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GE Life and Annuity Assur. Co. v. Barbour

Citations: 191 F. Supp. 2d 1375; 2002 U.S. Dist. LEXIS 4124; 2002 WL 397229Docket: 5:01-cv-00081

Court: District Court, M.D. Georgia; March 7, 2002; Federal District Court

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The case GE Life and Annuity Assurance Company v. William Barbour et al. concerns motions related to life insurance policies issued by GE in 1982 for William Barbour and his children, and a subsequent policy for his wife, Sandra Barbour, purchased the same year. The plaintiffs assert that the policies were to maintain fixed premiums until the insured reached age 65 and would accumulate sufficient interest to cover these costs. Disputes arose in 1988 when the Barbours believed they were merely changing ownership of the policies, while GE contended new policies were issued. William Barbour claims he was assured that the cash value from the original policies would cover future premiums, leading to a single premium payment for the 1988 policies. Since then, the Barbours have made minimal payments, relying on the agent's assurances that the policies were self-sustaining. In 1998 and early 1999, GE recommended additional payments, which the Barbours declined, only contributing $100 to each child’s policy in 1999. The Court is evaluating multiple motions, including defendants’ motions to dismiss or for summary judgment and the plaintiff’s motions regarding counterclaims and expert affidavits, under the framework of Federal Rule of Civil Procedure 56.

Evidence indicates that GE marketed insurance policies to consumers, including the Defendants, by utilizing the cash value of their existing policies to purchase new ones. A fee deducted from the cash value was transferred to the new policy, which the Defendants assert was not disclosed to them. They were informed that interest from their policies would support the 1982 policies post-age 65 and would sustain the 1988 policies based on the cash value at that time. However, they were not made aware that declining interest rates could reduce the cash value, nor were they provided with a buyer's manual detailing these aspects.

Bruce Booker, GE's Vice President for Business Development, explained in his deposition that the pricing and cash value of the policies were heavily reliant on stable interest rates over the long term (20-30 years). He acknowledged that actuarial principles do not support assumptions of unchanging interest rates over extended periods. His testimony suggested that policies, including that of a specific example, would lapse much sooner than indicated if only the agreed premiums were paid. Such critical information was not included in the policy documents provided to the Barbours at the time of purchase.

The Barbours submitted affidavits in a separate case alleging fraud in the purchase of these policies and communicated their intent to pursue claims against GE. In response, GE filed a Declaratory Judgment action seeking to affirm the validity and enforceability of the contract as written.

Defendants have filed a Counterclaim alleging violations of Georgia's RICO Act, along with claims of fraud and deceit, asserting that the policies were confusingly administered and valued. They argue that the policy language is unclear and that the administration did not align with the representations made by agents during the sale. 

GE moved to strike a document titled "Plaintiff McBride and Counterclaim Plaintiff's Statement," which was a response from the Barbours and other Counterclaim Plaintiffs to GE's statement of undisputed material facts in support of GE's summary judgment motion. GE claimed the Statement was unnecessary under Rule 56, while the Barbours contended it was filed for compliance reasons and offered to withdraw any non-compliant portions. Given prior discussions on the issues during a January 16, 2002 hearing and in multiple briefs, the court found no harm in the filing and denied GE's motion to strike.

Additionally, GE sought to strike the affidavit and report of purported expert Tim C. Ryles, arguing that his opinions did not meet Daubert standards. The court referenced a previous ruling (Tidwell v. Allstate Ins. Co.) where Ryles' testimony was found to have a reliable basis in his knowledge and experience rather than scientific evidence. The court admitted Ryles' reports and affidavits, clarifying that his expert opinion would be used to elucidate the complex nature of the contracts rather than to resolve ultimate legal interpretations. Thus, GE's motions to strike Ryles’ opinions and related filings were denied, along with its request for further oral argument on the matter.

The summary judgment standard requires showing no genuine issue of material fact exists, with the moving party bearing the burden of proof, as per Federal Rule of Civil Procedure 56(c).

In the Eleventh Circuit, when evaluating a motion for summary judgment, courts must view evidence favorably for the non-moving party and resolve any reasonable doubts in their favor. If factual issues exist, the court cannot resolve them and must deny the motion, allowing the case to proceed to trial. Summary judgment is inappropriate even when parties concur on basic facts but differ on the inferences drawn from those facts. The movant is required to substantiate their motion with adequate evidence to demonstrate that there are no material disputes regarding the relevant legal issues; otherwise, summary judgment will be denied, regardless of whether the non-moving party has presented any evidence.

In this case, the parties agree on the existence of life insurance policies issued by GE in 1982 and 1988 but dispute whether the contracts are fraudulently vague or misleading and whether GE's agents committed fraud by failing to disclose material information. 

Regarding statutes of limitations for fraud claims in Georgia, the applicable period is four years (O.C.G.A. 9-3-31). Actual fraud extends the statute of limitations, meaning it does not commence until the fraud is discovered or could have been discovered through reasonable diligence. Silence by the fraudster is considered a continuation of the fraud, and the duty to investigate may be excused in cases of trust and confidence. The Barbours assert that actual fraud occurred in the procurement and replacement of their life insurance policies and contend that the limitations period did not start until they discovered in January 1999 that the initial premiums would not sustain the policies. Consequently, the limitations period would not have lapsed until January 2003, allowing their counterclaim, filed on July 25, 2001, to be timely.

The statute of limitations for Georgia RICO claims is five years, as stated in O.C.G.A. 16-14-8, allowing actions to commence within five years after the violation or cause of action accrues. A material issue of fact regarding the statute of limitations on fraud claims creates uncertainty about the applicability of Georgia's RICO statute. 

In a related claim under the Declaratory Judgment Act (28 U.S.C. 2201 et seq.), GE seeks a declaration that an insurance policy represents the complete agreement between the parties, asserting no guarantees of permanence or stable premiums. Precedent supports using the Act to determine contract validity, as seen in cases like State Farm v. Bates, which emphasizes the Act's role in resolving legal uncertainties. For a Declaratory Judgment claim to proceed, there must be an actual controversy, not merely hypothetical issues, and the matter must be definite, with adversarial positions and issues suitable for judicial determination. All necessary elements are satisfied in this case involving insurance policies from 1982 and 1988, particularly given allegations of fraud by the Barbours regarding these policies, prompting GE to assert its claims.

In addressing the fraud and concealment claims, Georgia law requires a plaintiff to establish five elements for fraudulent misrepresentation: (1) the defendant made false representations; (2) the defendant knew they were false; (3) the representations were made intentionally to deceive; (4) the plaintiff reasonably relied on them; and (5) the plaintiff suffered damages as a result. Additionally, failing to disclose a material fact, when there is an obligation to communicate, constitutes fraud. Such an obligation may arise from the relationship between the parties or specific circumstances, necessitating clear grounds for liability based on concealment.

Georgia courts establish a confidential relationship in business when there is a history of dealings or a non-arms-length relationship, such as a partnership. However, mere acquaintance does not automatically imply such a relationship; it depends on the circumstances and is usually determined by a jury. A relationship of trust and confidence can lead to legal fraud if one party fails to disclose necessary information. O.C.G.A. 23-2-58 defines a confidential relationship as one where one party can exert significant influence over another. In *Tigner v. Shearson-Lehman Hutton*, the court recognized such a relationship when a broker managed a plaintiff's investments. Similarly, in *Stewart v. Boykin*, the existence of a fiduciary relationship between an insurance agent and the insured was deemed a jury question.

Regarding affirmance versus rescission, a party alleging fraudulent inducement can either affirm the contract and sue for breach or rescind it and pursue tort claims for fraud. Affirming a contract does not waive the right to seek damages for fraud, but the party must avoid actions that could constitute a waiver, such as waiting too long to act or being bound by a merger clause unless fraud is proven. If rescission is not an option, the plaintiff must seek damages under the contract. Specifically, in insurance cases, courts emphasize the need to fulfill the reasonable expectations of the insured, ensuring that insurers cannot unilaterally change coverage without clear notification or understanding from the insured.

In Greenberg v. Life Insurance Company of Virginia, the Sixth Circuit found a contract ambiguous enough to reverse a trial court’s dismissal. Relevant Georgia law indicates that concealing material facts can constitute fraud, especially when the truth is evaded during direct inquiry or when intrinsic qualities are concealed that the other party could not discover with ordinary prudence. This principle applies to situations where insured individuals are misled into purchasing life insurance policies that differ materially from representations made by the insurer.

The Barbours contended they were fraudulently induced to sign insurance policies and submitted documents that GE argues violate the Parol Evidence Rule. Generally, a contract with a "merger" clause signifies a complete agreement, barring extraneous evidence. However, in fraud cases, such evidence may be admissible. If false representations induced contract signing, the purchaser may rescind the contract, although they must typically restore consideration received. This restoration does not require exact status quo but rather a substantial return to the original position, with exceptions when restoration is impossible or unreasonable.

The question of reliance on alleged fraudulent misrepresentation in tort cases must be determined as a factual matter for the jury, and a contract’s disclaimer cannot be applied in a tort action if the contract is rendered invalid due to prior fraud. If the contract is invalid due to antecedent fraud, the disclaimer provision is ineffective, as the legal relationship between the parties is negated.

Parol evidence can be introduced to demonstrate fraud in the inducement, even if a written contract claims to encompass the entire agreement. Evidence of fraudulent inducement can prevent summary judgment on fraud claims. Issues of fraud, including the truth and materiality of a seller's representations and whether a buyer exercised proper diligence, typically require jury consideration, unless the facts are clear and indisputable. 

The Barbours allege fraud and concealment concerning insurance policies, asserting that the policies lacked crucial information that directly caused their damages. They claim there were misrepresentations about coverage duration, type, premium details, and other vital information, part of a fraudulent scheme to acquire money through deceit. The policies specified a 7.4% interest rate with maturity dates ranging from 50 to 78 years, yet the clauses suggested no additional premiums would be required beyond the initial ones. 

Defendants allegedly assured that the initial premiums would sustain the policies due to interest accumulation and cash values from previous policies, without disclosing that cash value could decrease if interest rates fell. Testimony indicated that the calculation for initial premiums assumed constant interest rates over 20-30 years, which is unrealistic over 50-70 years, a fact not clearly articulated in the policy. 

William Barbour, despite past experience in life insurance, indicated ignorance regarding key terms like "cost of insurance" and "cash value." The policy lacks clarity on conditions under which initial premiums would be inadequate, the true meaning of cash value, or how to prevent policy lapses. Although terms are mentioned, they are not adequately explained regarding their impact on the policy. The term "Flexible Premium Adjustable Life Insurance" is noted, yet "flexible" lacks a clear definition. Additionally, the policy's assertion that coverage could expire if premiums are not paid contradicts earlier statements indicating only a single premium payment was required.

The "Continuation of Coverage" section in the policy stipulates that if premiums are not paid as scheduled, coverage will lapse unless the cash value minus policy debt can cover the monthly deduction. This language is unclear, especially since the policies were marketed as "single premium." The overall policy is described as vague and confusing. Under the applicable summary judgment standards, the Defendants have provided sufficient evidence to create material factual issues that preclude a judgment in favor of GE. The concepts of waiver and estoppel do not prevent the Defendants from pursuing their claims, as they did not ratify the contract with knowledge of the alleged fraud. The question of intent regarding the waiver of fraud claims is one for a jury to decide, not to be resolved through summary judgment.

Furthermore, GE's argument that the Barbours should rescind their policies and return any benefits is unfounded, given that they have not received any tangible benefits from the policies and that requiring rescission would be inequitable after nearly 20 years. The Barbours have paid the agreed premiums, and they are entitled to the coverage these payments provide. The evidence submitted by the Defendants prevents summary judgment on the Fraud and Concealment claims. Regarding the Georgia RICO claims, a jury must determine whether fraud occurred, which is necessary for these claims under Georgia law. Therefore, summary judgment is denied for both the Defendants' counterclaim and the RICO claims, while the Defendants' motion regarding the Court’s jurisdiction over the Declaratory Judgment action is denied and deemed moot concerning any previously adjudicated orders.

William Barbour claims to have purchased four life insurance policies from GE between 1965 and 1967. These policies, along with two others, were cashed in to finance the policies central to the current case. Relevant affidavits and depositions, including those of Barbour and Sandra Barbour, provide supporting evidence. The document references various exhibits related to the evidentiary materials submitted in opposition to Life of Virginia's motions for summary judgment. Notably, the court indicates that the precedent set by *Life Ins. Co. of Virginia v. Conley* is no longer applicable in Georgia regarding fraudulent inducement for life insurance contracts, as newer case law suggests a different interpretation that could unjustly harm the insured.