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Dias v. Nationwide Life Insurance Co.

March 17, 2010


The opinion of the court was delivered by: Anthony W. Ishii Chief United States District Judge


This case arises from the purchase of life insurance polices by Plaintiffs Melvin Dias ("Melvin") and Evelyn Dias ("Evelyn") from Defendant Nationwide Life Insurance Company ("Nationwide"). Plaintiffs allege a single claim of fraud and seek to recover inter alia over $400,000 in premiums. Nationwide removed the case from the Fresno County Superior Court on the basis of diversity jurisdiction. Nationwide now moves for summary judgment. For the reasons that follow, the motion will be denied.


From 1996 to 2007, John Pena ("Pena") served as the Diases' financial advisor. JUMF 5. During this time, Pena was a Florida resident, and Melvin spoke to him about twenty times per month. JUMF 5, 7. In his capacity as financial advisor, Pena provided Plaintiffs with advice regarding the sale of their family business as well as the purchase of stocks, bonds, mutual funds, real estate, IRA's, and life insurance.*fn2 JUMF 6. Plaintiffs had a relationship of trust and confidence with Pena. PUMF 1. Pena introduced Plaintiffs to foreign real estate investments and their families took vacations together. See id.

In late summer or fall of 1998, Plaintiffs, who resided in Fresno, California, notified Pena that they were interested in purchasing life insurance for estate planning purposes in the event of their deaths. JUMF 1, 8. At that time, Plaintiffs had invested around $4 million through Pena. JUMF 9. Melvin, Pena, and Harvey Stein, an insurance agent of Nationwide, spoke about life insurance policies offered by Nationwide. See Dias Dec. ¶¶ 5-6; Pena Depo. at 29:1-30:10. According to Melvin, Pena told him that the Nationwide policy was "kind of like an investment policy" which would be "hooked in with the stock market, like I guess you might equate it with a mutual fund." JUMF 10. Melvin claims that Pena told him that the "monies [in the policy] would . . . generate additional income, income to take care of the insurance premiums . . ." because the "stock would grow and basically increase in value." JUMF 13. Melvin also claims that Pena said that the policy was a "good policy" because it would "grow in time," and that by paying premiums for two years, such investment would be "sufficient" to sustain the policy over Melvin's life.*fn3 See JUMF 14. Although Pena never told Plaintiffs what the anticipated rate of return would be on the policies, see DUMF 8, Melvin declares that Pena told him that the Policies were like a good investment and that Melvin would have the choice of putting more money into this investment if he so chose. See Dias Dec. ¶ 6.

Upon Pena's recommendation, Plaintiffs decided to purchase Nationwide variable life insurance policies with death benefits of $5 million each. JUMF 18. According to Plaintiffs, Pena told them that, for Melvin's policy, they would only have to make two annual premium payments of $98,050 and thereafter the policy would be self-funding. JUMF 19. As for Evelyn's policy, Plaintiffs claim that Pena told them that they would only have to make two annual premium payments of $96,319.30 and thereafter the policy would be self-funding. JUMF 20. In other words, Plaintiffs claim that Pena told them that the policies were like good retirement investments and that after two annual payments, the policies would pay for themselves. PUMF 3; see also Dias Dec. ¶ 6 (". . . the policy would generate its own premiums, and I would not be required to make any additional out-of-pocket payments.").*fn4

Melvin understood that the Policies would increase with time because they would increase along with the stock market and generate additional revenues. See JUMF 11. Melvin stated that he did not understand that the Policy values could decrease if the stock market decreased because in 1998 the predictions for the stock market were all "upside." See JUMF 12. Melvin did not think of a "downside," if for example the stock market went down, but instead just believed that the Policies would go up as they were investment policies. See JUMF 15. Plaintiffs did not consult their accountants or lawyers prior to purchasing the Policies. JUMF 17. Other than purchasing a whole life policy several years earlier, Plaintiffs had no other experience with or knowledge of life insurance, including variable universal life policies. See PUMF 5.

On November 2, 1998, Melvin and Evelyn each applied to Nationwide for variable life insurance policies with $5 million face amounts ($10 million total). JUMF 22, 23. Melvin and Evelyn submitted separate applications. See Ison Exhibits A, C. Melvin admits that he read the application before he signed it. JUMF 24. Evelyn left all financial decisions to Melvin and had nothing to do with the purchase of the Nationwide policies, other than signing her name to the application and other required forms. JUMF 25.

On Melvin and Evelyn's applications, in response to Section 10, they indicated that planned annual premiums of $98,050 for Melvin and $96,319 for Evelyn. JUMF 26, 27. On both of the applications, at Section 12 (entitled "suitability"), the following questions were answered "yes": "A. Do you understand the death benefit and surrender value may increase or decrease depending on the investment experience of the variable account? B. Do you believe that this policy will meet your insurance needs and financial objectives? C. Have you received a current copy of the prospectus?" JUMF 28; see also DUMF 9, 10. Nationwide would not have issued the Policies if Plaintiffs had not answered these questions "yes" and signed the applications. DUMF 11. Application § 24 is entitled "IMPORTANT NOTICE" and reads:

I understand that the Death Benefits under a Variable Life Insurance Policy may increase or decrease, depending on the investment return of the subaccount I select. Regardless of any investment return, the Death Benefit can never be less than the Specified Amount as long as the policy is in force. The Contract Value may increase or decrease on any day, depending on the investment return for the Policy. No minimum Contract Value is guaranteed. On request, we will furnish illustrations of benefits, including Death Benefits, and Contract Values for a Variable Life Insurance Policy and a Fixed Life Insurance Policy for the same premium.

JUMF 29. Finally, above the signatures is the "Agreement, Authorization, and Signatures" section, which contains the following language, "I have read this Application. I understand each of the questions. All of the answers and statements on the form are complete and true to the best of my knowledge and belief. I understand and agree that: 1. This application as well as any forms the Company designates as part of the application, including any related medical questionnaire signed by me, will become part of the Policy and are the basis of any insurance issued upon this application . . . ." JUMF 30. Pena's signature appeared as agent on each application. See Ison Dec. Exhibits A, C; PUMF 6.

Around the time of the application, Pena presented Plaintiffs with letters to sign, which requested that Pena be the representative on the Policies. See Melvin Dias Supplement Dec. ¶ 4 & Exhibit B. Melvin and Evelyn each signed the letters, which were dated November 3, 1998. See id. at Exhibit B. When Pena presented the letters to Plaintiffs, Melvin believed that Pena was a Nationwide agent, although he believed that Stein was the agent who sold the Policies. See id. at ¶ 4.*fn5

On November 9, 1998, Nationwide approved Plaintiffs' respective applications and issued separate policies (hereinafter "Policies"), one to Melvin and one to Evelyn. See JUMF 31. The Policies each provide for an initial specified amount of $5 million. JUMF 32; DUMF 12, 14. Nationwide mailed the Plaintiffs' Policies to them at the address listed on their applications. DUMF 13, 15. Melvin received the Policies, but does not remember reading them. See Dias Dec. ¶ 9; JUMF 59.

The Policies provided that the premium mode was "annual." JUMF 33, 37. Melvin's Policy indicated that the "scheduled premium" was $98,050, and Evelyn's policy indicated that the "scheduled premium" was $96,319. JUMF 34, 35, 37. The first page of each Policy states:


The Cash Surrender Value of this Policy will vary from day to day. It may increase or decrease depending on the investment experience of the Policy. Refer to the Non-Forfeiture Provisions on page 11 for details. There is no guaranteed Cash Surrender Value.

The amount of the death benefit may be variable and depends on the investment experience of the Policy. The duration on the death benefit will be variable and depend on the investment experience of the Policy. The death benefit will never be less than the specified amount as long as your Policy is in force. Refer to the Death Benefit Provisions.


You may return this Policy to us within [10 or 45 days depending on circumstances]. . . . The return Policy will be treated as if we had never issued it, and we will pay you the amount specified for the laws of the state in which the Policy was issued.



-- Adjustable Death Benefits

-- Flexible Premiums payable during Insured's lifetime and until the Maturity Date

-- Death Proceeds payable at Insured's death prior to the Maturity Date

-- Maturity Proceeds payable on the Maturity Date

-- Not eligible for dividends

-- Investment experience reflected in benefits.

JUMF 36. Pena testified that he spoke to Melvin the day Melvin received the Policies in the mail and they specifically discussed the 10-day "free look" provisions of the Policies. See DUMF 16, 17.*fn6 Plaintiffs did not return the Policies within 10 days, or otherwise. See JUMF 60. On page 2 of the Policies, after identifying the initial premium ($98,050 for Melvin and $96,319 for Evelyn), the scheduled premium (the same amounts as the initial premium), and the premium mode (identified as "annual"), the Policies state, "Coverage may expire prior to the dates shown if the premium requirements in the Guaranteed Policy Continuation Provision are not met. Please see 'Guaranteed policy Continuation and Grace Period Provision." JUMF 37. Page 6 of the Policies provided:


The entire contract consists of this Policy, any attached riders or endorsements, and the attached copy of any written application, written supplemental applications. No agent, registered representative, or other person may change this Policy or waive any of its provisions. Any agreement to alter this Policy must be in writing, signed by our President or Secretary and attached to or endorsed on your Policy. We will not be bound by any promised representation made by any agent or other persons.

JUMF 39. Page 9 of the Policies states:

Premium payments: The Initial Premium is due on the Policy Date. It will be credited on the Initial Investment Date. Any due and unpaid monthly deductions will be subtracted from the Cash Value at this time. Insurance will not be effective until the Initial Premium is paid. The Initial Premium is shown on the Policy Data Page.

Premiums other than the Initial Premium may be paid at any time while your Policy is in force subject to the limits described below. Premium payment reminder notices will be furnished upon request. We will send them according to the premium mode shown on the Policy Data Page. You may pay the Initial Premium to us at our Home Office or to an authorized agent. All premiums ...

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