SDNY Rules on Class Plaintiffs' Motion for Class Certification in AXA COI Litigation

August.27.2020

On August 13, 2020, in the putative class action challenging AXA’s COI rate increase on Athena Universal Life II (“AUL II”) policies, Judge Jesse M. Furman of the United States District Court for the Southern District of New York issued an order granting in part and denying in part the class plaintiffs’ motion for class certification.  Judge Furman’s order is a victory for the class plaintiffs because it certified the two major nationwide classes sought by the motion.  Moreover, while it denied certain sub-classes, the court expressly reserved the rights of non-New York and non-California absent class members to later bring any claim not actually litigated by the class, as well as the right of all absent class members to assert claims under the California Elder Abuse Law, which is the one non-certified sub-class that potentially carries higher monetary damages according to statute. 

The Court’s Decision

The class plaintiffs sought certification of two overarching nationwide classes – one for a nationwide Policy-Based Claims Class based on claims relating to breach of contract and one for a nationwide Illustration-Based Claims Class based on claims under Section 4226 of the New York Insurance Law relating to alleged misleading illustrations – and four related sub-classes specific to California and New York law.   

Breach of Contract-Based Classes.  AXA did not oppose class certification of the nationwide Policy-Based Claims Class but did oppose the class definition.  Notwithstanding AXA’s non-opposition, the court independently evaluated the merits and held that class plaintiffs’ motion satisfied the numerosity, commonality, typicality, and adequacy of representation requirement of Rule 23(a), as well as the predominance and superiority requirements of Rule 23(b)(3).  The court overruled AXA’s objections to the class definition.  Accordingly, the court certified a nationwide Policy-Based Claims Class to include “all individuals who, on or after March 8, 2016, owned AUL II policies that were issued by AXA and subjected to the COI rate increased announced by AXA on or about October 1, 2015, as well as those residents’ heirs, successors, or assigns.”  

The court denied the two contract-based sub-classes.  The first proposed sub-class – the California Policy-Based Claims Sub-Class – included all members of the Policy-Based Claim Class who are also California residents and who seek to bring claims for systematic breach of contract under the California Unfair Competition Law (“CUCL”), Cal. Bus. & Prof. Code § 17200, et seq.  The court denied certification of this sub-class because AXA asserted an affirmative defense relating to alleged “STOLI” schemes and unclean hands in acquiring AUL II policies.  According to the court, AXA’s affirmative defense defeated the predominance requirement of Rule 23(b)(3).

The second proposed sub-class – the California Elder Policy-Based Claims Sub-Class – included all members of the California Policy-Based Claim Class whose policies are funded by a California resident aged sixty-five or older and who seek to bring breach of contract-based claims under the California Elder Abuse Law.  The court denied certification of this sub-class because, among other things, the named plaintiff failed to prove he was even a member of the proposed sub-class and a court cannot certify a class whose proposed class representative does not even belong in it. 

Illustrations-Based Classes.  The Court also granted the nationwide Illustration-Based Claims Class, which includes all members of the Policy-Based Claims Class who are also owners of AUL II policies without a Lapse Protection Rider issued after July 10, 2006, and who seek to bring a claim under Section 4226 of the New York Insurance Law.  AXA opposed certification on this proposed nationwide class arguing that the commonality requirement cannot be met because Section 4226 requires each plaintiff to prove she/he relied on the alleged misleading illustration.  Observing that the statute contains no reference to reliance and neither the legislative history nor limited case law suggests that a reliance requirement should be read into the statute, the court disagreed.  It held that Section 4226, given the nature of the harms alleged in this case, requires a plaintiff to recover if she read, received, or became aware of the alleged misleading illustration.  With that finding, the court ultimately found that class plaintiffs proved the requirements under Rule 23(a) and 23(b)(3) and certified the class.

The court also certified the New York Illustration-Based Claims Sub-Class, which includes all members of the Illustration-Based Claims Class who resident in New York and who seek to bring claims under Section 349 of the New York General Business Law.  The court noted that elements of this Section 349 claim are substantial similar to the elements of the Section 4226 claim.

The court denied certification to the California Illustration-Based Claims Sub-Class, which includes all members of the Illustration-Based Claims Class who reside in California and who seek to bring claims under the CUCL, for reasons similar to denying certification to the California Policy-Based Claims Sub-Class.

Claim Splitting and Reservation of Rights

The court was cognizant of the issue of claim splitting and claim/issue preclusion.  As described by the court, these issues have two important implications for purposes of class certification:

First, if the Court were to certify a class to pursue some but not all claims that the putative class representatives seek to assert, certification of the class could cause absent class members to forfeit those claims that the class representatives may not assert on behalf of the class.  Second, and relatedly, absent class members might lose any claims that arise from the same nucleus of operative facts that the putative class representatives — whether wittingly or unwittingly — fail to pursue.  These phenomena are referred to as claim splitting; that is, the claims of absent class members are split and, to the extent not asserted, may be precluded. It is important for a court confronted with a motion for class certification to be attentive to the possibility of claim splitting — mindful that neither the named plaintiff nor the defendant may be incentivized to raise the issue on behalf of absent class members.

With the first implication in mind, the court made a particular ruling with respect to the denied certification of the California Elder Policy-Based Claims Sub-Class.  The court observed that unlike the other denied sub-classes, this sub-class based on elder abuse claims may have substantial damages value, as treble damages may be available under Section 3345(b) of the California Civil Code.  Recognizing that potential increased value of damages, the court held that “it is prudent to expressly reserve – and does expressly reserve – the absent class members’ rights to later pursue claims under the California Elder Abuse Law.”  The court did not, however, make such an express reservation of rights for the two other sub-classes for a contract-based class and illustrations-based class under the CUCL to which the court denied certification. 

With the second implication in mind, the court also “expressly reserve[d] the rights of all absent class members outside of New York and California to later bring any claim not actually litigated here.”  For example, a class member may bring misleading illustration-based claims under laws other than California and New York in later litigation.

Notice and Opt-Out Procedures

The court ordered class plaintiffs to file within two weeks a proposed order consistent with the court’s opinion and prescribing procedures by which class members will be provided notice and an opportunity to opt out of the class, which must be consistent with the requirements of Rule 23 and due process.  Based on the court’s order, we expect policyholders will be receiving notice of the class certification within the next 60 days and have until about November to decide whether to opt out.  The actual timing, however, will depend on when the class issues the notice.