William Burnett v. Conseco Life Insurance Company

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAY 4 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT

WILLIAM JEFFREY BURNETT; JOE H. No. 15-15854
CAMP,
D.C. No. 3:10-md-02124-SI
Plaintiffs-Appellants,
MEMORANDUM*
vs.

CONSECO LIFE INSURANCE
COMPANY, an Indiana corporation; CNO
FINANCIAL GROUP, INC.; CNO
SERVICES, LLC,

Defendants-Appellees.

Appeal from the United States District Court
for the Northern District of California
Susan Illston, District Judge, Presiding

Argued and Submitted April 17, 2017
San Francisco, California

Before: D.W. NELSON and IKUTA, Circuit Judges, and SEABRIGHT,**
Chief District Judge.

*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable J. Michael Seabright, United States Chief District
Judge for the District of Hawaii, sitting by designation.
William Jeffrey Burnett and Joe H. Camp (collectively, “Plaintiffs”) appeal

the district court’s dismissal of their breach of contract action alleging that

Conseco Life Insurance Company (“Conseco Life”) effectively forced Plaintiffs to

surrender their whole life insurance policies by improperly raising rates and

premiums in breach of the terms of the insurance policies. We have jurisdiction

under 28 U.S.C. § 1291. We review de novo a dismissal for failure to state a claim

under Federal Rule of Civil Procedure 12(b)(6). Harkonen v. U.S. Dep’t of Justice,

800 F.3d 1143, 1148 (9th Cir. 2015). We reverse and remand.

In a diversity case, “the district court must apply the choice-of-law rules of

the state in which it sits.” Abogados v. AT&T, Inc., 223 F.3d 932, 934 (9th Cir.

2000). Because the district court here sits in California, we apply California’s

choice-of-law rules, which require the party “arguing that foreign law governs” to

show that it “materially differs from California law.” Frontier Oil Corp. v. RLI

Ins. Co., 63 Cal. Rptr. 3d 816, 840 (Ct. App. 2007), as modified (Ct. App. Sept. 5,

2007). Here, the parties do not argue that a foreign law materially differs from

California law, so we apply California common law principles.

In California, “[a]n insurance policy is a contract between an insurer and an

insured.” Buss v. Superior Court, 939 P.2d 766, 773 (Cal. 1997). And “[w]here a

contract is terminable at will, liability attaches for breaches occurring prior to the

termination of the contract.” Ravel v. Hubbard, 246 P.2d 88, 91 (Dist. Ct. App.

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1952); see also Merrill v. Cont’l Assurance Co., 19 Cal. Rptr. 432, 437 (Dist. Ct.

App. 1962) (noting the applicability of this “universal rule” in the insurance

context). Thus, California generally permits pre-termination breach of contract

claims, including claims involving insurance contracts.

Here, the district court dismissed Plaintiffs’ pre-termination breach of

contract claims, reasoning that because Plaintiffs received cash value upon the

termination of their life insurance policies, the claims were no longer “legally

cognizable.” Burnett v. Conseco, Inc., 87 F. Supp. 3d 1238, 1246 (N.D. Cal.

2015). While the cash value received did terminate Plaintiffs’ ability to recover

any death benefit under their policies, Jennings v. Prudential Ins. Co., 121 Cal.

Rptr. 125, 129 (Ct. App. 1975), Plaintiffs do not seek to recover such benefit.

Rather, they seek consequential damages arising from the alleged breach of

contract, see Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 102

P.3d 257, 262 (Cal. 2004) (describing general and consequential damages), which

may include, for instance, the difference between the premiums that the insured

had been paying and the post-termination premiums he would have to pay for a

like amount of insurance. These claims are neither foreclosed by general insurance

law nor the surrender agreements themselves.

Indeed, California allows plaintiffs to sue for the replacement cost of life

insurance policies. See Wise v. S. Pac. Co., 463 P.2d 426, 431 (Cal. 1970)

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(holding that a wrongfully terminated employee could recover the replacement cost

of lost life insurance and medical plans).

Moreover, the surrender agreements did not waive Plaintiffs’ right to sue for

breach of contract. Although these agreements specifically include a provision that

would have “release[d] and discharge[d] . . . all claims arising directly or indirectly

under the polic[ies], whether contractual or extra-contractual,” this provision only

applies if Conseco Life waived surrender charges. Conseco Life did not waive

surrender charges, and as a result, Plaintiffs did not waive their contractual claims.

Conseco Life raises three alternative grounds for affirming the district

court’s dismissal that it did not raise before the district court. We consider these

arguments waived. Mansourian v. Regents of Univ. of Cal., 602 F.3d 957, 974 (9th

Cir. 2010) (noting that “[o]ur discretion to affirm on grounds other than those

relied on by the district court” is generally extended only to “issues raised in a

manner providing the district court an opportunity to rule on it”).

REVERSED and REMANDED.