Insurance Litigation Law Blog | Regulatory Law | Bad Faith | California | Lawyer | Attorney | Barger & Wolen

Sometimes a green drop is just a green drop.

Last week, the California Court of Appeal, First Appellate District, dismissed a purported class action against the owners of Fiji Water, finding as a matter of law that the company’s use of a green drop on its bottle, along with a slogan “Every Drop is green,” would not mislead a reasonable consumer. The case, Hill v. Roll International Corporation, is the most recent decision to disallow the use of California’s Unfair Competition Law, Business & Professions Code section 17200 et seq. (“UCL”), to restrict the marketing of a product that fails to contain any misleading symbol, slogan or message.

At issue in the case was Fiji Water’s labeling for its bottled water and specifically the use of a green drop on the front of the product, which the plaintiff contended “looks similar to environmental ‘seals of approval’ . . . by several independent, third–party organizations.” The plaintiff asserted that the use of the green drop connotes approval by such third-party organizations and that the green drop is “deceptive because it conveys that the products is environmentally sound and superior to other bottled waters that do not contain the Green Drop.” 

In addition to the UCL claim, the plaintiff sued under the False Advertising Law, Business & Professions Code section 17500 et seq.; the Consumer Legal Remedies Act, Civil Code section 1750 et seq.; and common law claims for fraud and unjust enrichment. The trial court dismissed the complaint on demurrer, without further leave to amend.

On appeal, the court first observed that, in resolving an appeal based on the reasonable consumer standard following a judge trial, some courts have evaluated whether an advertisement is deceptive as a pure question of law, while other courts have generally – though not invariably – found it to raise a question of fact such that it cannot be decided on demurrer. 

Here, however, the court found that accepting all the facts in the complaint as true, “no reasonable consumer would be mislead to think that the green drop on Fiji water represents a third party organization’s endorsement or that Fiji water is environmentally superior to that of the competition.” (Emphasis by Court.)

The plaintiff specifically relied on the California Environmental Marketing Claims Act, Business & Professions Code section 17580 et seq., along with Guidelines for the Use of Environmental Marketing Claims, issued by the Federal Trade Commission (“FTC”) to support her claims. Despite accepting for purposes of demurrer that all of plaintiff’s claims as to being misled were true, her claims still did not satisfy the reasonable consumer standard as expressed in the FTC guidelines and California’s consumer laws, which require her to “show potential deception of consumers acting reasonably in the circumstances – not just any consumers.”   This is not a “least sophisticated consumer,” an “unwary consumer,” or an “overly suspicious consumer” standard, but “a reasonable consumer in the circumstances.” And, the court emphasized that “the context of the symbol is important.”

Finally, the Court of Appeal took the occasion to distinguish this case from the recent Supreme Court decision in Kwikset Corp. v. Superior Court, 51 Cal. 4^th 310 (2011), which involved misleading product labeling on the defendant’s locksets which were not wholly “Made in the U.S.A.”  (Our blog on Kwikset is found here.)   Unlike the Kwikset case, which concerned the issue of standing under the UCL, this case did not raise any issue of standing. Moreover, agreeing “wholeheartedly” with the Supreme Court’s statement that “labels matter,” in this case the court only held, once again, that “no reasonable consumer would be mislead to think that the green drop represents a third party organization’s endorsement of that Fiji water is environmentally superior to that of the competition.”

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By Robert W. Hogeboom and Alexandra E. Ciganer

On May 23, 2011, California Insurance Commissioner Dave Jones along with State Controller John Chiang held an investigatory hearing on the claims practices of Metropolitan Life Insurance Company (“MetLife”) regarding the payment of death benefits under life insurance policies and annuities. Joining the Commissioner and State Controller were regulatory officials from the Florida and Minnesota Departments of Insurance who are also investigating death benefits claims practices.

MetLife was called to the hearing pursuant to the California Department of Insurance’s (“CDI”) investigatory subpoena to appear and provide documents to determine whether the insurer’s practices and procedures relating to its use of its death master file data and related information violates various sections of the Insurance Code.

The Commissioner’s opening statement reflects his concern that a number of life insurers are using death information to “boost their finances by stopping annuity payments, but not using the same information to pay policyholders the beneficiary payments they are due.” 

The CDI announced that it is commencing market conduct exams on the ten largest life insurers to investigate these practices. Adam Cole, CDI General Counsel, along with Insurance Commissioner Jones, gave opening statements and conducted the bulk of the questioning of MetLife officials. Mr. Cole indicated that the CDI is reviewing the death claims practices to determine if violations exist under California Insurance Code subsections 790.03(h)(3) and (5). Subsection (3) refers to failing to adopt reasonable standards for the prompt investigation and processing of claims. Subsection (5) refers to not attempting in good faith to effect prompt, fair and equitable settlements of claims. Other sections of the California Insurance Code were also cited.

In assessing whether claims settlement practices violated these statutes, Commissioner Jones dedicated a significant portion of the inquiry to MetLife’s use of the U.S. Social Security Administration death master file in identifying deceased insureds. Much of the time was spent questioning the application of the death master file to different insurance products, including group annuity, group life and individual life products, frequency of the death master file sweeps, and what constitutes a match in the death master file.

Commissioner Jones raised his concern with the varying frequency of death master file sweeps to the different products. He probed into the reasons for conducting a death master file sweep of individual life insurance products annually versus monthly or quarterly for other products. The regulators also dedicated significant attention to MetLife’s use and characterization of the death master file as a “safety net” procedure in identifying the deceased individual life insurance insured. Commissioner Jones’ view appears to be that the use of the death master file as a safety net is not sufficient and should be used as “an integral part of the normal process.” 

While the investigatory hearing was characterized by the CDI as a public hearing to investigate company actions, policies and practices, in actuality it was a disciplinary investigatory hearing to determine specific violations, which is tantamount to a deposition. As such, it was not being used as a public forum to exchange information which could ultimately lead to best practices legislation with respect to payment of death benefits, but to provide traction for the CDI to institute disciplinary proceedings against members of the life insurance industry.

A copy of the Commissioner’s Press Release on the hearing and his plans to conduct market conduct examinations is found here.

For more information, please contact Robert Hogeboom at (213) 614-7304, or rhogeboom@bargerwolen.com.

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In a significant loss for employees, the United States Supreme Court has determined that a pension plan's Summary Plan Description ("SPD") is not a part of the plan itself (CIGNA Corp. v. Amara). 

The decision, supported by all eight justices who participated, severely limits the ability of plan participants to sue for benefits based upon claimed irregularities in the SPD.

Until 1998, CIGNA's pension plan provided a retiring employee with an annuity based on pre-retirement salary and length of service. The new plan replaced the annuity with a cash balance based on a defined annual contribution from CIGNA, plus interest. The new plan translated earned benefits under the previous plan into an opening amount in the cash balance account. 

Plaintiffs, beneficiaries under CIGNA's pension plan (and the plan itself), acting on behalf of approximately 25,000 beneficiaries, challenged the new plan in a class action, claiming CIGNA failed to give them proper notice of the changes, particularly because the new plan provided less generous benefits. 

The District Court held that CIGNA's descriptions of the new plan were significantly incomplete and inaccurate and that CIGNA intentionally misled its plan participants, violating sections 102(a), 104(b) and 204(h) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").  See 29 U.S.C. §§ 1022(a), 1024(a), 1054(h). 

The District Court found that only class members who had suffered harm due to CIGNA's disclosure improprieties could obtain relief, but it did not require each class member to show individual injury. 

Instead, it found the evidence raised a presumption of "likely harm" suffered by class members and that, because CIGNA failed to rebut this presumption as to some or all participants, the evidence warranted class-applicable relief. 

Although section 204(h) of ERISA permits invalidation of plan amendments imposed without proper notice, the District Court did not do so here, reasoning that striking the new plan would further harm, rather than help, injured class members. 

Instead, granting relief under section 502(a)(1)(B) of ERISA, which authorizes a civil action to recover "benefits due" under the terms of the plan, the District Court reformed the new plan, substituted a more generous retirement payment, and ordered CIGNA to pay benefits under the plan, as reformed.  See 29 U.S.C. § 1132(a)(1)(B). 

The Court of Appeals for the Second Circuit affirmed. 

The Supreme Court held that the lower court improperly relied upon section 502(a)(1)(B) of ERISA, as that section does not authorize the District Court to change plan terms, rather than enforce existing terms. 

The Court rejected the argument that the District Court merely enforced existing terms of the plan because it enforced the SPD, which is part of the plan. 

In rejecting this theory, the Supreme Court reasoned that the SPD is not part of the plan, but merely information about the plan.  See 29 U.S.C. § 1022(a). 

The Court commented that the argument ignores the distinction between the plan sponsor (which creates the plan and the procedures for making plan amendments) and the plan administrator (which manages the plan and provides the SPD in readily understandable form). 

The Court explained that, even where the duties of the plan sponsor and the plan administrator are performed by the same entity, the division of responsibilities between sponsor and administrator is significant. 

Imposing a rule that makes the SPD part of the plan and, therefore, allows statements in the SPD to modify the plan "might bring about complexity that would defeat the fundamental purpose of the summaries." 

While the Supreme Court did not find authority to reform plans under section 502(a)(1)(B), it nevertheless held that such authority exists under section 502(a)(3), which allows "other appropriate equitable relief" to redress violations of ERISA or plan terms.  See 29 U.S.C. § 1132(a)(3). 

Accordingly, even though a legal remedy such as compensatory damages is not permitted, the Supreme Court concluded that the District Court had the power to impose equitable remedies, including reformation of plan terms, injunctions to enforce plan terms, and orders to refrain from taking already accrued benefits (i.e., equitable estoppel).  

The Supreme Court noted ERISA does not establish a particular standard for determining harm, but requires the plan administrator to distribute written notice that is "'sufficiently accurate and comprehensive to reasonably apprise'" participants of "'their rights and obligations'" under the plan (quoting § 102(a)).

Thus, the Court explained the requirement of harm must come from the law of equity. Moreover, to determine if "detrimental reliance" must be proved to obtain equitable relief, the lower court must look to the specific equitable remedy it seeks to impose.  

With respect to the action against CIGNA, the Supreme Court explained that, to obtain relief by surcharge for the claimed ERISA violations, a plan participant or beneficiary must show that the violation caused injury--i.e., harm and causation, but not necessarily detrimental reliance, and that the prejudice standard, if applicable, must be borrowed from equitable principles, as modified by the obligations and injuries identified by ERISA itself. 

The Supreme Court remanded the case, allowing the District Court to further evaluate the remedy it will impose in light of its opinion.   

Although this case arose in the context of alleged irregularities concerning pension benefits, the decision will apply with equal force to other forms of plan benefits, including SPDs concerning insurance benefits.

Originally posted on Barger & Wolen's Life, Health, Disability Insurance Law blog.

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Robert Hogeboom Testifies on California Restitution Remedy Bill

On April 28, 2011, Barger & Wolen Senior Regulatory Counsel, Robert W. Hogeboom, testified before the Senate Insurance Committee as an industry expert opposing Senate Bill 631. 

SB 631, as drafted, would give the Insurance Commissioner additional remedies of restitution and reimbursement of attorney’s fees and costs in California Department of Insurance enforcement actions brought on behalf of consumers claiming wrongful conduct by insurers or other licensees, including producers. For more details, please see New Restitution Remedy Proposed for Insurers and Licensees in California.

Immediately before the Senate Insurance Committee hearing, author Senator Noreen Evans (D-District 2) announced her decision to make SB 631 a two-year bill. Her decision is presumed to be the result of the Legislative Counsel’s opinion to the Senate Insurance Committee raising California constitutional issues that the legislation may give the Commissioner remedies only available to the courts. 

At the hearing, Hogeboom testified that the legislation would violate the separation of powers clause in the California Constitution. Restitution is only given to quasi-judicial entities such as the California Workers’ Compensation Appeals Board. Further, reimbursement of attorney’s fees and costs would exceed even the power of the courts in most cases. 

Hogeboom also testified that because the legislation would extend payment of restitution for violations of Proposition 103’s rating law, the bill would likely require a two-thirds vote of the Legislature to pass.

Based on his lengthy experience as an enforcement regulatory lawyer, Hogeboom testified that the measure would actually hinder due process rights from licensees because many producer licensees would not be able to afford an administrative hearing when they face the risk of having to pay both restitution and reimbursement of attorney’s fees and costs. This would give the CDI more leverage in forcing licensees into settlements. 

Following the April 28, 2011 hearing, the bill was put over for another year in order to more fully explore its legal issues.

For more information, contact Robert Hogeboom at (213) 614-7304 or rhogeboom@bargerwolen.com.

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