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[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 22-12991
____________________
ADVANCE TRUST & LIFE ESCROW SERVICES, LTA,
As Securities Intermediary for Life partners
Position Holder Trust, on behalf of itself
and all others similarly situated,
Plaintiff,
WORTH JOHNSON,
Plaintiff-Appellant,
versus
PROTECTIVE LIFE INSURANCE COMPANY,
Defendant-Appellee.
____________________
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2 Opinion of the Court 22-12991
Appeal from the United States District Court
for the Northern District of Alabama
D.C. Docket No. 2:18-cv-01290-MHH
____________________
Before GRANT, ABUDU, and HULL, Circuit Judges.
HULL, Circuit Judge:
This class action involves a dispute over a life insurance
policy issued to Plaintiff Worth Johnson (“Johnson”) by Defendant
Protective Life Insurance Company (“Protective”) in South
Carolina. While the procedural history is complicated, Johnson is
now the sole remaining named plaintiff. Johnson brought on his
behalf and others’ the second amended complaint (the
“complaint”), which alleges only a breach of contract claim under
the policy.
The district court granted Protective’s motion for judgment
on the pleadings, concluding Protective did not breach its
insurance contract as a matter of law. The primary issues on appeal
concern the interpretation of the policy under South Carolina law.
We begin by setting forth the complaint’s allegations and the
policy’s relevant terms.
I. POLICY TERMS
In 1988, Protective issued a universal life insurance policy
(the “policy”) to Johnson in the face amount of $100,000. Johnson’s
policy conferred a death benefit with a savings or investment
component, known as the “account value” or “policy value.” The
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savings component allows policies to be a tax-advantaged savings
vehicle, earning interest on the policy value. Here is how it works.
A. Net Premium
In a schedule, the policy sets Johnson’s premiums at $900 per
year. The policyholder is permitted to pay premiums more
frequently or in greater sums. The policy then permits Protective
to deduct “expense charges” from the premium, which yields a
“net premium.” Johnson’s policy lists these “expense charges”:
The percentage of premium expense charge is 5.00%
of each premium payment.
The monthly expense charge per $1000 (which
applies during the first 12 policy months) is $ .00.
The monthly expense charge per $1000 of increase
(which applies during the first 12 policy months
following an increase) is $ .26.
The monthly administrative charge is $4.00.
(Font altered.) In this regard, the policy defines “Net Premium” as
the “premium payment less the percentage of premium expense
charges shown in the Policy Schedule.” Johnson does not
challenge Protective’s calculation of the “expense charges” or the
net premium.
B. Policy Value
The policy also permits Protective to make monthly
deductions from the net premium, which yields the “Policy Value.”
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4 Opinion of the Court 22-12991
And the Policy Value is the money that accrues interest at a
guaranteed interest rate set in the policy. It is through this process
that the investment component of Johnson’s policy grows in value.
The Policy Value increases each month by one month’s interest
less the monthly deduction.
C. Monthly Deduction for Cost of Insurance
In turn, the policy defines the “Monthly Deduction” from
the net premium. This monthly deduction “is the sum of the
following four items,” which are listed as:
(1) The cost of insurance and the cost of additional
benefits provided by riders for the policy month.
(2) The monthly expense charge applicable to the
Initial Face Amount. This charge applies only the first
12 policy months. . . .
(3) The monthly expense charge applicable to any
increase in face amount. This charge applies only to
the first 12 policy months following the day on which
an increase becomes effective. . . .
(4) The Monthly Administrative Charge shown in the
Policy Schedule.
(Emphasis added.) Johnson does not challenge items 2-4 (the
monthly expense and administrative charges).
Johnson does contest item 1, the “cost of insurance” charge.
The formula for that charge states:
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The cost of insurance is determined at the end of each
policy month as follows:
(1) divide the death benefit at the beginning of the
policy month by the sum of 1 plus the guaranteed
interest rate;
(2) reduce the result by the amount of policy value
(prior to deducting the cost of insurance) at the
beginning of the policy month;
(3) multiply the difference by the cost of insurance
rate as described in the Cost of Insurance Rates
section.
(Emphasis added.) Johnson submits that “[u]nder this formula, a
lower COI rate directly translates to a lower monthly COI charge.”
The only part of this formula in dispute is the cost of insurance rate
(the “COI rate”).
D. COI Rates
Johnson’s policy has three main sections about the COI rate.
His policy initially has a “Table of Guaranteed Maximum Insurance
Rates” for each “attained age” from age 0 to age 94. (Font altered.)
Johnson was 43 when he purchased his policy in 1988. His Table’s
guaranteed maximum monthly COI rate was 0.322 for his age of
43.
As Johnson grew older, his Table’s listed COI rate generally
increased. By age 65, his Table shows a monthly COI rate of 2.122,
over a 500% increase. Johnson’s Class Period begins on August 13,
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2012. We thus list the monthly COI rates after that date, which
increased from 2.543 at age 67 in 2012 to 5.912 at age 76 in 2021—
a 132% increase:
TABLE OF GUARANTEED MAXIMUM
INSURANCE RATES
MONTHLY RATE PER $1,000 EXCLUDING
RIDERS
...
[JOHNSON’S]
[YEAR] ATTAINED AGE RATE
[2012] 67 2.543
[2013] 68 2.773
[2014] 69 3.023
[2015] 70 3.303
[2016] 71 3.621
[2017] 72 3.986
[2018] 73 4.405
[2019] 74 4.872
[2020] 75 5.377
[2021] 76 5.912
Johnson does not challenge the Table’s monthly COI rate scale.
Later on, his policy states that the guaranteed maximum COI rates
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“are equal to the 1980 CSO male and female mortality rates as
applicable, adjusted to reflect [the insured’s] underwriting class.”
(Font altered.) Other than this Table, Johnson’s policy does not
contain any other COI rate scale.
Instead, Johnson contends that insurers, like Protective,
“typically create an internal table of projected, non-guaranteed
COI rates,” and “when a policy is issued, an insured is ‘assigned’ to
an initial COI rate table or scale that lays out a set of COI rates that
cover the life of the insured.” Johnson represents that “[t]his initial
COI table is not shared with the [insured] owner.” We refer to
Protective’s internal set of monthly rates covering the insured’s life
as Protective’s “internal COI rate scale.”
Johnson does not allege what rates Protective chose in its
internal COI rate scale at inception in 1988 to cover his life. Rather,
Johnson’s main complaint is that Protective never changed and
redetermined its internal COI rate scale “a single time” during the
Class Period that began on August 13, 2012, even though
nationwide mortality rates had declined during that period.
Notably though, Johnson does not allege that Protective
used an internal COI rate scale with rates that exceeded the
guaranteed maximum rate. And he does not claim on appeal that
Protective breached its contract by using a COI rate scale that
exceeded the guaranteed maximum rate.
Johnson’s policy also contains two other COI rate sections.
One section, entitled “Cost of Insurance Rates,” states:
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The monthly cost of insurance rate is based on sex,
attained age, and rate class of the Insured and on the
policy year. Attained age means age nearest birthday
on the prior policy anniversary. Monthly cost of
insurance rates will be determined by us, based on
our expectations as to future mortality experience.
Any change in the monthly cost of insurance rates
will be on a uniform basis for insureds of the same
class such as age, sex, rate class, and policy year.
However, the cost of insurance rates will not be
greater than those in the Table of Guaranteed
Maximum Insurance Rates, shown in the Policy
Schedule.
(Emphasis added.) Another section, entitled “Non-Dividend
Paying,” states:
This policy does not pay dividends and does not share
in our surplus or profits. Any change in insurance
rates or interest rates will be prospective and will be
subject to our future expectations as to mortality and
interest.
(Emphasis added.) The parties dispute the meaning of the above
policy terms. We thus set forth their contentions and the contract
issues on appeal. 1
1 Other plaintiffs and other Protective policies were originally part of this case.
One policy included an endorsement that is not in Johnson’s policy.
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II. CONTRACT INTERPRETATION ISSUES
Although Protective’s internal monthly COI rate scale never
exceeded the Table’s guaranteed maximum monthly rates,
Johnson claims the policy contractually obligated Protective to
reassess, redetermine, and reduce its internal COI rates when by
2012 nationwide mortality had improved.
Specifically, Johnson’s complaint alleges that Protective
breached its contract because: (1) the policy’s language required
Protective to reassess and redetermine its COI rates based on
exclusively “improved mortality expectations and experience”;
(2) nationwide mortality rates improved at 1% per year during the
Class Period; (3) Protective thus must have “enjoyed significantly
improved mortality experience and expectations”; but
(4) Protective never redetermined COI rates “a single time” and
wrongly continued to use its initial COI rate scale that considered
other factors, including its expenses and lapse rates. His complaint
also contains an alternative breach of contract theory: Protective
did elect to redetermine and actually change its monthly COI rates
during the Class Period, but wrongfully ignored its expectations as
In the “Cost of Insurance Rates” section in the Policy to which
this endorsement is attached, we state that monthly cost of
insurance rates will be determined by us, based on our
expectations as to future mortality experience. . . .
Any change in our scale of cost of insurance rates will be based
solely on our expectations as to future mortality experience.
(Emphasis added.) This endorsement is not relevant because this case now
involves only Johnson’s policy.
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to future mortality experience. Johnson complains that his
“monthly mortality charges have increased from $124.61 in 2012 to
$285.90 in 2019” and his “monthly COI rates have increased by
more than 100%.”
Protective responds that Johnson’s complaint fails to state a
breach of contract claim because: (1) the policy does not impose a
contractual duty requiring that Protective reassess and
redetermine its COI rates “based on” exclusively its “expectations
as to future mortality experience”; (2) the policy does not preclude
Protective from using its internal COI rate scale assigned to cover
Johnson’s life until age 94, as long as Protective does not exceed the
guaranteed maximum monthly COI rates in the policy’s Table; and
(3) the policy does not preclude Protective from considering other
factors impacting its COI rates.
This appeal presents these contract interpretation issues.
First, after setting at inception its internal COI rate scale to cover
Johnson’s life, did Protective have a contractual duty to reassess
and redetermine that COI rate scale during the Class Period?
Second, even if Protective had a contractual duty to reassess
and redetermine its COI rate scale, whether the policy (1) requires
Protective to redetermine its COI rate based on exclusively its
“expectations as to future mortality experience” and (2) precludes
Protective from considering any other factors.
And third, whether Protective could ignore its expectations
as to future mortality when it chose or elected voluntarily to
reassess and redetermine its COI rates.
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III. PRECEDENT ABOUT COI RATES
The parties agree that South Carolina law governs the
interpretation of Johnson’s policy. See Bah. Sales Assoc., LLC v.
Byers, 701 F.3d 1335, 1342 (11th Cir. 2012) (“If the parties litigate
the case under the assumption that a certain law applies, we will
assume that that law applies.”). The parties, however, do not cite,
and we have not located, a South Carolina appellate court decision
involving a life insurance policy with COI rates.
Yet, our Court and two other circuits have interpreted
universal life policies with COI rates. See Anderson v. Wilco Life Ins.
Co., 17 F.4th 1339, 1340-41 (11th Cir. 2021) (applying Georgia law);
Slam Dunk I, LLC v. Conn. Gen. Life Ins. Co., 853 F. App’x 451, 452
(11th Cir. 2021) (unpublished) (applying Florida law); Norem v.
Lincoln Benefit Life Co., 737 F.3d 1145, 1147-49 (7th Cir. 2013)
(applying Illinois law); Vogt v. State Farm Life Ins. Co., 963 F.3d 753,
761 (8th Cir. 2020) (applying Missouri law). We review these
decisions before turning to South Carolina law.
A. Anderson v. Wilco Life Ins. Co. (11th Cir. 2021)
In Anderson v. Wilco Life Insurance Co., the policy referenced:
(1) an “[a]ctual monthly” COI rate; (2) a “guaranteed monthly”
COI rate; and (3) a “current monthly” COI rate. 17 F.4th at 1340-
43. How our Court used rules of contract construction to interpret
the COI rate terms is instructive.
Similar to Protective’s Table, Wilco’s Table of guaranteed
COI rates listed the attained age and the maximum possible COI
rate, which generally increased each year. Id. at 1343. The dispute
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involved the paragraph below that Table, that said “[a]ctual
monthly” COI rates “will be determined . . . based on the policy
cost factors described in your policy,” as follows:
The cost of insurance rates shown above are based on
the Commissioner’s 1980 standard ordinary male
mortality table, age last birthday. Actual monthly cost
of insurance rates will be determined by the
company based on the policy cost factors described in
your policy. However, the actual cost of insurance
rates will not be greater than those shown above.
Id. (emphasis added and font altered). Wilco’s policy also had a
“Cost of Insurance” section with a formula for the monthly COI
charge that included a multiplier for the monthly COI rate. Id.
Wilco’s COI Rate section then differentiated between “the
guaranteed” and “the current” monthly COI rates:
The guaranteed monthly cost of insurance rates for
the policy are based on the insured’s sex, attained age
and premium class on the date of issue. Attained age
means age on the prior policy anniversary except
when this policy is issued when it means age last
birthday prior to policy date. These rates are shown
on a Policy Data Page.
Current monthly cost of insurance rates will be
determined by the Company. The current monthly
cost of insurance rates will not be greater than the
guaranteed monthly cost of insurance rates which are
listed on a Policy Data Page.
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Id. at 1344 (emphasis added). Even though her policy said the
“current monthly” COI rate “will be determined by the Company,”
the plaintiff focused on the paragraph below the COI rate Table,
which said the “actual monthly” COI rates “will be determined by
the Company based on the policy cost factors described in your
policy.” Id. at 1343-45 (font altered).
The Wilco plaintiff argued (1) the only “cost factors described
in [the] policy” were those associated with the guaranteed monthly
COI rate, which were “sex, attained age, and premium class” and
(2) therefore, “the policy required Wilco to base her current
monthly rate” also “on her age, sex, and premium class.” Id. at
1341, 1344-45. Wilco countered that its policy unambiguously gave
it “discretion to set the current monthly rate provided that the
amount [did] not exceed the guaranteed monthly rate.” Id. at 1345.
In affirming the dismissal of plaintiff’s complaint, this Court
held that under Georgia law, the policy “unambiguously gives
Wilco the discretion to set [plaintiff’s] current monthly rate, so long
as that rate does not exceed the guaranteed monthly rate.” Id. at
1346. We acknowledged that the plaintiff stressed that the policy—
i.e., the paragraph under the Table—provided that the “[a]ctual
monthly” COI rate “will be determined by the company based on
the policy cost factors described in your policy.” Id. at 1347
(quotation marks omitted). However, we pointed out that “the
policy never mentions policy cost factors in conjunction with the
current monthly rate.” Id. The only factors mentioned in the
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policy—the insured’s “sex, attained age, and premium class”—
relate to the guaranteed monthly COI rate. Id.
Despite this sentence—that “[a]ctual monthly” COI rates
“will be determined based on the policy cost factors described in
your policy”—the Wilco Court concluded the policy language was
not ambiguous. Id. at 1348-49. Citing Georgia law, we explained
that: “[e]ven a policy which is susceptible to two reasonable
meanings is not ambiguous if the trial court can resolve the
conflicting interpretations by applying the rules of contract
construction.” Id. at 1348 (quotation marks omitted and
alterations adopted). Applying those rules, the Wilco Court
reasoned that “the specific provision about the current monthly
rate”—i.e., “the current monthly rate is determined by the
company, with no mention of factors”—controlled to the extent it
was inconsistent with the paragraph about the “[a]ctual monthly”
COI rate under the Table, stating it “will be determined by the
Company based on to-be-described policy cost factors.” Id. at 1347.
We also rejected the plaintiff’s claims that (1) the policy’s use
of “based on” was reasonably susceptible to an exclusivity
interpretation and (2) the cost factors—sex, attained age, premium
class—in the guaranteed-rate sentence could be grafted on the
current monthly rate. Id. We found plaintiff’s argument
“untenable” because (1) it would mean the guaranteed/current
monthly rates “would be calculated in the exact same way,” (2) “it
destroys the guaranteed/current monthly rate distinction,” and
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(3) it would render the phrase in the COI rate section—“will be
determined by the Company”—“superfluous.” Id. at 1348-49.
When read as a whole, the policy demonstrated that “Wilco
was required to calculate[] Anderson’s guaranteed monthly rate
based on her age, sex, and premium class, but that this rate was
distinct from the current monthly rate, which Wilco had discretion
to set at any level, so long as it did not exceed the guaranteed
monthly rate.” Id. at 1346-47.
B. Slam Dunk v. Conn. Gen. Life Ins. Co. (11th Cir. 2021)
Our Court has addressed another universal life policy with
language quite similar to Protective’s. In Slam Dunk I, LLC v.
Connecticut General Life Insurance Co., the plaintiff’s policy stated the
monthly COI rates “are determined by [the insurer] based on its
expectations as to future mortality experience.” 2 853 F. App’x at
452-53. The full COI rate section, however, stated:
The Monthly Cost of Insurance Rates are based on
the Insured’s Attained Age, the type of benefit, the
Class of Insured and whether premiums for that
Insured are paid directly to [Connecticut General] or
through payroll deductions. The Monthly Cost of
Insurance Rates are determined by [Connecticut
General] based on its expectations as to future
mortality experience. Adjustment in the Monthly
2 Unpublished opinions, like Slam Dunk, “are not precedential, so they do not
bind us . . . to any degree.” Patterson v. Ga. Pac., LLC, 38 F.4th 1336, 1346 (11th
Cir. 2022) (citing 11th Cir. R. 36-2). We discuss Slam Dunk only because the
parties’ appellate briefs heavily focus on it.
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Cost of Insurance Rates may be made by
[Connecticut General] from time to time, but not
more than once a year, and will apply to Insureds of
the same class. Under no circumstance will the
Monthly Cost of Insurance Rates for Life Insurance
ever be greater than those shown in the Table of
Guaranteed Maximum Life Insurance Rates. Such
guaranteed maximum rates are based on the
Commissioners 1980 Extended Term Table (age last
birthday) and 4% effective annual interest.
Id. at 452 (emphasis added).
Our Court affirmed the dismissal of the plaintiff’s complaint
and rejected “a reading of the [] policies that focuses only [on] one
sentence to the exclusion of all others.” Id. at 454. “We must read
the contract as a whole and cannot sever the single sentence
highlighted by [the plaintiff] from the remainder of the COI
provision.” Id. While one sentence “mentions future mortality
experience as a basis for establishing the COI rate,” the
“immediately preceding sentence” establishes that “the COI rates
are also based on ‘the Insured’s Attained Age, the type of benefit,
the Class of the Insured and whether premiums for that Insured are
paid directly to [Connecticut General] or through payroll
deductions.” Id. We reasoned that a reading of the policy that
required monthly COI rates to be exclusively based on the insurer’s
expected future mortality experience would ignore the
immediately preceding sentence. Id.
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We also reasoned that “[n]othing about the plain and
ordinary meaning of the phrase ‘based on’ connotes exclusivity,”
and “nothing about it implies the list that follows is exhaustive.” Id.
at 455. This Court pointed out that “[h]aving been used twice to
refer to different factors, the phrase ‘based on’ cannot connote
exclusivity without leading to an absurd or internally inconsistent
result.” Id. We therefore “decline[d] to adopt Slam Dunk’s
proposed interpretation because to do so would rewrite the []
policies.” Id. We ruled that this policy interpretation was “most
consistent with Florida contract law.” Id.
Our Slam Dunk decision also relied on the Seventh Circuit’s
Norem decision, which we discuss.
C. Norem v. Lincoln Benefit Life Co. (7th Cir. 2013)
In Norem v. Lincoln Benefit Life Co., the plaintiff asserted that
the defendant Lincoln (1) was obligated to calculate its COI rate
“based on the insured’s sex, issue age, policy year, and payment
class” and (2) breached its contract by considering other factors,
including expected policy lapse rates, agent commissions, and
anticipated death benefit costs. 737 F.3d at 1147-48. The policy
value had a monthly cost of insurance deduction, calculated as
follows:
1. Divide the death benefit as of the prior monthly
deduction day by 1.003273739 [;] 2. Subtract the
policy value as of that prior monthly deduction day
less the policy fee and less the cost of insurance of any
benefit riders attached to this policy; 3. Multiply the
results by the current cost of insurance rate divided
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by 1,000. The cost of insurance rate is based on the
insured’s sex, issue age, policy year, and payment
class. The rates will be determined by us, but they
will never be more than the guaranteed rates shown
on Page 5.
Id. at 1147 n.2 (alterations in original) (emphasis added).
Affirming summary judgment for the defendant Lincoln,
the Seventh Circuit held that the plain and ordinary meaning of the
phrase “based on” does not imply “exclusivity.” Id. at 1150. The
Seventh Circuit first noted that the policy did not define the phrase
“based on.” Id. at 1149. Next, the Court turned to
Merriam-Webster’s definition of the word “base”: “(1) ‘a main
ingredient;’ (2) ‘a supporting or carrying ingredient;’ (3) ‘the
fundamental part of something.’” Id. (quoting Merriam-Webster’s
Collegiate Dictionary, 101 (11th ed. 2007)). The Court stated that
“[o]ther definitions are in accord: (1) ‘[s]omething on which a thing
stands or by which it is supported;’ or (2) ‘[t]he principal ingredient,
the fundamental element.’” Id. (alterations in original) (quoting
Shorter Oxford English Dictionary Vol. I, 192 (6th ed. 2007)).
The Seventh Circuit concluded that none of these
definitions supported plaintiff Norem’s proposed interpretation—
that “base” or “based on” implies “exclusivity.” Id. at 1149-50.
Therefore, “neither the dictionary definitions nor the common
understanding of the phrase ‘based on’ suggest that Lincoln Benefit
is prohibited from considering factors beyond sex, issue age, policy
year, and payment class when calculating its COI rates.” Id. at 1150.
The Seventh Circuit also noted that (1) the policy included a table
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of “guaranteed maximum rates” and (2) it was undisputed that
“Norem’s COI rates have remained unchanged and have also never
exceeded these guaranteed maximums.” Id.
According to the Seventh Circuit, the policy’s COI rate
provision “is most reasonably read as a description of those
components of the COI rate relevant to an individual insured.” Id.
at 1152. The Seventh Circuit remarked that it was industry practice
for insurers to consider numerous factors in setting COI rates, and
that the specifics of Lincoln’s formula were proprietary and not
disclosed to policyholders. Id. at 1150. The Court stated it was
“logical” the policy would spell out factors specific to the insured
without providing a precise list of all factors it would consider. Id.
The Court also observed that the sentence immediately after
the “based on” clause states that “[t]he rates will be determined by
us but they will never be more than the guaranteed rates shown on
Page 5.” Id. The Court reasoned that “[t]his sentence makes clear
that Lincoln Benefit will utilize its own formula to determine the
rates, subject to the limitation that they cannot exceed the
guaranteed maximum rates.” Id. It determined that interpreting
the “based on” provision “as informational gives meaning to the
provision as a whole.” Id.
Additionally, the Seventh Circuit concluded that “the only
express limitation is found in the explicit guarantee that the COI
rates never be more than the listed maximum rates.” Id. To the
Court, the policy was best read as containing two parts: “first, an
explanatory clause listing key components of the COI rate; and
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second, a guaranteed rate that allows a policyholder to see the
maximum COI charge that could be deducted from his policy
value.” Id.
The Seventh Circuit also distinguished other district court
cases involving a “based on” clause that referred to “mortality
experience” and a lawsuit focused on “an increase” in COI rates
despite declining mortality. Id. at 1153-54. Plaintiff Norem had not
claimed or demonstrated that the insurer’s COI rates “are ‘utterly
divorced’ from mortality.” Id.
Ultimately, the Seventh Circuit found “the reasoning of the
cases advanced by Lincoln Benefit” convincing. Id. at 1155. The
Seventh Circuit said: “These cases hold generally that absent a
promise to use a specific formula when calculating a COI rate, an
insurer is not bound to consider only those factors listed in a COI
provision.” Id. The Seventh Circuit concluded that “[t]his
interpretation comports with the common understanding of the
phrase ‘based on’ and is also the most reasonable way to construe
the language of the COI provision as a whole.” Id.
After Norem, the Eighth Circuit in Vogt disagreed with the
Seventh Circuit. So we review Vogt.
D. Vogt v. State Farm Life Ins. Co. (8th Cir. 2020)
In Vogt v. State Farm Life Insurance Co., the Eighth Circuit
concluded “based on” was ambiguous, should be construed against
State Farm, and read to imply exclusivity of the listed factors. 963
F.3d at 761-64 (applying Missouri law). Once again, the policy
terms were the crux of the lawsuit.
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In 1999, Vogt purchased his life insurance policy, but
surrendered it in 2013 for its policy value. Id. at 761. Dissatisfied
with the COI fees, Vogt brought breach of contract and conversion
claims as part of a class action. Id. Vogt alleged State Farm used
non-listed, non-mortality related factors to calculate its COI rate.
Id.
State Farm’s policy allowed monthly deductions for “(1) the
cost of insurance, (2) the monthly charges for any riders, and (3) the
monthly expense charge.” Id. The COI rate provision stated:
[The Monthly Cost of Insurance] rates for each policy
year are based on the Insured’s age on the policy
anniversary, sex, and applicable rate class. A rate class
will be determined for the Initial Basic Amount and
for each increase. The rates shown on page 4 are the
maximum monthly cost of insurance rates for the
Initial Basic Amount. Maximum monthly cost of
insurance rates will be provided for each increase in
the Basic Amount. We can charge rates lower than
those shown. Such rates can be adjusted for projected
changes in mortality but cannot exceed the maximum
monthly cost of insurance rates. Such adjustments
cannot be made more than once a calendar year.
Id. Vogt claimed State Farm (1) may set its COI rates based on the
enumerated mortality factors of age, sex and rate class but
(2) breached its policy by “using non-enumerated factors unrelated
to a policyholder’s mortality risk,” that “included taxes, profit
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22 Opinion of the Court 22-12991
assumptions, investment earnings, and capital and reserve
requirements.” Id. Because State Farm included non-mortality
factors in its COI rates, Vogt asserted that “State Farm deducted
from the monthly premium payments more than what the policy
stated would be included in the COI fees.” Id.
The district court granted plaintiff Vogt’s motion for
summary judgment as to liability, concluding the policy was
ambiguous and should be construed against State Farm. Id. at
761-72. After a trial as to damages, a jury returned a $34 million
verdict in the plaintiff class’s favor. Id. at 761. State Farm appealed.
Applying Missouri law, the Eighth Circuit affirmed the
summary judgment grant and the damages verdict in favor of the
plaintiff class, and held that, “at the very least the phrase [‘based
on’] is ambiguous.” Id. at 763. The Eighth Circuit explained that
the policy “contains no definition for the phrase ‘based on,’ so we
rely on the plain and ordinary meaning of the phrase.” Id. As
opposed to dictionary definitions, the Court relied on how a
reasonable person would read the policy language, concluding:
[A] person of ordinary intelligence purchasing an
insurance policy would not read the provision and
understand that where the policy states that the COI
fees will be calculated “based on” listed mortality
factors that the insurer would also be free to
incorporate other, unlisted factors into this
calculation.
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22-12991 Opinion of the Court 23
Id. at 763-64. The Eighth Circuit noted that the Seventh Circuit’s
Norem (1) concluded “based on” did not imply “exclusivity of
factors” but (2) “acknowledge[d] that other courts have reached the
opposite conclusion.” Id. at 764. The Eighth Circuit stated that the
fact that several courts “have examined the issue in very similar
circumstances and have reached differing conclusions supports the
conclusion that the phrase is ambiguous.” Id.
The Eighth Circuit observed that State Farm was free to
draft the policy language to unambiguously give it the freedom to
collect a COI fee based on unenumerated factors, but it did not. Id.
The Eighth Circuit concluded that “the phrase ‘based on’ in the
COI provision is at least ambiguous and thus must be construed
against State Farm.” Id. 3
In addition to addressing COI rates, these circuit court
decisions illustrate the importance of contract interpretation
principles. We now set forth South Carolina’s contract law.
IV. SOUTH CAROLINA LAW
Courts in South Carolina “have a long history of formalistic
interpretation with respect to all contracts and have repeatedly
held that the ‘[i]nsurance policies are subject to general rules of
3 Johnson cites Mirkin v. XOOM Energy, LLC to support his argument that the
“will be . . . based on” language creates a duty to change rates. See generally
931 F.3d 173 (2d Cir. 2019). Besides not involving a life insurance policy,
Mirkin is inapplicable because it was not disputed that the consumers had to
pay a variable rate for energy purchases and that XOOM had an ongoing
contractual duty to base its variable rates on supply costs. See id. at 175–77.
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24 Opinion of the Court 22-12991
contract construction.’” Bell v. Progressive Direct Ins. Co., 757 S.E.2d
399, 406 (S.C. 2014) (quoting Gambrell v. Travelers Ins. Cos., 310
S.E.2d 814, 816 (S.C. 1983)). Contract language in an insurance
policy must be given its plain and ordinary meaning. Williams v.
Gov’t Emps. Ins. Co., 762 S.E.2d 705, 709-10 (S.C. 2014); Bell, 757
S.E.2d at 406; Sloan Constr. Co. v. Cent. Nat’l Ins. Co. of Omaha, 236
S.E.2d 818, 819 (S.C. 1977). “Where the contract’s language is clear
and unambiguous, the language alone determines the contract’s
force and effect.” Williams, 762 S.E.2d at 709 (quoting McGill v.
Moore, 672 S.E.2d 571, 574 (S.C. 2009)).
When a policy does not define a term, South Carolina courts
consider dictionary definitions as helpful tools to ascertain its plain,
ordinary, and common meaning. See Super Duper Inc. v. Pa. Nat’l
Mut. Cas. Ins. Co., 683 S.E.2d 792, 796 (S.C. 2009); Barkley v. Int’l
Mut. Ins. Co., 86 S.E.2d 602, 604 (S.C. 1955); S.C. Farm Bureau Mut.
Ins. Co. v. Oates, 588 S.E.2d 643, 646 (S.C. Ct. App. 2003).
“The construction of a clear and unambiguous contract is a
question of law for the court to determine.” Williams, 762 S.E.2d
at 710. It is also “a question of law for the court whether the
language of a contract is ambiguous.” Id. (quoting S.C. Dep’t of Nat.
Res. v. Town of McClellanville, 550 S.E.2d 299, 302-03 (S.C. 2001));
McGill, 672 S.E.2d at 574.
An insurance contract is read as a whole document so that
one may not create an ambiguity by pointing out a single sentence
or clause. Schulmeyer v. State Farm Fire and Cas. Co., 579 S.E.2d 132,
134 (S.C. 2003) (quoting Yarborough v. Phx. Mut. Life Ins. Co., 225
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22-12991 Opinion of the Court 25
S.E.2d 344, 348 (S.C. 1976)); McGill, 672 S.E.2d at 574. “Whether a
contract is ambiguous is to be determined from examining the
entire contract, not by reviewing isolated portions of the contract.”
Williams, 762 S.E.2d at 710. “The meaning of a particular word or
phrase is not determined by considering the word or phrase by
itself, but by reading the policy as a whole and considering the
context and subject matter of the insurance contract.” Schulmeyer,
579 S.E.2d at 134; Yarborough, 225 S.E.2d at 349.
A contract “is ambiguous when it is capable of more than
one meaning when viewed objectively by a reasonably intelligent
person who has examined the context of the entire integrated
agreement and who is cognizant of the customs, practices, usages
and terminology as generally understood in the particular trade or
business.” Williams, 762 S.E.2d at 710 (quoting Hawkins v.
Greenwood Dev. Corp., 493 S.E.2d 875, 878 (S.C. Ct. App. 1997)).
“If the court decides the language is ambiguous, however,
evidence may be admitted to show the intent of the parties, and the
determination of the parties’ intent becomes a question of fact for
the fact-finder.” Id. (citing Hawkins, 493 S.E.2d at 878-79).
“Ambiguous or conflicting terms in an insurance policy must be
construed liberally in favor of the insured and strictly against the
insurer.” Id. (quoting Diamond State Ins. Co. v. Homestead Indus.,
Inc., 456 S.E.2d 912, 915 (S.C. 1995)). For ambiguous contracts,
“[c]ourt[s] will look to the reasonable expectations of the insured
at the time when he entered into the contract.” Bell, 757 S.E.2d at
407.
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26 Opinion of the Court 22-12991
If a form insurance contract is ambiguous, contra proferentem,
which construes ambiguity against the drafter (i.e., the insurer),
applies as a rule of last resort. Williams, 762 S.E.2d at 710; Waters
v. S. Farm Bureau Life Ins. Co., 617 S.E.2d 385, 388 (S.C. Ct. App.
2005) (“After a consideration of extrinsic evidence, the jury is to
resolve all remaining ambiguity in favor of the insured.”).
We now apply South Carolina law to Johnson’s policy.
V. ALLEGED DUTY AS TO COI RATES
The first issue is whether after initially setting its monthly
COI rate scale in 1988 to cover the life of Johnson, Protective had
a contractual duty or obligation to reassess and redetermine that
COI rate scale during the Class Period, when by 2012 nationwide
mortality had improved.
Johnson contends this sentence, in the middle of one of the
three COI rate sections, imposed that requirement: “Monthly cost
of insurance rates will be determined by us, based on our
expectations as to future mortality experience.” Johnson argues
that the “will be determined” phrase obligates Protective to
reassess and recalculate its monthly COI rates when mortality risks
significantly improve. He claims that “will” is a mandatory, not
permissive word and creates a contractual command. Johnson
distinguishes “will” from “may” and “might.”
As to time of performance, Johnson asserts this contractual
duty applies “as often as every month,” but, at a minimum,
“periodically,” and those “precise intervals at which Protective’s
COI rates ‘will be determined’” are a fact question. Johnson
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22-12991 Opinion of the Court 27
submits that we “need not reach the issue of how frequently this
periodic duty arises,” but must decide at this stage only that such a
contractual duty exists.
Protective replies that Johnson reads the “will be
determined” phrase in isolation and out of context. Protective
asserts that phrase, read with the rest of the sentence, the entire
paragraph, and the policy as a whole, merely acknowledges
Protective’s ability or capacity to choose its monthly COI rates in
the future. Protective contends the policy leaves it to Protective to
determine whether and when to change its monthly COI rates in
the future, subject to the requirement that “any change” not
exceed the guaranteed maximum monthly COI rates in Johnson’s
policy’s Table. Indeed, those guaranteed maximum monthly COI
rates (1) are listed in great detail in the policy’s monthly COI rate
Table, (2) thoroughly covered the life of Johnson specifically for
each year from age 0 to 94, and (3) thus are known by him as the
policyholder at inception.
Regarding the “will be determined” phrase, both parties cite
pieces of dictionary definitions of “will.” Our review of them
reveals “will” has more than one ordinary or common meaning,
making context key to our contract interpretation.4
4 “Many words have more than one ordinary meaning. The fact is that the
more common the term . . . the more meanings it will bear.” ANTONIN SCALIA
& BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 70
(2012).
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28 Opinion of the Court 22-12991
For example, the American Heritage Dictionary defines
“will” as (1) “[u]sed to indicate simple futurity” and (2) “[u]sed to
indicate capacity or ability,” but also as (3) “[u]sed to indicate
requirement or command.” Will, AMERICAN HERITAGE
DICTIONARY OF THE ENGLISH LANGUAGE ONLINE,
https://perma.cc/YUU5-SULL.
Merriam-Webster defines “will” as (1) “used to express
futurity” and (2) “used to express desire, choice, willingness,” but
also as (3) “used to express a command, exhortation, or
injunction.” Will, MERRIAM-WEBSTER ONLINE,
https://perma.cc/S2BB-BV6G.
Webster’s Third New International Dictionary defines
“will” as (1) “used to express capability or sufficiency” but also as
(2) “used to express a command, exhortation, or injunction.”
WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2616-17 (3rd
ed. 1961).
Webster’s New World Dictionary, from 1988, defines “will”
as (1) “used to express expectation or surmise” and (2) “used to
express possibility,” but also as (3) “used to express determination,
compulsion, or obligation.” WEBSTER’S NEW WORLD DICTIONARY
OF AMERICAN ENGLISH 1528 (3d ed. 1988).
The Oxford English Dictionary defines “will” as
(1) “[e]xpressing potentiality, capacity, or sufficiency: can, may, be
able to, be capable of ——ing,” but also as (2) “[e]xpressing
determination, wish, or intention to bring about some action,
event, or state of things in the future: intend to, mean to.” Will,
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22-12991 Opinion of the Court 29
OXFORD ENGLISH DICTIONARY ONLINE, https://perma.cc/BNY6-
EHMR.
When common words, like “will,” have different meanings,
courts “must use the context in which a given word appears to
determine its aptest, most likely sense.” ANTONIN SCALIA & BRYAN
A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS
Appendix A, 418 (2012). In the same vein, South Carolina law
provides that the meaning of a word is not always determined by
the word alone, but “by reading the policy as a whole and
considering the context and subject matter” of the policy.
Schulmeyer, 579 S.E.2d at 134.
Accordingly, let’s consider the phrase in the context of the
complete sentence. The sentence broadly leaves the monthly COI
rate to be determined in the future “by us” (Protective) based on
“our expectations.” (Emphasis added.) This surrounding language
does not bespeak a mandatory obligation to another party. In this
context, “will” seems to be used as merely a future tense verb as to
what Protective may choose to do in the future. 5
5 Johnson, quoting § 27.3(b) of Bryan Garner’s The Redbook, argues that
“[g]enerally speaking, contractual promises are well expressed with will.”
However, the topic of § 27.3(b) is entitled the “Ambiguous ‘shall,’” and § 27.3(b)
explains how “contracts often use the word [shall] in as many as four or five
different senses.” BRYAN GARNER, THE REDBOOK: A MANUAL ON LEGAL STYLE
562, § 27.3(b) (4th ed. 2018). Section 27.3(b) reviews how “[s]ometimes its
sense is indeed mandatory”; “sometimes it means ‘may’”; and “sometimes it
is merely a future-tense verb.” Id. The same can be said for “will.”
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30 Opinion of the Court 22-12991
An examination of the entire paragraph yields this meaning
too. The very next sentence states: “Any change in the monthly
cost of insurance rates will be on a uniform basis for insureds of the
same class such as age, sex, rate class, and policy year.” (Emphasis
added.) “Any change” suggests no change is required by
Protective, but is possible in the future. And the inclusion of the
“uniform basis” term is informative. If the policy language in the
first sentence was a mandatory contractual command, then all such
life policies had that obligation and there would be no need for that
“uniform basis” term. On the other hand, if Protective has the
ability or choice to make a “change” in its internal COI rates, it will
do so uniformly for other insureds with the same age, sex, rate
class, and policy year. The need for this uniformity clause makes
more sense if Protective has the ability, not a mandatory
obligation, to reassess and “change” its internal COI rates set at
inception.
This reading of the “will be determined” phrase is reinforced
by the policy as a whole. Other provisions set forth highly specific
and detailed guaranteed maximum monthly COI rates for the life of
Johnson from age 0 to 94. In contrast, Johnson’s isolated relied-upon
sentence does not contain a formula or table for calculating COI
rates in the future. The most reasonable reading of that sentence
in context is that Protective has the capacity, ability, choice, or
possibility to determine its internal COI rates in the future, as long
as it does not exceed that guaranteed maximum monthly COI rate.
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22-12991 Opinion of the Court 31
Tellingly too, the “will be determined” sentence omits any
clue as to when the alleged mandatory duty to reassess internal
COI rates would have to be performed. Even Johnson
acknowledges that his policy does not specify in this isolated
sentence, or anywhere else, the precise intervals at which
Protective’s COI rates will be redetermined; he instead argues
“those precise intervals are a fact question.”
Although Protective’s internal COI rate scale is applied
monthly as part of the monthly cost of insurance charge, Johnson
is careful not to stress that Protective must redetermine the COI
rate each and every month. Think about this though. If this
sentence is read, as Johnson suggests, to impose a contractual
command “as to the monthly COI rate,” then that obligation would
be monthly. It would not be periodic, i.e., stop one year, skip over
a few years, and then start again in the Class Period. The text
Johnson relies on does not support Johnson’s periodic theory.
For all of these reasons, we are not persuaded that the “will
be determined” phrase read in context mandates that Protective,
each month or even periodically, reassess and redetermine its
internal monthly COI rates set at inception for the life of Johnson.
VI. POLICY TERM: “BASED ON”
Alternatively, let’s assume that Protective had a contractual
duty to reassess and redetermine its COI rate scale each month or
periodically. The next question is whether the policy (1) requires
Protective to redetermine its monthly COI rates based on
exclusively its “expectations as to future mortality experience” and
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32 Opinion of the Court 22-12991
(2) precludes Protective from considering any other factors.
Johnson’s main theory underlying his breach of contract claim is
that (1) “based on” connotes exclusivity and (2) Protective breached
its contractual duty by not redetermining its monthly COI rates
based on exclusively its “expectations as to future mortality
experience.”
As noted above, the circuit courts are split on the meaning
of the “based on” term as to COI rates. Some concluded that
“based on” does not mean solely or exclusively and granted
judgment for the insurance company. Slam Dunk, 853 F. App’x at
455; Norem, 737 F.3d at 1155; see also Wilco, 17 F.4th at 1347; Thao
v. Midland Nat’l Life Ins. Co., 549 F. App’x 534, 537 (7th Cir. 2013)
(applying Norem). These decisions ruled that it is not reasonable to
read “only,” “exclusively,” or “solely” into the term “based on.”
Slam Dunk, 853 F. App’x at 454; Norem, 737 F.3d at 1150-51.
The Eighth Circuit, however, determined that “based on”
connotes exclusivity, or is “at least ambiguous.” Vogt, 963 F.3d at
763. The Eighth Circuit construed the term against the defendant
insurer and granted judgment in the plaintiff’s favor. Id.; see also
Meek v. Kan. City Life Ins. Co., 664 F. Supp. 3d 923, 933-34 (W.D. Mo.
2023). And some district courts concluded that “based on” is
ambiguous and denied an insurer judgment as a matter of law. See,
e.g., PHT Holding II LLC v. N. Am. Co. for Life & Health Ins., ---
F. Supp. 3d ----, 2023 WL 3714746, at *9-10, 17 (S.D. Iowa May 27,
2023) (summary judgment motion); Fine v. Kan. City Life Ins. Co.,
627 F. Supp. 3d 1153, 1158-60 (C.D. Cal. 2022) (motion to dismiss);
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22-12991 Opinion of the Court 33
McClure v. State Farm Life Ins. Co., 608 F. Supp. 3d 813, 818-22 (D.
Ariz. 2022) (summary judgment motion); see also Fleisher v. Phx. Life
Ins. Co., 18 F. Supp. 3d 456, 470-74, 479 (S.D.N.Y. 2014) (concluding
“based on” connotes exclusivity, or is at least ambiguous, but
granting summary judgment to the insurer for other reasons).
Johnson’s policy does not define “based on” used in the COI
rate section. We thus begin, under South Carolina law, with the
term’s plain and ordinary meaning. See Williams, 762 S.E.2d at
709-10. As discussed above, South Carolina courts consider
dictionary definitions to ascertain the plain and ordinary meaning
of a term. See Super Duper Inc., 683 S.E.2d at 796; Barkley, 86 S.E.2d
at 604; Oates, 588 S.E.2d at 646. Generally, dictionaries define
“base,” not “based on,” so we start there.
Webster’s New Collegiate Dictionary defines “base” as:
(1) “a main ingredient”; (2) “a supporting or carrying ingredient”;
or (3) “the fundamental part of something.” WEBSTER’S NINTH
NEW COLLEGIATE DICTIONARY, 133 (1986).
Webster’s New World Dictionary defines “base” as: (1) “the
fundamental or main part” and (2) “the principal or essential
ingredient.” WEBSTER’S NEW WORLD DICTIONARY OF AMERICAN
ENGLISH 114 (3d ed. 1988).
The Oxford English Dictionary defines “base” as: (1) “[a]
ground for an action or attitude; an underlying reason or
justification” and (2) “[t]he main or most important ingredient or
element, to which other things are added or from which another
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34 Opinion of the Court 22-12991
thing is derived.” Base, OXFORD ENGLISH DICTIONARY ONLINE,
https://perma.cc/WA97-ZEFW.
The American Heritage Dictionary defines “base” as “[t]he
fact, observation, or premise from which a reasoning process is
begun.” Base, AM. HERITAGE DICTIONARY OF THE ENGLISH
LANGUAGE ONLINE, https://perma.cc/D7VC-QT84.
These definitions are consistent with the dictionary entries
our Court approved in Slam Dunk, which defined “base” as “a main
ingredient,” “a supporting or carrying ingredient,” “the
fundamental part of something,” “[s]omething on which a thing
stands or by which it is supported,” and “[t]he principal ingredient,
the fundamental element.” See Slam Dunk, 853 F. App’x at 454-55
(discussing Seventh Circuit’s cited dictionary entries in Norem);
Norem, 737 F.3d at 1149 (applying Illinois law); see also Thao, 549
F. App’x at 537 (applying Wisconsin law and following Norem).
We agree with Slam Dunk and Norem that “based on” does
not mean “exclusively on” or “solely on.” Johnson’s complaint
alleged that Protective’s policy required it to base its monthly COI
rate “exclusively” or “solely” on its “expectations as to future
mortality experience.” Because the policy does not have that
requirement, the district court did not err in dismissing Johnson’s
breach of contract claim to the extent it relied on an allegation of
“exclusivity.”
So far, the above contract issues are premised on Johnson’s
allegation that Protective did not reassess and redetermine its
monthly COI rates “a single time” during the Class Period.
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22-12991 Opinion of the Court 35
Johnson makes a different allegation for his final breach of contract
theory, which we address.
VII. IGNORING MORTALITY EXPERIENCE
As his final breach of contact theory, Johnson contends that
(1) Protective actually did choose to reassess, and did redetermine,
its internal COI rate scale during the Class Period, (2) as to such
redeterminations, the policy required Protective to use its
“expectations as to future mortality experience,” (3) but Protective
violated the policy by ignoring its “expectations as to future
mortality experience” in making its redeterminations.
Protective responds this breach of contract theory is not
properly before our Court. Protective asserts Johnson did not
argue this theory below and is precluded from raising it on appeal.
See Bryant v. Jones, 575 F.3d 1281, 1308 (11th Cir. 2009) (holding
legal theories not raised before the district court may not ordinarily
be raised for the first time on appeal).
After review, we conclude Johnson did not forfeit this
breach of contract theory. Johnson’s complaint expressly alleges
that during the Class Period, Protective conducted “periodic
redeterminations, and continuous mortality review.” Despite
these redeterminations, Johnson’s complaint expressly alleges that
his “monthly COI rates have not been determined based on
Protective’s improving mortality expectations, and the results of
Protective’s new mortality reviews during the Class Period are
being ignored to the detriment [of] the members of the Class.”
Johnson’s complaint also (1) describes his current COI rates as
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36 Opinion of the Court 22-12991
“wildly divorced from current expectations of future mortality
experience” and (2) alleges that Protective’s COI rates do not
“reflect” its expectations as to future mortality experience.
In reply, Protective emphasizes that at a hearing on its
motion, Johnson summarized his case as primarily concerning
whether Protective (1) had an ongoing contractual duty “to review
and adjust its COI rates” and (2) was contractually permitted to
consider factors other than its expectations as to future mortality
experience. At the hearing, however, Johnson also made clear that
he was asserting a theory of liability “that even if Protective was
allowed to consider factors other than expectations of future
mortality experience, . . . it did not determine its COI rates in
accordance with the contract because it ignored its expectations of
future mortality.”
The record also shows Johnson stressed this breach of
contract theory in his opposition to Protective’s motion for
judgment on the pleadings and in his post-hearing briefing. For
example, Johnson’s opposition brief argued that Slam Dunk was not
dispositive of his breach of contract claim because “allowing
Protective to consider factors such as expense and lapse is not the
same as allowing Protective to ignore the enumerated factors.” In
post-hearing briefing, Johnson emphasized that the complaint
alleges “that Protective did ignore its improving mortality
expectations and did not treat them as the ‘main ingredients.’”
After review, we also conclude that Johnson’s complaint
sufficiently alleges that Protective did redetermine its COI rates but
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22-12991 Opinion of the Court 37
ignored its “expectations as to future mortality experience” when
it did so. While the policy did not require Protective to
redetermine its internal COI rates set at inception, that’s a separate
matter from the issue of what the policy required if Protective
chose or elected voluntarily to reassess and change them.
Further, in assessing Protective’s contractual duty under the
policy, the district court erroneously cabined that duty to whether
Protective was obligated to reassess and redetermine its COI rates,
as opposed to also what duty Protective had if Protective chose to
reassess and did redetermine its COI rates. While Johnson’s
highlighted sentence in the COI rate section did not mandate a
redetermination by Protective, that sentence in context does
support Johnson’s alternative breach of contract theory that if
Protective chose to, and did, redetermine its COI rates, Protective
was obligated to consider its “expectations as to future mortality
experience.”
Given the COI rate section, the district court erred in
dismissing Johnson’s breach of contract claim to the extent Johnson
asserted Protective chose to, and did, reassess and redetermine its
COI rate scale during the Class Period, but “ignored” its
expectations as to future mortality experience in doing so. As
explained above, “based on” means as a main or principal
ingredient, and thus Protective could not ignore that factor. While
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38 Opinion of the Court 22-12991
it remains to be seen what can be proven, at this pleadings stage
Johnson’s complaint states a breach of contract claim to that extent.
VIII. PROPOSED THIRD AMENDED COMPLAINT
Before concluding, we address a procedural issue raised by
Johnson as to his proposed third amended complaint. Johnson
argues that the district court erred by not “adequately considering”
the new factual allegations in 13 new paragraphs of his proposed
third amended complaint (“TAC”) and by describing it as a “carbon
copy” of the complaint. Johnson asserts that the district court
incorrectly found his proposed TAC was a futile “carbon copy,”
and erroneously denied Johnson’s request for leave to amend.
Protective responds that Johnson did not file a standalone
motion for leave to amend, and thus his request as to the proposed
TAC was not properly before the district court. Protective points
out that Johnson only requested leave to amend in the last two
pages of his brief in opposition to Protective’s motion for judgment
on the pleadings. Protective asserts the district court “never ruled
on the misplaced request that [Johnson] made in [his] opposition.”
As background, Johnson’s original complaint was filed on
August 13, 2018, his first amended complaint on November 19,
2018, and his second amended complaint on June 29, 2020, which
was the deadline for any amendments of the pleadings. 6 On June
11, 2021, Protective filed its motion for judgment on the pleadings.
6 The district court had set a May 30, 2020 deadline, but it was extended to
June 29, 2020 under the General Orders entered by the Northern District of
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22-12991 Opinion of the Court 39
On August 4, 2021, Johnson filed his 30-page opposition
brief, to which he attached a proposed TAC. His brief asked for
leave to amend in the last two pages. Johnson’s brief summarily
cited Rule 15 and argued he had good cause to amend because (1)
Protective raised Slam Dunk in June of 2021 and (2) Protective
would not be prejudiced. Protective replied that the TAC was
futile in any event.
In its order granting Protective’s motion for judgment on
the pleadings, the district court did not directly address Johnson’s
request for leave to amend embedded in his brief. Its order
mentions Johnson’s request in only a footnote, which describes his
proposed TAC as a “carbon copy” of the complaint, as follows:
The factual allegations discussed in this opinion
appear in [Johnson’s] second amended complaint
(Doc. 92), and [Johnson’s] proposed third amended
complaint, (Doc. 123). The second amended
complaint was the operative complaint when
Protective Life filed the motion for judgment on the
pleadings now before the Court. The proposed third
amended complaint is a carbon copy of the second
amended complaint with one additional allegation:
Even if Protective [Life] Were Permitted
to Consider Other Unenumerated
Factors in Determining COI Rates, It is
Alabama in response to the COVID-19 pandemic. See General Order entered
Apr. 13, 2020, No. 2020-04 (N.D. Ala.); General Order entered Mar. 17, 2020
(N.D. Ala.).
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40 Opinion of the Court 22-12991
Still Dramatically Overcharging
Policyholders and in Breach of Contract
Other than this observation, the district court’s order did not
expressly grant or deny Johnson’s request for leave to amend
embedded in his brief.
On appeal, Johnson emphasizes his proposed TAC was not
a “carbon copy,” but contained “13 additional, new factual
allegations,” “spanning seven pages.” The district court’s order
contained parallel citations to paragraphs that were the same in the
complaint and the proposed TAC. But there were no citations to
the 13 new allegations in the TAC. Thus, the district court’s
footnote characterizing it as a “carbon copy” was not correct.
Nonetheless, the problem for Johnson is that his request for
leave to amend was embedded in his opposition brief and was not
properly before the district court. To properly request leave to
amend, a plaintiff must satisfy two requirements: (1) file a motion
for leave to amend and (2) “[‘]either set forth the substance of the
proposed amendment or attach a copy of the proposed
amendment.’” Cita Tr. Co. AG v. Fifth Third Bank, 879 F.3d 1151,
1157 (11th Cir. 2018) (quoting Long v. Satz, 181 F.3d 1275, 1279
(11th Cir. 1999)).
In Long, “the plaintiff did not file a motion for leave to
amend,” “[t]he request for leave to amend was included in the
memorandum [plaintiff] filed in opposition to the motion to
dismiss,” and plaintiff “failed to attach the amendment or set forth
the substance of the proposed amendment.” Long, 181 F.3d at 1279.
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22-12991 Opinion of the Court 41
The Long Court explained that “[f ]iling a motion is the proper
method to request leave to amend a complaint.” Id. We stressed
that Rule 7(b)(1) provides that “[a]n application to the court for an
order shall be by motion which, unless made during a hearing or
trial, shall be made in writing, shall state with particularity the
grounds therefor, and shall set forth the relief or order sought.” Id.
(quoting Fed. R. Civ. P. 7(b)(1)). We held that “plaintiff had ample
time to file a motion for leave to amend but failed to do so,” and
“the district court did not abuse its discretion in denying plaintiff
leave to amend her complaint.” Id. at 1279-80.
Our decision in Newton v. Duke Energy Florida, LLC, is also
instructive. See 895 F.3d 1270, 1277 (11th Cir. 2018). Plaintiffs
requested leave to amend in their opposition memorandum to
defendant’s motion to dismiss. Id. This Court held that “the
request possessed no legal effect for two reasons.” Id. “First, where
a request for leave to file an amended complaint simply is
embedded within an opposition memorandum, the issue has not
been raised properly.” Id. (quotation marks omitted and alterations
adopted). “Second, a request for a court order must be made by
motion.” Id. (quotation marks omitted and alterations adopted).
Citing Rule 7(b), the Newton Court stated the motion must
(1) “be in writing unless made during a hearing or trial,” (2) “state
with particularity the grounds for seeking the order,” and (3) “state
the relief sought.” Id. (quotation marks omitted). Our Court held
that “[p]laintiffs’ inclusion of the request for leave in their
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42 Opinion of the Court 22-12991
opposition to a motion to dismiss did not constitute a ‘motion’ and
thus did not comply with this Rule 7(b) command.” Id.
As to this “motion” requirement, our Court recently
affirmed a dismissal without leave to amend, relying on a plaintiff’s
failure to satisfy the first requirement. Chabad Chayil, Inc. v. Sch. Bd.
of Mia.-Dade Cnty., 48 F.4th 1222, 1236 (11th Cir. 2022). We held
that “[w]here a request for leave to file an amended complaint
simply is imbedded within an opposition memorandum, the issue
has not been raised properly.” Id. (quotation marks omitted).
That Johnson satisfied the second requirement by filing a
proposed TAC does not cure his defect as to the first, especially
under the circumstances of this case. On the June 29, 2020 deadline
for amendments, Johnson filed a standalone motion for leave to file
his second amended complaint, which was granted. It was a year
later that Johnson’s proposed TAC was attached to his opposition
brief and his request for leave to amend came not by motion, but
only embedded in that brief. We decline to fault the district court
for not expressly ruling on that embedded request by granting or
denying it. Rather, we conclude Johnson’s request for leave to
amend embedded in his opposition brief was not properly before
the district court.
Johnson asserts that this first requirement—a motion—is
only a question of whether the request for leave to amend in his
brief is “the functional equivalent of a motion for leave to amend.”
(Quotation marks omitted.) We disagree. As outlined above, our
precedent is clear that a request for leave to amend embedded in an
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22-12991 Opinion of the Court 43
opposition memorandum does not properly put the issue before
the district court.
Johnson’s two cited cases are not on point. See United States
v. HPC Healthcare, Inc., 723 F. App’x 783, 793 (11th Cir. 2018); United
States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1362 (11th Cir. 2006).
In both cases, the plaintiff did not file a motion, requested leave to
amend in an opposition brief, and failed to attach a proposed
amendment or set forth the substance of the proposed
amendment. HPC Healthcare, Inc., 723 F. App’x at 793; Atkins, 470
F.3d at 1362.
These two cases, however, did not analyze the first
requirement of a motion. They bypassed the first requirement and
only “assumed” that the plaintiff’s request was the functional
equivalent of a motion and upheld the district court’s denial of
leave to amend based on the plaintiff’s failure to comply with the
second requirement. HPC Healthcare, Inc., 723 F. App’x at 793
(stating our Court in Atkins “assumed that a request to amend
included in a response to a motion to dismiss (what [plaintiff] did
here) is ‘the functional equivalent of a motion’ for leave to
amend”); Atkins, 470 F.3d at 1362 (“Therefore, assuming that
Atkins’s request was the functional equivalent of a motion, we
affirm the district court’s rejection thereof because it failed to
include the proposed amendment or the substance thereof as
required by Long.”).
Based on our search, this Court also bypassed the first
requirement in other cases. See Crawford’s Auto Ctr., Inc. v. State Farm
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44 Opinion of the Court 22-12991
Mut. Auto. Ins. Co., 945 F.3d 1150, 1163 (11th Cir. 2019) (quoting
Atkins and “[a]ssuming that [p]laintiffs’ requests amount to ‘the
functional equivalent of a motion,’” but nonetheless still affirming
the district court’s rejection thereof because plaintiffs failed to
include the proposed amendment or the substance thereof );
My24HourNews.com, Inc. v. AT&T Corp., 791 F. App’x 788, 803 (11th
Cir. 2019) (“Even assuming that request was the functional
equivalent of a motion, [plaintiff] failed to attach the proposed
amendment or set forth the substance of the proposed
amendment, as required by Long.”).
At bottom, it was unnecessary in these cases to address the
first requirement of a motion, where the plaintiff had not satisfied
the second requirement of attaching a proposed amendment or
stating the substance of the amendment. The obvious (and easiest)
route was to rule on only the second requirement.
Here, we face the opposite situation: the plaintiff did not file
a motion as required by our precedent and Rule 7(b), but attached
a proposed TAC. Our precedent sets forth two separate
requirements, and we must, and should, apply them here. See Long,
181 F.3d at 1279; Chabad Chayil, Inc., 48 F.4th at 1236; Newton, 895
F.3d at 1277-78; Cita Tr. Co., 879 F.3d at 1157. Because Johnson
embedded his request in his opposition brief and did not file a
motion for leave to amend, Johnson’s request for leave to amend
was not properly before the district court.
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22-12991 Opinion of the Court 45
IX. CONCLUSION
In sum, we affirm the district court’s dismissal of Johnson’s
breach of contract claim premised on the theory Protective (1) had
a contractual duty to reassess and redetermine, monthly or
periodically, its COI rates based exclusively on its “expectations as
to future mortality experience” (2) but never did so “a single time”
during the Class Period. We affirm that dismissal on two grounds:
(1) the policy did not impose that contractual duty and (2) even if
Protective had such a contractual duty, Protective was not required
to redetermine its monthly COI rates based on exclusively its
“expectations as to future mortality experience.”
We reverse the district court’s dismissal of Johnson’s breach
of contract claim premised on the alternative theory that
Protective chose to, and did, reassess, redetermine, and change its
internal monthly COI rate scale during the Class Period and
violated the policy by ignoring its “expectations as to future
mortality experience” when it did so.
Finally, we find no reversible error as to Johnson’s proposed
third amended complaint because it was not properly before the
district court.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.