department; product had mortality risk and savings aspects); BLACK & SKIPPER, supra note 4, at 69 ("Life insurance can constitute an excellent means of encouraging thrift for many persons.").

"For examples of savings and retirement claims, see, e.g., Grilli v. Metropolitan Life Ins. Co., 78 F.3d 1533 (1 Ith Cir. 1996); Ihnat, 146 P.L.J. 299, 302.

"For a general discussion of a cause of action for fraud and deceit, see, e.g., In re: Metropolitan Life Ins. Co., MDL No. 1091, slip op. (W.D. Pa. June 20, 1997).

"See Collister v. Nationwide Life Ins. Co., 388 A.2d 1346 (Pa. 1978).

"For a general discussion of a cause of action for breach of fiduciary duty, see, e.g., In re The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996); Goshen v. The Mut. Life Ins. Co. of N.Y., Index No. 600466/ 95-006, slip op. (N.Y. Sup. Ct. October 21, 1997).

"For a general discussion of a cause of action for negligence, see, e.g., In re: Prudential Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996); see also RESTATEMENT (SECOND) OF TORTS, 299(A) (1965).

12RESTATEMENT (SECOND) OF TORTS 552 (1977); see Rempel v. Nationwide Life Ins. Co., 370 A.2d 366 (Pa. 1977).

31For a general discussion of the cause of action for negligent supervision, see, e.g., Wagner v. Allianz Life Ins. Co. of N. Am.. Civil Action No. 96-971 (W.D. Pa. November 4,1997).

14 The statutes that form the basis for the cause of action for negligence per se will differ from state to state. Types of statutes upon which plaintiff-policyholders have based this cause of action have included, e.g., 42 PA. CONS. STAT. ANN. 837 1 (West 1999) (Bad Faith Statute), 40 PA. CONS. STAT. ANN. 1171.1 (West 1992) (Unfair Insurance Practices Act); W. VA. CODE 3311 - I - 33-1110 (1999) (Unfair Trade Practices Act).

"For a general discussion of the cause of action for breach of written contract in a "replacement" claim, see, e.g., In re: Metropolitan Life Ins. Co., MDL No. 1091, slip op. (W.D. Pa. June 20,1997).

"For a general discussion of the cause of action for breach of contract based on an alleged oral contract of insurance, see, e.g., Collister v. Nationwide Life Ins. Co., 388 A.2d 1346 (Pa. 1978).

"For a general discussion of the cause of action for breach of implied covenant of good faith and fair dealing, see, e.g., In re: Metropolitan Life Ins. Co., MDL No. 1091, slip op. (W.D. Pa. June 20, 1997); In re: The Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996)@ RESTATEMENT (SECOND) OF CONTRACTS, 205 (1981).

"For a general discussion about a cause of action for conversion, including the elements thereof, see, e.g., Lubecki v. Omega Logging, Inc., 674 F. Supp. 501 (W.D. Pa. 1997). For a general discussion of the constructive trust theory, see, e.g., Bender v. Centrust Mortgage Corp., 51 F.3d 1027 (11 th Cir.), modified on other grounds, 60 F.3d 1507 (1 Ith Cir. 1995).

31For a general discussion of a cause of action for rescission of a contract due to material mistake of fact, including both mutual and unilateral material mistake of fact, see, e.g., In re: Metropolitan Life Ins. Co., MDL No. 1091, slip op. (W.D. Pa. June 20. 1997).

'For a general discussion of a cause of action for unjust enrichment, see, e.g., id.

"For a general discussion of securities fraud claims in an insurance context, see, e.g., id.; In re: The Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996).

"See, In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996); Pankow v. Colonial Life Ins. Co., 932 S.W. 2d 271 (Tex. Ct. App. 1996); Anetsberger v. Metropolitan Life Ins. Co., 14 F.3d 1226 (7th Cir. 1994); Weisblatt v. Minnesota Mut. Life Ins. Co., 4 F. Supp 2d 371 (E.D. Pa. 1998); Goshen v. The Mutual Life Ins. Co. of New York, Index No. 600466/95-006, slip op. (N.Y. Sup. Ct. October 21, 1997); Sanucci v. Metropolitan Life Ins. Co., No. 96-0770, slip op. (N.Y. Sup. Ct. Jan. 10,1997).

4'Weisbiatt v. Minnesota Mut. Life Ins. Co., 4 F. Supp. 2d 371 (E.D. Pa. 1998). In states such as Pennsylvania, failure to orally disclose information about policy performance and levels of commissions, fees and charges may be barred by the rule that a policyholder has a duty to read one's policy. See, e.g., Constance v. Equitable Life Assur. Soc. of U.S., 1988 W.L.79820 at *2 (E.D. Pa. 1988); Friedman v. Prudential Life Ins. Co. of Am., 589 F. Supp. 1017 (S.D.N.Y. 1984); Standard Venetian Blind Co. v. American Empire Ins. Co., 469 A.2d 563 (Pa. 1983). Plaintiff-policyholders may be more successful in other states where oral representations are admitted to prove the plaintiff-policyholder's "reasonable expectations." See, e.g., Romano v. New England Mut. Life Ins. Co., 362 S.E.2d 334 (W. Va. 1987).

"See, e.g., Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. Rptr.2d 861 (Ct. App. 1991); Bango v. Naughton, 584 N.Y.S.2d 942 (App. Div. 1992); Krause v. Great Lakes Holdings, Inc., 563 A.2d 1182 (Pa. Super. Ct. 1989), appeal denied, 574 A.2d 70 (Pa. 1990).

4'For a list of cases rejecting the contention that an insurer is a fiduciary to an insured, see Appendix A, infra.; see also, In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996); Goshen v. The Mutual Life Ins. Co. of New York, Index No. 600466/95-006, slip op. (N.Y. Sup. Ct. October 21, 1997); Weiss v. Metropolitan Ins. & Annuity Co., No. C95-03421, slip op. (Cal. Super. Ct. Feb. 27, 1996); Benefit Trust Life Ins. Co. v. Union Natil. Bank of Pittsburgh, 776 F.2d 1174 (3d Cir. 1985); Garvey v. National Grange Mut. Ins. Co., 1995 WL 115416 (E.D. Pa. 1995); Life Ins. Co. of Va. v. Conley, 351 S.E.1d 498 (Ga. Ct. App. 1986); Ihnat v. Pover, Part 11, 146 P.L.J. 299, 305 (Pa. Alle-ah. Ctv. C.P. 1997).

'See, In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996); Stockett v. Penn Mut. Life Ins. Co., 106 A.2d 741 (R.I. 1954); Murphy v. Kuhn, 682 N.E.2d 972 (N.Y. 1997); also see, Cole v. Equitable Life Ins. Soc., Index No. 10861-1-95-001, slip op, (N.Y. Sup. Ct. June 28, 1996).

17 See, In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (DXJ. 1996); Koontz v. Long, 384 S.E.2d 837 (W. Va. 1989); also see, e.g., Antinoph v. Laverell Reynolds Sec. Inc., 703 F. Supp. 1185 (E.D. Pa. 1989); Farmers Ins. Co. v. McCarthv, 871 S.W.2d 82 (Mo. Ct. An. 1994).

"See, Lazovick v. Sun Life Ins. Co. of Am., 586 F. Supp. 918 (E.D. Pa. 1984); see also, e.g., Murphy v. Kuhn, 682 N.E.2d 972 (N.Y. 1997); Motorcity of Jacksonville, Ltd. v. Southeast Bank, 83 F.3d 1317 (1 Ith Cir. 1996); Booska v. Hubbard Ins. Agency, Inc., 627 A.2d 333 (Vt. 1993).

1 @@;

'For analogous reasoning, see, e.g., Coffin v. Fidelity-Philadelphia Trust Co., 97 A.2d 857 (Pa. 1953) (Bank and depositor are in relation of debtor and creditor); but see, In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996) (declining to dismiss breach of fiduciary duty claim based on allegation that insurer failed to carry out policyholder's wishes in disposition of policy values).

"See, e.g., In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996); City of Harrisburg v, Bradford Trust Co., 621 F. Supp. 463 (M.D. Pa. 1985); Farmers Ins. Co. v. McCarthy, 871 S.W.2d 82 (Mo. Ct. App. 1994); see also, e.g., Kane & Son Profit Sharing Trust v. Marine Midland Bank, 1996 U.S. District LEXIS 8023 (E.D. Pa. 1996).

"See, e.g., Midwest Knitting Mills Inc. v. United States, 950 F.2d 1295 (7th Cir. 1991) (Wisconsin law); Wagner v. Allianz Life Ins. Co. of N. Am., Civil Action No. 96-971 (W.D. Pa. November 4, 1997); see also, East River Steam Ship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1996); Spivack v. Berks Ridge Corp., Inc., 586 A.2d 401 (Pa. Super. Ct. 1990).

52 RESTATEMENT (SECOND) OF TORTS 552 (1977).

"See, e.g., Brant v. Geico Gen. Ins. Co., 3 F.3d 1172 (8th Cir. 1993); see also Gerdes v. John Hancock Mut. Life Ins. Co., 712 F. Supp. 692 (N.D. 111. 1989); Freeman v. Ernst & Young, 516 N.W.2d 835 (Iowa 1994); Cooper v. Liberty Mut. Ins. Co., 1986 WL 10035 at *3 (E.D. Pa. Sept. 11, 1986); Eagle Traffic Control v. Addco, 882 F. Supp. 417 (E.D. Pa. 1995).

14See, e.g., Palco Linings, Inc. v. Pavex, Inc., 755 F. Supp. 1269 (M.D. Pa. 1990); Tomka v. Hoechst Celanese Corp., 528 N.W.2d 103 (Iowa 1995).

"See, part IV-A-3-a, supra.

"See RESTATEMENT (SECOND) OF ToRTs 317 (1965); see also, e.g., McBride v. Hershey Chocolate Corp., 188 A.2d 775 (Pa. Super. Ct. 1963); Dempsey v. Walso Bureau, Inc., 246 A.2d 418 (Pa. 1968); Force v. ITT Hartford Life & Ann. Ins. Co., 4 F. Supp.2d 843 (D. Minn. 1998); Ihnat v. Pover, Part 11, 146 P.L.J. 299, 317-18 (Pa. Allegh. Cty. C.P. 1997).

"See, part IV-A-3-a, supra.

5'For a state-by-state collection of cases on this issue, see Appendix B infra.

51See, e.g., In re: Metropolitan Life Ins. Co., MDL No. 1091, slip op. (W.D. Pa. June 20, 1997); see also, e.g., Powell v. Times Ins. Co., 382 S.E.2d 342 (W. Va. 1989); Van Riper v. Equitable Life Assur. Soc. of the U.S., 561 F. Supp. 26 (E.D. Pa. 1982); Burt v. Burt, 67 A. 210 (Pa. 1907); Ihnat v. Pover, Part 11, 146 P.L.J. 299, 310 (Pa. Allegh. Cty. C.P. 1997); 7 RONALD A. ANDERSON, COUCH ON INSURANCE 2D 35.69 (1984) [hereinafter COUCH].

6OCoucti , supra note 59, 35:3, 35:6.

61See, e.g., In re: Estate of Armstrong, 1997 WL 139441 (Ohio Ct. App. Mar. 20, 1997); Ruden v. Citizens Bank & Trust Co., 638 A.2d 1225 (Md. Ct. Spec. App.), cert. denied, 647 A.2d 445 (Md, 1994). In addition, most states using a replacement regulation based on the NAIC model expressly permit the plaintiff-policyholder to use policy values to purchase new insurance regardless of the answer to the "replacement" question. See,e.g., 31 PA. CODE 81.8(d) (1999); WNA. CODE STATE R. tit. 114 8-8.1 (1999); FLA. ADMIN. CODE ANN. r. 4151.009(3) (1999).

'2See, e.g., 40 PA. CONS. STAT. ANN. 440 (1992) (requiring written contract for insurance); Keffer v. Metropolitan Life Ins. Co., Civil Action No. 95-337, slip op. (W.D. Pa. August 5, 1996) (citing statute); In re: Metropolitan Life Ins. Co., MDL No. 1091, slip op. (W.D. Pa, June 20, 1997); Fischman v. Benefit Ass'n of Ry. Employees, 186 A.2d 629 (Pa. 1962); Ihnat v. Pover, Part 11, 146 P.L.J. 299, 312 (Pa. Allegh. Cty. C.P. 1997).

61See, e.g., Drennan v. Sun Indem. Co., 2 N.E.2d 534 (N.Y@ 1936); Davis v. Gulf Oil Corp., 572 F. Supp. 1393 (C.D. Cal. 1983); Provident Life & Accident Ins. Co. v. Cullinet Software, Inc., No. 92 Civ. 1548(55), 1994 WL 514527 (S.D.N.Y. Sept. 21, 1994); Brinderson-Newberg Joint Venture v. Pacific Erectors. Inc., 971 F.2d 272 (9th Cir. 1992); Rauschenberger v. Mutual Benefit Fire Ins. Co., 69 A.2d 82 (Pa. 1949).

'See Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287 (3d Cir. 1996); Whalen v. Connelly, 545 N.W.2d 284 (Iowa 1996); HCB Contractors v. Liberty Place Hotel Assocs., 652 A.2d 1278 (Pa. 1995); McGuire v. Schneider, Inc., 534 A.2d 115 (Pa. Super. Ct. 1987).

"See, e.g., Kiehl v. Jackson Nat'l Life Ins. Co., 1996 WL 241788, at * 1, 3 (N.D. Cal. April 30,1996)(granting summary judgment against plaintiffs who asserted "vanishing premium" claims conflicted with policy that required premium payments for life and contained an "integration clause that cannot be varied by the alleged representations" of the sales representative); Life Ins. Co. of Va. v. Conley, 351 S.E.2d 498, 500 (Ga. Ct. App. 1986) (where insurance policy contains integration provision and provides 20-day "Free Look," period, and where policy, "as delivered, differs materially from the kind of policy for which the insured applied or from that represented by the agent, it is [the insured's] duty, if he does not desire to accept the policy issued to him. to return or offer to return the same")(cluotation omitted); Schmith v. Union Mut. Casualty Co., 247

N.W. 655 (Iowa 1933)(provision"permitting an examination of the policy for a ten-day period, was for the sole benefit of the insured, and ... by retaining the policy beyond that period without advising the company of its rejection, [the insured] must be held to have accepted the policy")-. see also Benzinger v. Prudential Ins. Co. of Am., 176 A. 922, 924 (Pa. 1935)("[w]hen [insured] accepted the policy and paid the first premium, he accepted the terms of the contract and made them his own. . ."); Ihnat v. Pover, Part 11, 146 P.L.J. 299, 312-13 (Pa. Allegh. Cty. C.P. 1997).

6'See RESTATEMENT (SECOND) OF CONTRACTS 205, cmt. c (1981); see also, e.g., Barn-Chestnut, Inc. v. CFM Dev. Corp., 457 S.E.2d 502 (W. Va. 1995); In re: The Prudential Ins. Co. of Am. Sales Practices Litigation, 962 F. Supp. 450 (D.N.J. 1996) and 962 F. Supp. 572 (D.N.J. 1996).

6' See, e.g., Parkway Garage, Inc. v. City of Philadelphia, 5 F.3d 685 (3d Cit. 1993); Sensenig v. Spring Glen Farm Kitchen, Inc., 16 Pa. D & C 4th 394 (1992), 1992 WL 540682, at *2 (Pa. C.P., Lancaster Cty., Aug. 4, 1992); Burger King Corp. v. Holder, 844 F. Supp. 1528 (S.D. Fla. 1993); In re Houbigant, Inc., 914 F. Supp. 964 (S.D.N.Y. 1995).

"See, e.g., Bender v. Centrust Mortgage Corp., 51 F.3d 1027 (1 lth Cir.), modified on other grounds, 60 F.3d 1507 (11 th Cir. 1995); Cole v. Equitable Life Ins. Soc., Index No. 10861-1-95001, slip op. (N.Y. Sup. Ct. June 28, 1996); Finkelstein v. Southeast Bank, N.A., 490 So. 2d 976 (Fla. Dist. Ct. App. 1986); see also Ihnat v. Pover, Part 11, 146 P.L.J. 299, 319 (Pa. Allegh. Cty. C.P._ 1997) (policyholder's consent to use funds bars claim for conversion).

"See, e.g., Loyal Christian Benefit Ass'n v. Bender, 493 A.2d 760 (Pa. Super. Ct. 1985); Williams, Salomon, Kanner, Damian, Weissler & Brooks v. Harbour Club Villas Condo. Association, Inc., 436 So. 2d 233 (Fla. Dist. Ct. App. 1983).

'See, e.g., Vrabel v. Scholler, 85 A.2d 858 (Pa. 1952); see also, e.g., Northwest Sav. Ass'n v. Distler. 511 A.2d 824 (Pa. Surer. Ct. 1986).

"See In re: Metropolitan Life Ins. Co., MDL No. 1091, slip op. (W.D. Pa. June 20,1997); see also, e.g., Hershey Foods Corp. v. Ralph Chapek, Inc., 828 F.2d 989 (3d Cir. 1987).

"Ramp Operations, Inc. v. Reliance Ins. Co., 805 F.2d 1552,1556 (1 Ith Cir. 1986); Gonzales v. U-J Chevrolet Co., 451 So. 2d 244 (Ala. 1984); Condos v. United Benefit Life Ins. Co. of Omaha, 379 P.2d 129,131 (Ariz. 1963); Cunningham v. Mass. Mutual Life Ins. Co., 972 F. Supp 1053 (N.D. Miss. 1997); Koehler v. Merrill Lynch & Co., 706 So. 2d 1370 (Fla. Dist. Ct. App. 1998).

"Frith v. Guardian Life Ins. Co. of America, No. H-96-4323 (S.D. Texas Mar. 31, 1998). See also, Goshen v. Mutual Life Ins. Co. of New York, Index No. 600466/95-006, slip op. (N.Y. Sup. Ct. October 21, 1997); Lang v. Hartford Life & Accident Ins. Co., Civil Action No. 97-272, slip op. (W.D. Pa. November 26,1997).

"Applicable law on this doctrine will differ from state to state. See, e.g., RESTATEMENT (SECOND) OF CONTRACTS 372 (1981) -, see also, e.g., Pittsburgh Union Stockyards Co. v. Pittsburgh Joint Stock Co., 163 A. 668 (Pa. 1932); Wedgewood Diner, Inc. v. Good, 534 A.2d 537 (Pa. Super. Ct. 1987); Roberts v. Estate of Barbagallo, 531 A.2d 1125 (Pa. Super. Ct. 1987).

7?Applicable law on this doctrine will differ from state to state. See, e.g., RESTATEMENT (SECOND) OF CONTRACTS 281 (1981); see also, e.g., Brunswick Corp. v. Levin, 276 A.2d 532 (Pa. 1971); Lucacher v. Kerson, 48 A.2d 857 (Pa, 1946).

FREDERICK N. EGLER, JR. PAUL J. MALAK*

Frederick N. Egler, Jr. is managing partner of Egler, Garrett & Egler in Pittsburgh. A summa cum laude graduate of the University of Pittsburgh School of Law, Mr. Egler concentrates his practice in the area of life insurance, insurance coverage, product liability and commercial litigation. He is a Fellow of the American College of Trial Lawyers, serves as editor-in-chief of the Pittsburgh Legal Journal, is chair of the Editorial Board of the Pennsylvania Bar Association, and is chair of the Life, Health and Disability Section ofthe Federation of Insurance & Corporate Counsel.

Paul J. Malak is an associate with Egler, Garrett & Egler in Pittsburgh, Pennsylvania concentrating in commercial litigation, insurance and corporate law. He received his undergraduate degree, cum laude, from Dickinson College and his J.D. from Duquesne University School of Law, with honors. Mr. Malak is admitted to practice law in Pennsylvania, West Virginia and numerous federal courts. He is the author of numerous national articles on litigation, environmental and corporate law matters.

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