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CHABNER v. UNITED OF OMAHA LIFE INS. CO.

January 15, 1998

HOWARD L. CHABNER, Plaintiff,
v.
UNITED OF OMAHA LIFE INSURANCE COMPANY, and DOES 1 through 100, inclusive, Defendants.



The opinion of the court was delivered by: PATEL

 Plaintiff Howard L. Chabner, on his own behalf and purporting to represent a class, brought this action against defendant United of Omaha Life Insurance Company ("United of Omaha") in California Superior Court alleging discrimination on the basis of disability under: (1) California Insurance Code section 10144; (2) the Unruh Civil Rights Act, California Civil Code sections 51 et seq.; and (3) the Unfair Business Practices Act, California Business and Professions Code sections 17200 et seq. Chabner also asserted a fourth claim for fraud. United of Omaha removed to this court on diversity grounds, 28 U.S.C. section 1332, whereupon Chabner amended his complaint to add a claim under the Americans with Disabilities Act ("ADA"). See 42 U.S.C. §§ 12101 et seq. Chabner seeks declaratory and injunctive relief, as well as statutory minimum damages.

 Per an earlier order, this court denied Chabner's motion for class certification and deferred ruling on plaintiff's motion for summary judgment, requesting that the parties file supplemental briefing on the applicability of the ADA to insurance underwriting. Now before the court is Chabner's motion for summary judgment on all except his fraud claims. Having considered the parties' arguments and submissions, and for the reasons set forth below, the court enters the following memorandum and order.

 BACKGROUND1

 Plaintiff Chabner is a 35 year-old, non-smoking man who has fascioscapulohumeral ("FSH") muscular dystrophy ("MD") and uses a wheelchair. In May 1993, Chabner applied for a life insurance policy with United of Omaha. United of Omaha issued Chabner a whole life insurance policy in which the cost of insurance was $ 305.44 for the period from July 1993 to July 1994. The same insurance for a non-smoking man of Chabner's age without FSH MD would have cost $ 155.44 for the same period. *fn2"

 In estimating Chabner's mortality risk, United of Omaha had no internally developed actuarial data regarding FSH MD, so its underwriter consulted two externally developed manuals: the Cologne Life Reinsurance Company's "Life Underwriting Manual" ("Cologne manual") and "Medical Selection of Life Risks" by R.D.C. Brackenridge and W. John Elder ("Brackenridge manual"). See Subbotin Dec. P 3; Anderson Dec. P 6, Exs. B, C. According to United of Omaha, its underwriter determined Chabner's mortality risk rating "based in large part on his medical records" *fn3" and to a lesser degree on the Brackenridge manual and the Cologne manual. The underwriter concluded that Chabner had a "moderately progressive" form of FSH MD *fn4" and, based partly on the Brackenridge manual's recommendation of an incremental mortality rate between 75 and 150 percent for "slowly progressive" FSH MD, *fn5" authorized a policy with a "Table 6" rating, which corresponds to a 150 percent increase above standard mortality rate. *fn6" Because the mortality rate in a population with the applicant's risk profile is directly proportional to the appropriate premium, the Table 6 rating corresponds to a 150 percent increase in Chabner's premium. United of Omaha subsequently set Chabner's actual insurance cost at 96.5 percent higher than standard. *fn7"

 After Chabner inquired about the basis for his nonstandard premium, United of Omaha's Vice President and Senior Medical Director of Underwriting, Robert J. Quinn, M.D., responded in a letter that FSH MD "has only a small effect on mortality" and reduces life expectancy by only four years for a non-smoking man of his age. Chabner Dec., Ex. A at 1. United of Omaha now estimates the decrease in life expectancy at nine to eleven years, but that estimate is based solely on United of Omaha's own conclusion that Chabner should be rated as a "Table 6" applicant. *fn8"

 On January 3, 1995, Chabner brought this action against defendant United of Omaha in California Superior Court alleging discrimination on the basis of disability under California Insurance Code section 10144, the Unruh Civil Rights Act and the Unfair Business Practices Act. Chabner also alleged fraud. United of Omaha removed to this court on diversity grounds and Chabner amended his complaint to add a claim under the ADA. Chabner seeks declaratory and injunctive relief, as well as damages. He now moves for summary judgment on all but his fraud claims.

 LEGAL STANDARD

 Under Federal Rule of Civil Procedure 56, summary judgment shall be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial . . . since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); see also T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (the nonmoving party may not rely on the pleadings but must present significant probative evidence supporting the claim); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (a dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.").

 The court's function, however, is not to make credibility determinations, Anderson, 477 U.S. at 249, and the inferences to be drawn from the facts must be viewed in a light most favorable to the party opposing the motion. T.W. Elec. Serv., 809 F.2d at 631.

 DISCUSSION

 I. Liability for Disability Discrimination in the Insurance Context

 At the core of Chabner's claims is California Insurance Code section 10144:

 Cal. Ins. Code § 10144. Chabner claims United of Omaha violated this section by charging him a significantly higher rate based solely on his FSH MD without basis in sound actuarial principles or relation to actual and reasonably anticipated experience.

 Neither the parties nor the court has found any authority explicitly confirming or denying the existence of a private right of action under Insurance Code section 10144. In general, a court may infer a private right of action where a statute protects a class of persons without providing a civil remedy, the remedy furthers the legislative purpose, and the remedy is necessary to ensure the statute's effectiveness. Middlesex Ins. Co. v. Mann, 124 Cal. App. 3d 558, 570, 177 Cal. Rptr. 495 (1981) (quoting Restatement 2d of Torts section 874A); but see Moradi-Shalal v. Fireman's Fund Ins. Co., 46 Cal. 3d 287, 250 Cal. Rptr. 116, 758 P.2d 58 (1988) (holding no private action exists under statute regarding insurers' bad faith refusal to settle) and Crusader Ins. Co. v. Scottsdale Ins. Co., 54 Cal. App. 4th 121 (1997)(disagreeing with Middlesex on the basis of Moradi-Shalal which was decided after Middlesex).

 Here, Chabner has a private right of action under California's Unfair Practices Act for any business practice forbidden by law. See Cal. Bus. & Prof. Code §§ 17200, 17204; see also People v. McKale, 25 Cal. 3d 626, 631-32, 159 Cal. Rptr. 811, 602 P.2d 731 (1979). As a result, a private right of action need not be inferred under section 10144, which defines an unlawful business practice, to ensure its effectiveness. In sum, although there is no private right of action under Insurance Code section 10144, California's Unfair Practices Act provides a private right of action where section 10144 has been violated. Section 10144 also helps to define the contours of liability under both the ADA and Unruh Civil Rights Act, each of which provide for private claims.

 Title III of the ADA provides: "No individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the . . . services . . . privileges, [or] advantages . . . of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation." 42 U.S.C. § 12182(a). The ADA also includes a "safe harbor" provision, which states that: "[the ADA] shall not be construed to prohibit or restrict . . . an insurer . . . from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law . . . ." 42 U.S.C. § 12201(c).

 ADA section 12201(c) was intended to adopt the standard expressed in a model regulation which is substantially similar to California Insurance Code section 10144. See Piquard v. City of East Peoria, 887 F. Supp. 1106, 1120-21 (C.D. Ill. 1995); see also 28 C.F.R. Ch. I, Pt. 36, App. B, § 36.212 at 612 (1995). The model regulation, created by the National Association of Insurance Commissioners ("NAIC"), made it illegal to refuse insurance or charge a different rate based solely on disability "except where the refusal . . . or rate differential is based on sound actuarial principles or is related to actual or reasonably anticipated experience." Model Regulation on Unfair Discrimination in Life and Health Insurance on the Basis of Physical or Mental Impairment § 3 (National Ass'n of Ins. Comm'rs 1993) (hereinafter "NAIC Model Regulation").

 Chabner argues that California's Unruh Act, in turn, incorporates the protections of the ADA. The Unruh Act was amended in 1992 to provide that "a violation of the right of any individual under the Americans with Disabilities Act of 1990 . . . shall also constitute a violation of this section. Cal. Civ. Code § 51 (West Supp. 1996). In ...


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