United States Court of Appeals
For the First Circuit
No. 01-1217
HARVEY D. WOLINETZ,
Plaintiff, Appellant,
v.
BERKSHIRE LIFE INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge]
Before
Boudin, Chief Judge,
Baldock,* Senior Circuit Judge, and
Howard, Circuit Judge.
Douglas M. Brooks with whom Gilman and Pastor, LLP, Patrick F.
Morris, Morris and Morris, LLC, Michael B. Hyman, William H. London
and Much Shelist Freed Denenberg Ament & Rubenstein, P.C. were on
brief, for appellant.
John A. Shope with whom Michael B. Keating, Kirk G. Hanson and
Foley Hoag LLP were on brief, for appellee.
March 18, 2004
*Of the Tenth Circuit, sitting by designation.
HOWARD, Circuit Judge. In this case, we consider whether
the district court correctly entered summary judgment dismissing
Harvey Wolinetz's fraud-related claims against Berkshire Life
Insurance Company on statute of limitations grounds. Because we
conclude that the date on which Wolinetz learned or should have
learned of his claims against Berkshire presents a jury question,
we vacate and remand for further proceedings.
I. Background
This case concerns a vanishing premium life insurance
policy that Wolinetz purchased from Berkshire. This type of policy
provides that the insured pays the insurer a certain number of
premiums before the policy becomes self-funding. The policy is
marketed on the premise that enough cash value will accumulate over
a limited period so that, on a fixed date, future premiums will be
paid by the policy's accumulated value rather than by the insured.
The speed with which the cash value increases depends on prevailing
interest rates and the success of the insurer's investments. High
interest rates and successful investments result in the policy
becoming self-funding at an earlier date.
In 1987, Wolinetz contacted Richard Lewis, a Berkshire
agent, to discuss purchasing life insurance. Lewis encouraged
Wolinetz to purchase a vanishing premium policy with a $3 million
death benefit. Lewis explained to Wolinetz that, after paying
fourteen yearly premiums of $20,000, the policy would become self-
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funding. As part of his presentation, Lewis showed Wolinetz an
illustration (the "original illustration") confirming that, based
on current performance and expected interest rates and dividends,
the policy would become self-funding after fourteen years. In
addition to this projection, the original illustration contained a
disclaimer which stated:
Dividends and, if applicable, interest rates
and dividend purchases are neither estimated
nor guaranteed but are based on current scales
. . . Dividends are dependent on investment
earnings, mortality experience and expenses.
. . The current dividend scale is interest
sensitive which means significant changes in
interest rates may affect future earnings.
Thus, the original illustration disclosed to Wolinetz that the
fourteen-year premium promise was based, in part, on predictions
about future events and therefore not guaranteed.
On December 2, 1987, Wolinetz signed the policy
application. Berkshire mailed Wolinetz his policy in the fall of
1988. The policy stated that premiums could be payable for life;
nowhere did the policy guarantee a dividend or interest rate.
Beginning in 1991, Wolinetz received annual reports from
Berkshire indicating that his policy was underperforming. Each
report announced a reduction in Berkshire's dividends. These
reports also provided reasons for the poor performance grounded in
changes in the economic environment. For example, the 1991 report
stated, “[M]ost, if not all, major insurance companies in the
United States reduced their dividends during 1991, Berkshire among
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them. And with good reason, primarily reflecting the lower
earnings available in the marketplace, but also reflecting the
impact of new federal taxation of life insurers.” Similarly, the
1993 report announced falling dividends because "[l]ow interest
rates have forced well-reputed mutual life insurance companies,
including Berkshire, to reduce their dividend scales."
In addition to these annual reports, Wolinetz received
individual policy statements showing lower than projected dividends
during the 1991-1994 period. During this same period, Wolinetz
also received cash value statements showing lower than expected
cash values for his policy. Finally, in 1992 and 1994, Wolinetz
received two form letters from Berkshire's president stating that
vanishing premium policyholders may be required to pay additional
future premiums because of falling dividends.
In May 1996, a broker from another insurer approached
Wolinetz to sell him more life insurance. As part of his
discussions with this agent, Wolinetz provided a copy of his
Berkshire policy, the original illustration, and the other
materials that he had received from Berkshire. After reviewing
these materials, the agent told Wolinetz that the Berkshire agent’s
prognostications about vanishing premiums was incorrect and that
under current conditions, Wolinetz would have to pay an annual
premium of $37,000 for nineteen years for the policy to become
self-funding.
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In light of this information, on August 20, 1997,
Wolinetz sued Berkshire in the United States District Court for the
Southern District of New York. Wolinetz asserted several claims
against Berkshire: fraud, fraudulent inducement, negligent
supervision, unjust enrichment, imposition of a constructive trust,
breach of contract, breach of the covenant of good faith and fair
dealing, and violation of Mass. Gen. L. ch. 93A.
Wolinetz's complaint pled two theories of liability. His
contract claims alleged that Berkshire broke its guarantee that his
policy would become self-funding after fourteen annual premiums.
Wolinetz's tort and ch. 93A claims alleged that Berkshire used
fraudulent information to produce the original illustration which
induced him to purchase the policy.
On October 27, 1997, Wolinetz's case was transferred to
the District of Massachusetts. See 28 U.S.C. § 1404(a). On
October 6, 1998, Wolinetz filed a First Amended Complaint and
Consolidated Class Action Complaint, which Berkshire moved to
dismiss. See Fed. R. Civ. P. 12(b)(6). On May 25, 1999, the
district court dismissed the contract claims but permitted the tort
and ch. 93A claims to proceed. On June 22, 1999, the court ordered
that discovery be limited to "the statute of limitations issue."
After preliminary discovery, Berkshire moved for summary judgment
on the ground that Wolinetz's claims were untimely. On December
12, 2000, the district court granted Berkshire's motion and entered
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judgment in its favor. Wolinetz appealed.
II. Standard of Review
We review the district court's summary judgment ruling de
novo. See Rosenberg v. Everett, 328 F.3d 12, 17 (1st Cir. 2003).
We consider all evidence in the record and accord Wolinetz all
reasonable inferences supported by the evidence. Id. We will
affirm the district court's ruling if "the pleadings, depositions,
answers to interrogatories, admissions on file, together with
affidavits, if any, show that there is no genuine issue as to any
material fact and that [Berkshire] is entitled to judgment as a
matter of law." Fed. R. Civ. P. 56(c).
III. Discussion
Before addressing the parties' arguments, we emphasize
the theory of liability at issue in this appeal. Wolinetz no
longer pursues his contract claims which the district court
dismissed. As Wolinetz conceded at the summary judgment argument,
the only potentially viable claims arise from his contention that
the original illustration contained fraudulent data on which he
reasonably relied in purchasing his policy. See Cooper v.
Berkshire Life Ins. Co., 810 A.2d 1045, 1058-62 (Md. App. Ct. 2002)
(distinguishing between "guaranteed premium" claim and "fraudulent
illustration" claim). Thus, we focus only on whether Wolinetz's
fraudulent illustration claims are untimely. The parties agree
that Massachusetts law governs the statute of limitations issue.
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Wolinetz has pled several common law tort claims which
are subject to a three-year limitations period. See Mass. Gen. L.
ch. 260, § 2a.1 He has also pled a Mass. Gen. L. ch. 93A claim
which is subject to a four-year limitations period. See Mass. Gen.
L. ch. 93A, § 9. Wolinetz filed suit on August 20, 1997.
Generally, the limitations period begins when the plaintiff suffers
an injury, see Taygeta Corp. v. Varian Assocs., Inc., 763 N.E.2d
1053, 1063 (Mass. 2002), which would be December 2, 1987, the date
on which Wolinetz purchased the policy from Berkshire. If
Wolinetz's claims accrued on this date, his suit would be untimely.
Wolinetz contends, however, that because his fraudulent
illustration claim was inherently unknowable when he purchased the
policy, the discovery rule tolls the running of the limitations
period until May 1996, when the insurance broker reviewed his
Berkshire policy and the accompanying materials.
Massachusetts recognizes a “discovery rule” that tolls
the running of the limitations period in certain circumstances.
See Franklin v. Albert, 411 N.E.2d 458, 463 (Mass. 1980); see also
Int'l Mobiles Corp. v. Corroon & Black/Fairfield & Ellis, Inc., 560
1
Berkshire argues that, because this suit involves the sale
of life insurance, a two-year limitations period applies. See
Mass. Gen. L. ch. 175, § 181. This argument was not raised below
and cannot be debuted here. See Amcel Corp. v. Int'l Executive
Sales, Inc., 170 F.3d 32, 35 (1st Cir. 1999). In any event, as
discussed infra, because we cannot determine as a matter of law the
date on which Wolinetz's claims accrued, applying a two-year
statute of limitations would not change the result.
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N.E.2d 122, 125-26 (Mass. App. Ct. 1990) (holding that discovery
rule applies in Mass. Gen. L. ch. 93A actions). Under this rule,
"a cause of action . . . does not accrue until the plaintiff knew,
or in the exercise of reasonable diligence should have known of the
factual basis for his cause of action." Patsos v. First Albany
Corp., 741 N.E.2d 841, 846 (Mass. 2001). For a plaintiff to have
sufficient information to trigger the limitations period, he need
not know every fact required to prevail on his claim. See Riley v.
Presnell, 565 N.E.2d 780, 784 (Mass. 1991). It is sufficient that
the plaintiff has enough information to suggest that he has
suffered an injury caused by the defendant's conduct. See Int'l
Mobiles, 560 N.E.2d at 124. Thus, if a plaintiff has information
suggesting an injury caused by the defendant, he is deemed to be on
"inquiry notice" of his claim. See Pagliuca v. Boston, 626 N.E.2d
625, 628 (Mass. App. Ct. 1994). Factual disputes concerning the
date on which the plaintiff knew or should have known of his
cause(s) of action are resolved by a jury. See Riley, 565 N.E.2d
at 787 ("[W]here . . the plaintiff has claimed a trial by jury, any
disputed issues relative to the statute of limitations ought to be
decided by the jury.").
In fraud litigation over a failed investment, a plaintiff
is under inquiry notice when he is aware of "sufficient storm
warnings to alert a reasonable person to the possibility that there
were either misleading statements or significant omissions involved
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in the sale" of the investment. Kennedy v. Josephthal & Co., 814
F.2d 798, 802 (1st Cir. 1987). Such storm warnings must be
sufficiently clear to alert the plaintiff to the possibility of
fraud but need not provide a "full exposition of the scam." Id.
Berkshire claims that Wolinetz received such "sufficient
storm warnings" outside the applicable limitations periods.
Specifically, Berkshire contends that the following information was
sufficient to place Wolinetz on inquiry notice of his fraudulent
illustration claim: (1) the policy and original illustration
disclaimers issued in 1987-1988; (2) the annual reports issued
between 1991 and 1994; (3) the cash value and dividend statements
issued between 1991 and 1994; and (4) the two form letters issued
in 1992 and 1994 stating that vanishing premium policyholders may
have to pay additional premiums. We do not agree that this
information is sufficient to resolve the statute of limitations
question as a matter of law.
When Wolinetz first discussed the policy with Lewis,
Lewis told him, based on the information provided in the original
illustration, that he would have to pay only fourteen years of
premiums. However, this original illustration contained a
disclaimer explaining that, if interest rates and dividends did not
meet expectations, a policyholder could have to pay additional
premiums. This message was reinforced by the policy language
itself, which informed Wolinetz that premiums could be payable for
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life. Thus, on purchasing the policy, Wolinetz knew that the
fourteen-year premium promise was not guaranteed but was contingent
on future economic conditions. Nothing in these documents
suggested to him, however, that the original illustration based the
initial fourteen-year premium promise on fraudulent data.2
The other notices mentioned by Berkshire only restated
what Wolinetz already knew--i.e., that the vanishing premium
guarantee was dependent on future events. The annual reports for
1991, 1992, and 1993 announced declines in company dividends.
These reports provided reasons for the declines unrelated to the
data used to create the original illustration. The 1992 report
blamed the decline on changes in federal tax law and the 1993
report blamed the decline on lower than expected interest rates.
Similarly, the cash value and annual dividend statements informed
Wolinetz that his policy was underperforming, but they did not
suggest to him that the poor performance was the result of false
initial information. The form letters from Berkshire's president
also did not blame the information in the original illustration for
the policy's poor results.
When Wolinetz purchased the policy from Berkshire, he
knew that policy dividends could decline. Berkshire's subsequent
2
Because the parties have not conducted discovery on the
merits, we assume at this stage the veracity of Wolinetz's
allegation that the original illustration was premised on
fraudulent data.
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notices informed Wolinetz of only two additional facts: (1)
dividends were in fact declining and (2) the decline was the result
of changes in the tax law and business climate. Thus, Berkshire's
notices, taken in total, informed Wolinetz only that his vanishing
premium policy was underperforming because of recent economic
developments--a result he knew could occur without Berkshire
committing fraud. Under Massachusetts law, information provided to
an investor showing that his investment is not meeting expectations
does not necessarily place the investor on notice of a potential
fraud claim against the seller. See Stolzoff v. Waste Sys. Int'l,
Inc., 792 N.E.2d 1031, 1040 (Mass. App. Ct. 2003) ("While the
steady dip in stock price may well have raised some red flags about
the company's vitality, stock prices falter for many non-fraudulent
reasons, and it cannot be said as a matter of law that the
plaintiffs must have . . . reasonably drawn the conclusion that
they had been defrauded."). Therefore, we hold that the
information Wolinetz received showing that his policy was
underperforming was not sufficiently suggestive of fraud to
determine the date on which his claims against Berkshire accrued.3
3
Berkshire also contends that if Wolinetz had undertaken an
investigation when he learned that the premium guarantee was false,
he could have discovered the alleged fraudulent illustration. We
are unpersuaded. Because the premium promise was not guaranteed,
a reasonable investor would not necessarily investigate fraud in
the original promotional materials when he learned that the premium
promise would not be met, especially where the insurer provided
other plausible reasons for the failure of the policy to meet
expectations.
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See Taygeta Corp., 763 N.E.2d at 1063 ("In most cases, the question
when a plaintiff knew or should have known of its cause of action
is one of fact that will be decided by the trier of fact.").4
Berkshire relies on our recent decision in In Re New
England Life Ins. Co. Sales Practices Lit., 346 F.3d 218 (1st Cir.
2003), for support. There we held that, under Kansas law, the
plaintiffs had sufficient notice of their claims against the
insurer to trigger the limitations period when they received
notification that they would have to pay premiums beyond the
promised vanishing point. Id. at 221. This case is
distinguishable from In Re New England on at least two bases.
First, Wolinetz never received notification from Berkshire that he
would have to pay additional premiums. The only notice that he
received was a form letter stating that he may have to pay
additional future premiums. Second, the In Re New England decision
does not suggest that the plaintiffs received plausible
explanations for the decline in interest rates. Id. at 220-21.
Unlike In Re New England, Berkshire told Wolinetz that the declines
were the result of changes in the tax laws and business climate.
4
The parties argue extensively about the application of the
Massachusetts Appeal Court's opinion in Szymanski v. Boston Mutual
Life Ins. Co., 778 N.E.2d 16 (Mass. App. Ct. 2002). While
certainly not contrary to the result we reach, it is not
particularly helpful to our analysis. Szymanksi considered a
statute of limitations question in a guaranteed premium case. The
quantum and sorts of information that would establish inquiry
notice in a guaranteed premium case are different than what would
establish inquiry notice in a fraudulent illustration case.
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A jury could conclude that these plausible explanations for the
declines may have reasonably dissuaded Wolinetz from investigating
possible fraud by Berkshire. Cf. Rodriguez-Suris v. Montesinos,
123 F.3d 10, 16 (1st Cir. 1997) ("If a plaintiff's suspicions that
she may have been the victim of a tort are assuaged by assurances
made by the person who caused the injury, a plaintiff will not be
held responsible for failing to pursue her claim more
aggressively.").
Before closing, we offer two observations. First, a
fraudulent illustration claim, such as Wolinetz raises here, would
not always trump a contention that later events departing from the
projections constituted inquiry notice. Deviations between the
projections and what actually occurred could be sufficiently
remarkable that a reasonable person would have had to suspect the
possibility that the projections were fraudulent, thereby
triggering inquiry notice. But here, if Wolinetz was misled by the
allegedly fraudulent illustration, there is, on these facts, a jury
issue as to whether the subsequent letters put him on reasonable
notice.
Second, in his own deposition, Wolinetz seemingly said--
in support of his contract claims--that he understood the policy to
guarantee him that the premiums would disappear after 14 years.
The implication is that he relied not on the reasonableness of the
projections but on his understanding that (regardless of the
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economic conditions) the insurer was guaranteeing that payments
would vanish after 14 years. This raises a question as to whether
Wolinetz will be able to satisfy the reliance requirement that is
a necessary element of his fraudulent illustration claim.
IV. Conclusion
For the reasons set forth above, we conclude that the
date on which Wolinetz's claims against Berkshire accrued presents
a jury question. Accordingly, we vacate the judgment of the
district court and remand the case for further proceedings
consistent with this opinion.
So ordered.
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Wolinetz v. Berkshire Life Insurance
Court: Court of Appeals for the First Circuit
Date filed: 2004-03-18
Citations: 361 F.3d 44
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