Brooks v. AIG SunAmerica Life Assurance Co.

United States Court of Appeals
For the First Circuit

No. 06-1721

NANCY BROOKS, TRUSTEE OF THE IRREVOCABLE TRUST
OF DONALD L. SILVERMAN AND AS EXECUTRIX FOR THE
ESTATE OF DONALD L. SILVERMAN, AND
JOAN SILVERMAN, TRUSTEE OF THE IRREVOCABLE TRUST
OF DONALD L. SILVERMAN AND AS EXECUTRIX FOR THE ESTATE
OF DONALD L. SILVERMAN,

Plaintiffs, Appellants,

v.

AIG SUNAMERICA LIFE ASSURANCE COMPANY,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]

Before

Torruella, Circuit Judge,

Cyr, Senior Circuit Judge,

and Howard, Circuit Judge.

John Peter Zavez, with whom Noah Rosmarin and Adkins, Kelston
& Zavez, P.C. were on brief for appellants.
James R. Carroll, with whom Michael S. Hines and Skadden,
Arps, Slate, Meagher & Flom LLP were on brief for appellee.

March 23, 2007
 CYR, Senior Circuit Judge. Nancy Brooks and Joan

Silverman, as trustees of an irrevocable trust created by Donald

Silverman and as executors of his estate, appeal from a district

court decision dismissing their putative class-action claims for

breach of contract and unfair business practices against decedent’s

life insurer, AIG SunAmerica Life Insurance Company. We affirm.

I

BACKGROUND

In May 1984, Mutual Benefit Life Insurance Company

(“Mutual”) issued a flexible premium adjustable life (“FPAL”)

insurance policy to Donald Silverman. The FPAL policy provided,

inter alia, a death benefit of $850,000 (provided Silverman

survived until at least April 1999) and a maturity date of May 1,

2012. Mutual agreed to provide Silverman with yearly reports

showing the policy’s current cash value, cash surrender value,

total paid premiums, and total assessed charges.

Like most FPAL policies, the Mutual policy provided

Silverman with a type of savings and investment feature, which

depended on the potential investment growth of the policy’s

accumulated cash value (ACV). Although Silverman could increase

or decrease the amount and frequency of his planned premium

payments (viz., the policy’s “flexible premium” feature), he

initially committed to pay a fixed $41,658.50 premium each year

until the policy’s maturity date. These premium payments would be

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added into the ACV of the policy. Mutual would invest the ACV, and

any interest or dividends earned (guaranteed not to be less than 4%

annually) would be added back into the policy’s ACV.

On the other hand, Mutual periodically would reduce the

policy’s ACV to account for cash withdrawals or loans from the ACV

made to Silverman, a monthly charge (not to exceed $4 per month)

for Mutual’s administrative expenses, and the “cost of insurance”

rate (“COI rate”). Unlike Silverman’s fixed annual premiums, the

COI rate, which reflected the current actual cost to Mutual of

insuring the risks to Silverman’s life, was expected to increase

over the course of the policy term:

The monthly cost of insurance rate is based on
the sex, age, and rate class [viz., Male/Non-
smoker] of the insured. Monthly cost of
insurance rates will be determined by [Mutual]
annually, by earnings, mortality, persistency,
and expenses, including taxes. Any change in
rates will be in accordance with any
procedures and standards on file with the
Insurance Department of the jurisdiction in
which this policy is delivered [viz.,
Massachusetts]. Such cost of insurance rates
will not be greater than those shown in the
table of maximum monthly cost of insurance
rates on page 15.

Because Silverman’s annual premium payments were fixed, whereas COI

rates would increase over time, the monthly COI rate deduction from

the policy’s ACV could deplete the policy’s ACV rapidly if, for

example, the insured failed to make timely premium payments, or if

the investment return on the ACV was less than optimal. For the

years 1999, 2000, and 2001, however, the policy capped the monthly

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COI rate that Mutual could deduct at $9.42, $10.42, and $11.47 per

$1000 of insurance, respectively.

In March 1991, Silverman assigned ownership of his FPAL

policy to the irrevocable trust (“the Trust”) of which appellants

currently serve as trustees. In 1994, the New Jersey Commissioner

of Insurance took control of a financially-distressed Mutual, and

developed a court-approved rehabilitation plan (“Rehabilitation

Plan”) transferring Mutual’s assets and selected liabilities to MBL

Life Insurance Corporation (“MBL Life”). Mutual policyholders,

including Silverman, were given the option either to receive 55% of

their policies’ cash surrender value, or to have their policies

restructured and transferred to MBL Life at their full value.1

Silverman elected the latter option. From 1994 through 1999, MBL

raised the COI rate from $3.36 per $1000 of insurance to $5.14 per

$1000 of insurance.

In 1999, MBL Life obtained court approval pursuant to

this Rehabilitation Plan to assign the Mutual policies to appellee

AIG SunAmerica Life Assurance Company (“SunAmerica”). For the

policy years 1999, 2000, and 2001, SunAmerica raised the monthly

cost of insurance rate on Silverman’s FPAL policy from $5.14 to

$7.95 per $1000 of insurance. Silverman died on June 27, 2001, and

SunAmerica paid the Trust a death benefit of $857,901.86.

1
The restructuring did not affect any policy provision
pertinent to this appeal.

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 By letter dated May 9, 2003, appellants notified

SunAmerica, inter alia, that they believed its COI rate increases

in 1999, 2000 and 2001 must have been overcharges, given that MBL

Life had raised the COI rate at most by 11.5% (in 1997), whereas

the SunAmerica COI rates for 1999 and 2000 were increased by 22.5%

and 21.8% respectively as compared to the prior year. Appellants

further faulted SunAmerica for failing to notify Silverman that he

needed to increase the amount or frequency of his premium payments

in order to offset the dramatically higher COI rates being deducted

from his policy’s ACV after 1999.

On May 28, 2003, SunAmerica sent appellants a letter

explaining that “within certain limits, the owner [of an FPAL

policy] is given flexibility to determine the amount of premium he

or she wants to pay,” that Silverman had made no premium payments

in 1992 and 1993, that SunAmerica had sent annual statements to

Silverman showing that his premium payments were insufficient to

cover the COI rate deductions from the policy’s ACV, and yet he

never requested adjustments to his premium payments. SunAmerica

also noted that the policy plainly provides that COI rates would

increase (subject to guaranteed yearly caps) over the 28-year life

of the policy, and that its COI rates for 1999, 2000, and 2001 were

$6.52, $7.12, and $7.95, well below the policy caps $9.47, $10.42,

and $11.47. On July 2, 2003, appellants responded, stating only

that SunAmerica had failed to comply with their request that it

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provide “the actual per thousand rate mortality charges” for the

years before SunAmerica acquired the Silverman policy, or “as far

back as you can provide.” On August 5, 2003, SunAmerica sent

appellants the requested information, for policy years 1994-1999

(viz., $3.36, $3.72, $4.17, $4.71, and $5.14).

In February 2005, appellants sent SunAmerica a demand

letter pursuant to Mass. Gen. Laws Chapter 93A, alleging that

SunAmerica had “willful[ly] and knowing[ly]” committed “unfair or

deceptive acts or practices” by raising, “without any

justification,” the COI rates from 1999 to 2001, failing to warn

Silverman that his policy’s ACV was being depleted, and

misrepresenting that its COI increases had been court-approved

pursuant to the Rehabilitation Plan. SunAmerica responded by

letter dated March 21, 2005, denying all of these allegations.

In May 2005, appellants, acting as trustees/executors of

the Silverman trust and estate, filed this putative class-action

diversity suit against SunAmerica in the United States District

Court for the District of Massachusetts, alleging that SunAmerica’s

COI rate increases had breached the FPAL policy (Count 1), breached

its implied covenant of good faith and fair dealing (Count 2), and

violated the Massachusetts and California unfair business practices

statutes (Counts 3 and 4). At the core of all four claims is this

allegation:

Upon information and belief, the [COI] Rate
Increases were not made in accordance with any

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 procedures and standards on file with the
Insurance Department of the jurisdiction in
which any of the Mutual Life Block of Policies
were delivered.

(Emphasis added.)

SunAmerica moved to dismiss the complaint for failure to

state a claim, pursuant to Federal Rule of Civil Procedure

12(b)(6). Finding that appellants’ complaint failed to allege

SunAmerica’s “bad faith,” the district dismissed the “breach of

implied covenant” claim in Count 2, but deferred any ruling on the

remaining counts subject to appellants’ submission of a

“supplemental pleading identifying with some specificity the

provision or provisions of the contract alleged to have been

breached and the manner in which they were breached.”

Rather than submitting the invited supplemental pleading,

however, appellants filed a supplemental brief in opposition to the

SunAmerica motion to dismiss. Appellants cited the policy

provision that COI rate changes would be “in accordance with any

procedures and standards on file with the [Massachusetts Division

of Insurance],” and a state regulation which they maintained had

obligated SunAmerica to make such a filing as a precondition to

selling FPAL policies in Massachusetts:

Each filing for approval of a variable life
insurance policy form shall include an
actuarial memorandum, prepared and certified
by a qualified actuary, in such form as may be
described by the Commissioner, which contains
a description of the company’s
methodology[ies] (sic) used to determine

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 reserve liabilities for any guaranteed death
benefits and other contingencies, including
the mortality, expenses and other risks which
the insurer will bear under the policy.

Mass. Regs. Code tit. 211, § 95.6(2) (2007) (emphasis added).

Appellants asserted: “SunAmerica breached the insurance policy as

modified [in the rehabilitation Plan] by making Rate Increases that

were not in accordance with the COI Rate Increase Filing.”

SunAmerica in turn promptly renewed its motion to dismiss Counts 1,

3 and 4.

The district court rejected appellants’ contention that

Mass. Regs. Code tit. 211, § 95.6(2), which deals solely with the

insurer’s calculation of its reserve liabilities, was the

regulatory filing contemplated by the FPAL policy provision that

“[a]ny change in [COI] rates will be in accordance with any

procedures and standards on file with the Insurance Department of

the jurisdiction in which this policy is delivered.” The district

court generously ordered SunAmerica – not the appellants – to

produce a copy of any filing it had made with the Massachusetts

Division of Insurance anent COI rates changes pursuant to the

pertinent policy provision.

SunAmerica produced a copy of an actuarial memorandum

(“Actuarial Memorandum”) identical to the one that Mutual and MBL

Life would have filed with the Massachusetts Division of

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Insurance,2 but denied that it contained any “procedures and

standards” relevant to its calculation of COI rates, and

accordingly filed a motion for summary judgment on the remaining

counts of appellants’ complaint. Appellants filed a cross-motion

for summary judgment.

In their opposition to the SunAmerica motion, appellants

contended that the Actuarial Memorandum did contain procedures and

standards for calculating COI rates. Appellants cited, inter alia:

Cost of Insurance

The guaranteed maximum cost of insurance rates
applied in the calculation of Cash Value under
this policy are stated in the contract. The
company may use modified cost of insurance
rates, applied in a uniform manner to all
policies in a class, which produce lower costs
of insurance. Use of such rates produces
higher Cash Value than those calculated using
the guaranteed rates.

Actuarial Memorandum Section II.B. Appellants pointed out Exhibit

I of the Actuarial Memorandum, which sets forth the algebraic

formula for calculating the “guaranteed maximum monthly cost of

insurance rate for each attained age.” They cited Section III of

2
SunAmerica provided the affidavit of Gary Strunk, the
insurance actuary who had prepared the Actuarial Memorandum for MBL
Life. He attested that SunAmerica had been unable to find a copy
of the Actuarial Memorandum after an exhaustive search of its
records, and that the Massachusetts Division of Taxation notified
him that it keeps such memoranda on file for only two years
following the regulatory approval process. The actuary therefore
provided a copy of the memorandum on file in the State of Texas,
which was identical to the one that he would have filed in
Massachusetts.

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the Memorandum, which set forth the “Policy Value Formula,” and

indicated that COI is one of the factors in this formula, viz.,

“[t]he monthly cost of insurance for the death benefit, which

depends on the net amount at risk and which is deducted on the

[premium processing date].” Id. Section III.B. Appellants opposed

the SunAmerica contention that the Actuarial Memorandum is

irrelevant to COI rate changes:

Defendants attempt to avoid this result by
arguing that the Silverman Policy speaks of
the change in monthly COI rates and the
Actuarial Memorandum does not. This argument
fails, however, because COI, COI rates, annual
COI rates, monthly COI rates, and changes to
any of the preceding are all algebraically
related. . . . Consequently, any changes to
any of the COI-related variables described
above will affect all of the other variables.

Appellants claimed that ¶¶ 5-6 of the affidavit submitted by Gary

Strunk, the actuary who provided SunAmerica with a copy of the

Actuarial Memorandum, “confirm[ed] that the Actuarial Memorandum

contains a calculation of COI.”3

Appellants’ opposition also asserted, for the first time,

that the court-approved Purchase and Sale Agreement through which

SunAmerica had acquired the Silverman policy contained a provision

which prohibited it from changing the COI rate for the fifteen-

3
Strunk attested that an actuarial memorandum would include “a
section setting forth in descriptive format the components used to
derive the policy’s values including the minimum guaranteed
interest rate to be credited to the policy owner and the cost of
insurance, and a section setting forth the formulae to calculate
the policy’s value at any given time.”

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month period following its purchase:

Modified COI Scale. Mortality charges may be
changed on the policy anniversary beginning 15
months after the Rehabilitation Period
Termination Date [viz., on May 1, 2001], to
scales reflecting the greater of (a) actual
mortality experience and (b) anticipated
mortality experience based on the following
formulas.

Purchase and Sales Agreement § 4.18.1. Appellants accordingly

contended that SunAmerica’s annual increases in the COI rates

before May 1, 2001, violated the Purchase and Sale Agreement.

Finally, appellants raised, once again for the first

time, the contention that SunAmerica may have violated state

regulations if it considered – as the policy expressly allowed –

its “expectation as to investment earnings” in calculating the COI

rate changes, since a state regulation does not specify investment

earnings as a permissible deduction from the ACV of a FPAL policy.

See Mass. Regs. Code tit. 211, § 95.05.4 Appellants noted that the

4
The regulation provides, in pertinent part:

(1) An insurer must clearly disclose in writing, at the
time of solicitation or contemporaneously with
delivery of the policy, all charges that may be
made against the separate account.

(2) An insurer may deduct only the following from the
separate account:

(a) taxes or reserves for taxes attributable to
investment gains and income of the separate
account as required by applicable state or
federal law;
(b) actual cost of reasonable brokerage fees and
similar reasonable direct acquisition and

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Actuarial Memorandum filed with the Massachusetts Division of

Insurance does not disclose that SunAmerica intended to make any

“investment earnings” deduction.

After oral arguments on the parties’ cross-motions, the

district court granted summary judgment for SunAmerica on the

remaining counts of appellants’ complaint.

II

DISCUSSION

A. Count 2: Breach of Implied Duty

Appellants contend that the district court erred in

granting SunAmerica’s Rule 12(b)(6) motion to dismiss Count 2,

which alleged that SunAmerica had breached the implied covenant of

good faith and fair dealing “by fraudulently conceal[ing] that it

sales costs incurred in the purchase or sale
of separate account assets;
(c) actuarially determined mortality costs of
insurance (tabular costs) and the release of
separate account liabilities;
(d) reasonable charges for administrative expenses
and investment management expenses, including
internal costs attributable to the investment
management of assets of the separate account;
(e) a reasonable charge, at a rate specified in
the policy, for mortality and expense
guarantees;
(f) any amounts in excess of those required to be
held in the separate account;
(g) charges for incidental insurance benefits; and
(h) any other type of charge that the Commissioner
has determined to be fair and reasonable.

Mass. Regs. Code tit. 211, § 95.05 (2007).

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had made the COI Rate increases in violation of the relevant

insurance policy’s terms by misrepresenting to the named plaintiffs

and their agents several times between 2001 and the present that

the Rehabilitation Plan authorized it to make the COI Rate

increases . . . [whereas] the COI Rate increases were governed by

the insurance policy language in ¶ 19.” They argue that the

district court erroneously held that SunAmerica could not have

breached the implied covenant unless it breached an express

contractual provision. See, e.g., Speakman v. Allmerica Fin. Life

Ins., 367 F. Supp. 2d 122, 132 (D. Mass. 2005) (“A party may breach

the covenant of good faith and fair dealing implicit in every

contract without breaching any express term of that contract.”).

We lack appellate jurisdiction to consider appellants’

challenge to the district court decision to dismiss Count 2

pursuant to Rule 12(b)(6). The district court dismissed Count 2

on October 5, 2005. Appellants’ Notice of Appeal specifies that

their appeal is taken from the district court “Order Granting

Summary Judgment for Defendant entered 3 March 2006 (Exhibit A).”

(Emphasis added.) Notices of appeal must “designate the judgment,

order, or part thereof being appealed.” Fed. R. App. P.

3(c)(1)(B). Even though notices of appeal are to be liberally

construed, if the appellant “chooses to designate specific

determinations in his notice of appeal - rather than simply

appealing from the entire judgment - only the specified issues may

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be raised on appeal.” Constructora Andrade Gutierrez, S.A. v. Am.

Int’l Ins. Co., 467 F.3d 38, 43 (1st Cir. 2006) (noting that “[t]he

failure to include a particular issue in a notice of appeal can be

fatal to this court's jurisdiction over that issue”). The notice

of appeal plainly did not place SunAmerica on adequate notice that

appellants were challenging the Rule 12(b)(6) dismissal six months

prior to the grant of summary judgment on the remaining counts of

the complaint.5

B. Count 1: Breach of Contract

Appellants next contend that the district court erred in

granting summary judgment for SunAmerica on the breach-of-contract

claim because trialworthy issues of material fact remained as to

whether the SunAmerica COI rate changes for 1999, 2000, and 2001

violated the “procedures and standards” set forth in the Actuarial

Memorandum.

We review the grant of summary judgment de novo, viewing

all facts and reasonable inferences therefrom in favor of the non-

moving party, to determine whether there are no genuinely disputed

material facts and the moving party is entitled to judgment as

matter of law. Commercial Union Ins. Co. v. Pesante, 459 F.3d 34,

5
Even if we had appellate jurisdiction to consider the merits
of the Rule 12(b)(6) dismissal of Count 2, our rationale for
affirming the grant of summary judgment on the other counts would
apply equally to Count 2. See infra Section II.B; Complaint ¶ 30
(“SunAmerica breached the implied covenant of good faith and fair
dealing contained in the Class Member’s (sic) insurance policy by
making the COI Rate Increases.”).

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37 (1st Cir. 2006) (citing Fed. R. Civ. P. 56(c). Should

SunAmerica make a preliminary showing that no genuine issue of

material fact exists, appellants – who must bear the burden of

proof at trial on each element of their breach of contract claim –

would have to produce “specific facts, in suitable evidentiary

form, to establish the presence of a trialworthy issue.” Clifford

v. Barnhart, 449 F.3d 276, 280 (1st Cir. 2006) (emphasis added;

citation omitted).

Massachusetts contract law applies in this diversity

action. See Umstead v. Umstead, 446 F.3d 17, 20 (1st Cir. 2006).

In order to state a viable breach of contract claim under

Massachusetts law, plaintiffs must prove that a valid, binding

contract existed, the defendant breached the terms of the contract,

and the plaintiffs sustained damages as a result of the breach.

See Michelson v. Digital Fin. Servs., 167 F.3d 715, 720 (1st Cir.

1999). Plaintiffs also must do more than allege, in conclusory

fashion, that the defendant breached the contract, by describing,

with “substantial certainty,” the specific contractual promise the

defendant failed to keep. See Buck v. Am. Airlines, Inc., 476 F.3d

29, 38 (1st Cir. 2007) (“In a contract action, this irreducible

[‘substantial certainty’] minimum requires the pleader to ‘explain

what obligations were imposed on each of the parties by the alleged

contract.’”) (citations omitted); Doyle v. Hasbro, Inc., 103 F.3d

186, 194-95 (1st Cir. 1996) (holding that “[c]onclusory statements

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that ‘Hasbro and its executives failed to meet their contractual

requirement,’ are insufficient to satisfy the pleading

requirements”); Williams v. Astra USA, Inc., 68 F. Supp. 2d 29, 37

(D. Mass. 1999).

The record plainly demonstrates that appellants failed to

meet the “substantial certainty” requirement. Apparently,

appellants suspected that SunAmerica miscalculated the COI rates

for 1999, 2000, and 2001, based solely on the fact that, prior to

SunAmerica’s acquisition of the Silverman policy in 1999, COI rate

increases had been 11.5%, at most, whereas the rate increases for

1999 and 2001 had been far greater, viz., 22.5% and 21.8%.

Arguably then, given this unexplained and dramatic differential,

appellants may have had a legitimate reason for requesting

SunAmerica to explain the precise calculation by which it had

arrived at the COI rates of $6.52 and $7.12, viz., to request

SunAmerica to demonstrate what factors enumerated in the policy

(e.g., sex, age, rate class, earnings, mortality, persistency,

expenses, and taxes) were encompassed within that calculation, and

the value and weight SunAmerica assigned to each such factor.

Presumably, the insurer has exclusive control over the internal

documentation of these COI rate calculations, and it is unlikely

that a policyholder, unschooled as an insurance actuary, could

reasonably be expected to reconstruct (or divine) the precise

algebraic formulae employed by the insurer in making the esoteric

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calculations.

When they drafted their complaint, therefore, appellants

had two options: (1) allege that the unexplained and dramatic

increases in the COI rates beginning in 1999 were circumstantial

evidence that SunAmerica had miscalculated the rates, perhaps by

considering factors other than sex, age, rate class, earnings,

mortality, persistency, expenses, and taxes; and/or (2) allege that

Sun America had failed to comply with procedures or standards on

file with state regulatory agencies, viz., the Massachusetts

Division of Insurance. As noted, appellants did not allege the

former, and chose to pursue only the latter allegation: “Upon

information and belief, the [COI] Rate Increases were not made in

accordance with any procedures and standards on file with the

Insurance Department of the jurisdiction in which any of the Mutual

Life Block of Policies were delivered.” (Emphasis added.) This

latter “information and belief” allegation presupposes, however,

that – at the very least – appellants had reason to know what

procedures and standards were on file at the Division of

Insurance.6

6
Contrary to appellants’ assertion on appeal, their
correspondence to SunAmerica dated May 9, 2003, and July 21, 2003,
did not complain that SunAmerica’s COI rate calculations had
violated any procedures or standards on file with the Massachusetts
Division of Insurance, nor did it ask SunAmerica whether it had
complied with any such filings. Thus, their contention on appeal
that SunAmerica’s responsive correspondence of May 28, 2003, and
March 25, 2005, deliberately “failed to disclose whether it
followed the procedures on file with the MA DOI for enacting COI

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 In any event, unlike SunAmerica’s calculations for the

COI rates, which presumably were in SunAmerica’s exclusive control,

the Division of Insurance filings were accessible to appellants

pursuant to Massachusetts “public records” law. See Mass. Gen.

Laws. Ann. ch. 66, § 10 (2007) (providing that “any person” be

permitted to inspect a “public record” on file with a state agency,

and be furnished with a copy for a reasonable fee). Had appellants

exercised due diligence, they would have had no problem satisfying

the district court’s repeated orders to specify what “procedures

and standards” on file with the Division of Insurance SunAmerica

had allegedly violated. If they did not exercise due diligence,

their bringing a suit against SunAmerica was not based on

“substantial certainty,” Doyle, 103 F.3d at 194-95, but on sheer

speculation, both as to whether any relevant procedures and

standards were on file at the Division of Insurance, and more

importantly, as to their contents and precisely how SunAmerica’s

COI rate calculations had violated them.

1. The Actuarial Memorandum

Confronted with their ruinous pleading defect, appellants

have scrambled – unsuccessfully – to recover some procedural

footing.7 When SunAmerica complied with the district court’s order

Rate increases” is an exercise in revisionist history.
7
Notably, appellants abandoned several of their earlier
theories of breach. For example, they no longer argue that
SunAmerica breached the contract by failing to notify Silverman of

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to produce the Actuarial Memorandum, it proved not to be the

smoking gun appellants might have anticipated, but an irrelevancy.

Section II.B of the Memorandum, entitled “Cost of Insurance,” deals

only with how SunAmerica would calculate “[t]he guaranteed maximum

cost of insurance rates applied in the calculation of Cash Value

under this policy,” and noted that these guaranteed maximum COI

rates were stated in the policy. (Emphasis added.) Section II.B

thus pertains to how SunAmerica arrived at the cap COI rates of

$9.47, $10.42, and $11.47 for years 1999, 2000, and 2001, and had

no necessary application to how it calculated the actual COI rates

of $6.52, $7.12, and $7.95. Exhibit I of the Actuarial Memorandum

likewise includes the algebraic formula SunAmerica used to

calculate the “guaranteed maximum monthly cost of insurance rate

for each attained age,” not the actual COI rate. (Emphasis added.)

Appellants do not allege that SunAmerica miscalculated the maximum

COI rates of $9.47, $10.42, and $11.47.

Section III of the Actuarial Memorandum, entitled “Policy

Value Formula,” demonstrates the formula by which SunAmerica would

calculate the policy’s ACV. The COI rate concededly is one

the depletion of his policy’s ACV, presumably because Silverman
received annual statements describing the current value of his
policy’s ACV, and the policy otherwise did not obligate SunAmerica
specifically to notify policyholders if the ACV reached any minimum
levels. Likewise, appellants have not appealed from the district
court’s rejection of their theory that SunAmerica breached Mass.
Regs. Code tit. 211, § 95.6(2), presumably because they recognize
that the regulation obviously deals only with SunAmerica’s “reserve
liabilities,” not its calculation of COI rates.

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variable in that ACV calculation (along with, e.g., interest

earned, the monthly expense charge and any cash withdrawals or

loans to the policyholder) because the COI rate is one enumerated

monthly deduction from the policy’s ACV, but this cannot inform as

to how the COI rate is calculated. In other words, although the

formula X = Y - Z may tell us how to calculate the value of X

(viz., the ACV), it tells us nothing useful about how to calculate

the value of Z (viz., the COI rate) in the first instance.

Instead, Section III provides only, in the most general terms, that

the COI calculation “depends on the net amount at risk.” (Emphasis

added.)

In response, appellants simply advance the conclusory

argument that “COI, COI rates, annual COI rates, monthly COI rates

. . . are all algebraically related. . . . [so that] any changes to

any of the COI-related variable . . . will affect all of the other

variables.” Not surprisingly, however, they make no attempt to

illustrate their theory. Appellants give one example: “[T]he

monthly cost of insurance is just the annual cost of insurance

divided by 12 (months).” This simplistic example proves nothing.

In the formula X = Y - Z, the larger the value assigned to Z (viz.,

the COI rate), the smaller the amount of X (viz., ACV) will be (and

vice versa), but that arithmetic truism still does not inform us

how to calculate the value for Z. Thus, the arithmetic

interrelationship appellants posit is real, but irrelevant. Thus,

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the district court properly found that the Actuarial Memorandum did

not create a trialworthy issue of fact.

2. The Purchase and Sale Agreement

Appellants also contend for the first time, in opposition

to SunAmerica’s summary judgment motion, that the Purchase and Sale

Agreement through which SunAmerica had acquired the Silverman

policy contained a provision, entitled “Modified COI Scale,” which

provided that “[m]ortality charges may be changed on the policy

anniversary beginning 15 months after the Rehabilitation Period

Termination Date [viz., on May 1, 2001],” Purchase and Sales

Agreement § 4.18.1, and that SunAmerica had violated this provision

by increasing COI rates in 1999, 2000, and 2001. SunAmerica

responds that the terms “COI Scale” and “COI Rate” are not

equivalent, and that it did not increase the COI scale before May

1, 2001:

[T]he plaintiff confuses the scale with the
rate. The scale is, if you think of it as a
staircase, we agree to keep the staircase in
place of what it was costing for a thousand
dollars of insurance, but in a variable life
policy, or the whole [life] policy, you go up
the stairs as you grow older and the cost of
insurance increases.

Whatever vagueness one arguably might perceive in SunAmerica’s

explanation of the distinction between “mortality charges” and “COI

rates,”8 it is sufficient to note that it was incumbent on

8
COI rates are determined, in part, by reference to standard
statistical and actuarial charts (e.g., “Male/Non-smokers”) which

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appellants, as the parties with the ultimate burden to prove breach

of contract at trial, to adduce “specific facts, in suitable

evidentiary form, to establish the presence of a trialworthy

issue.” Clifford, 449 F.3d at 280. For example, appellants might

have adduced an affidavit from an insurance actuary attesting to

the essential equivalence between the terms “mortality charges” and

“COI rates.” Indeed, the district court expressly noted that, if

appellants could prove that, “within the 15-month period,

SunAmerica had changed the mortality tables, that would constitute

a breach.” On appeal, however, appellants make no such attempt,

merely reiterating instead that SunAmerica breached § 4.18.1 by

raising its COI rates from 1999-2001.

3. Expectations of Investment Earnings

Appellants raised, again for the first time in their

reply opposition to SunAmerica’s summary judgment motion, the

contention that SunAmerica may have violated Mass. Regs. Code tit.

211, § 95.05, see supra note 4, when it considered its “expectation

as to investment earnings” in calculating the COI rate changes, and

purport to predict the actual costs of insuring a person by age per
$1000 of insurance, and each year as the person ages, the chart
plots the corresponding rate increase to reflect the higher
mortality expectations. See Aleksandr Mel’nikov, Mathematics of
Financial Obligations, in American Mathematical Society § 9.2, at
167 (2007). These rates are not necessarily the final COI rate,
however, because the insurer may adjust them to reflect the
individual insured’s circumstances, or as in the present case,
consider other factors such as “earnings, mortality, persistency,
and expenses, including taxes.”

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pursuant to Federal Rule of Procedure 56(f), requested further

discovery on that factual issue.

SunAmerica argues that we should reject this argument

because appellants did not raise the theory in their complaint,

because SunAmerica’s putative consideration of investment earnings

would have resulted in its lowering of the COI rate (not an

increase),9 and because appellants failed to file their Rule 56(f)

motion for further discovery until after they filed its initial

opposition to SunAmerica’s summary judgment motion.

We think the first ground suffices, and that further

discovery (which would show, at most, whether SunAmerica did in

fact consider anticipated earnings when it calculated COI rates)

would not cure appellants’ failure to allege this legal theory in

their complaint.10 As noted, the complaint was premised entirely

on the allegation that “the [COI] Rate Increases were not made in

accordance with any procedures and standards on file with the

Insurance Department of the jurisdiction.” Mass. Regs. Code tit.

9
Arguably at least, SunAmerica might have considered
“earnings,” found them inadequate or disappointing, and increased
the COI rate to compensate.
10
By so holding, we do not suggest that appellants’ legal
argument has merit. In fact, Mass. Regs. Code tit. 211, § 95.05
allows the insurer to deduct from the accumulated cash account “any
other type of charge that the Commissioner has determined to be
fair and reasonable.” The Division of Insurance approved the
Silverman Policy despite its express provision that “[m]onthly cost
of insurance rates will be determined by [Mutual] annually, by
earnings.”

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211, § 95.05, a codified regulation, was not “on file” with the

Massachusetts Division of Insurance. Prior to filing their

complaint, appellants had reviewed the policy, which expressly

stated that “[m]onthly cost of insurance rates will be determined

by [Mutual] annually, by earnings.” If they considered that this

contract provision was per se violative of Mass. Regs. Code tit.

211, § 95.05, nothing prevented them from including such an

allegation in their complaint. Any belated amendment of the

complaint on the cusp of summary judgment – and we note that

appellants have never attempted to amend their complaint – would be

unfair to SunAmerica. See Adorno v. Crowley Towing & Transp. Co.,

443 F.3d 122, 126 & n.3 (1st Cir. 2006) (noting that party urging

amendment of its complaint “at the ‘eleventh hour to fend off

summary judgment’” must demonstrate “‘that the proposed amendments

[are] supported by substantial and convincing evidence’”) (quoting

RTC v. Gold, 30 F.3d 251, 253 (1st Cir. 1994)). In short,

SunAmerica should not be made to shoot at a continuously moving

target.

C. Count 3: Violation of Mass. Gen. Laws Chapter 93A11

Finally, appellants contend that SunAmerica engaged in an

unfair business practice by overcharging on the COI rates for 1999,

11
Appellants also argue that the district court erred in
granting summary judgment on Count 4 asserting an unfair business
practices claim under California law, but our rationale for
affirming the dismissal of their Chapter 93A applies equally to
Count 4.

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2000, and 2001, and subsequently engaging in a willful campaign to

conceal their misconduct. See Mass. Gen. Laws Chapter 93A, § 2

(“Unfair methods of competition and unfair or deceptive acts or

practices in the conduct of any trade or commerce are hereby

declared unlawful.”).

To the extent that their Chapter 93A claim is premised

merely on their allegations that SunAmerica breached the insurance

contract – either by violating its express terms or by failing to

follow the incorporated “standards or procedures on file” with the

Division of Insurance – it falls well short of the Chapter 93A

liability threshold. See Commercial Union Ins. Co. v. Seven

Provinces Ins. Co., Ltd., 217 F.3d 33, 40 (1st Cir. 2000) (“A mere

breach of contract does not constitute an unfair or deceptive trade

practice under 93A, unless it rises to the level of ‘commercial

extortion’ or a similar degree of culpable conduct.”) (citing

Anthony's Pier Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 821

(Mass. 1991)); Chambers Steel Engraving Corp. v. Tambrands, Inc.,

895 F.2d 858, 861 (1st Cir. 1990) (“The mere breach of contract,

without more, even if one existed, would not violate ch. 93A.”).

Moreover, appellants failed even to make a viable Rule 56 proffer

that SunAmerica violated any provision of the policy, any

procedures or standards on file with the Massachusetts Division of

Taxation, or any pertinent statute or regulation. See supra

Section II.B. In view of these deficiencies, the district court

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properly dismissed appellants’ Chapter 93A “unfair business

practices” claim.

III

CONCLUSION

This might have been a different case if appellants had

alleged in their complaint that the substantial percentage

increases in the COI rates beginning in 1999 (increasing from

11.5% to 22.5%), when SunAmerica acquired the Silverman Policy,

were circumstantial evidence that SunAmerica had inflated the rates

for improper purposes, perhaps by considering factors other than

sex, age, rate class, earnings, mortality, persistency, expenses,

and taxes. As the torturous procedural travel of this case

demonstrates, see supra Section I, appellant chose a different

course, and alleged only that SunAmerica violated the policy by

failing to comply with unspecified “procedures and standards” on

file with the Massachusetts Division of Insurance. Those

regulatory filings were not in SunAmerica’s exclusive control, and

before filing suit, it was incumbent on appellants to determine

whether and how the contents of these filings were relevant to the

calculation of COI rates. Without such basic information,

appellants’ complaint was a veritable shot in the dark.

Affirmed.

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