Ninth Circuit Applies Securities Litigation Uniform Standards Act to Affirm Dismissal of Section 17200 Class Action Involving Variable Life Insurance Policies

by Sheppard Mullin Richter & Hampton LLP

In Freeman Investments, LP v. Pacific Life Insurance Co., No. 09-55513, 2013 WL 11884 (9th Cir. Jan 2, 2013), the United States Court of Appeals for the Ninth Circuit held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) precluded plaintiffs’ class claims for violations of California Business & Professions Code § 17200, but did not preclude plaintiffs’ breach of contract claims. The Court held that the Section 17200 claims were predicated on alleged misrepresentations and omissions, whereas the contract claims were not. The Ninth Circuit’s holding reaffirms the courts’ broad application of SLUSA to class claims that are dependent upon allegations of misrepresentations or omissions.

Plaintiffs purchased variable universal life insurance policies from defendant Pacific Life Insurance Company (“Pacific Life”). Variable universal life insurance policies allow the policyholder to share in the gains, or losses, generated by the insurer’s investment of premiums. Plaintiffs alleged that Pacific Life’s levying of excessive “cost of insurance” charges in its administration of the insurance policies resulted in a decrease to the amount of money available for investments.

Plaintiffs filed a class action against Pacific Life on behalf of purchasers of Pacific Life’s variable universal life insurance policies. They asserted claims for breach of contract, breach of the duty of good faith and fair dealing and unfair competition under Section 17200, claiming that Pacific Life deviated from industry standards in calculating the “cost of insurance.” Plaintiffs alleged that “cost of insurance” was a term of art which they expected would be calculated “based on industry accepted actuarial determinations.” Instead, plaintiffs alleged, Pacific Life secretly debited an amount “in excess of true mortality charges.”

Pacific Life moved to dismiss under SLUSA. SLUSA generally precludes state law class actions that allege misrepresentations or misleading omissions in connection with the purchase or sale of covered securities. The parties here did not dispute that variable universal life insurance policies issued by Pacific Life constituted “covered securities” under SLUSA. At issue, however, was whether the plaintiffs’ Section 17200 claim and their claims for breach of contract and breach of the duty of good faith and fair dealing alleged misrepresentations or fraudulent omissions such that they would be precluded by SLUSA.

The United States District Court for the Central District of California dismissed. It agreed that the class action could not be maintained under state law because all of plaintiffs’ claims involved the omission of facts and possible misrepresentations in connection with the purchase of the insurance policies. Plaintiffs appealed.

The Ninth Circuit affirmed in part and reversed in part. The Court recognized that plaintiffs’ claim under Section 17200 was dependent upon allegations of misrepresentations and omissions in connection with the sale of the policies. Thus the Court held, consistent with the Supreme Court’s decision in in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006) [blog article here], that the “in connection with” language of SLUSA should be construed broadly to cover plaintiffs’ allegation that Pacific violated Section 17200 by “engag[ing] in fraud or misrepresentation that drained their investments.” The Court thus affirmed the dismissal of the Section 17200 claim under SLUSA.

With respect to the contract claims, however, the Ninth Circuit reversed. The essence of plaintiffs’ contract claims was a “dispute about the meaning of a key contract term.” In order to succeed on their claim for breach of contract and breach of the duty of good faith and fair dealing, plaintiffs would need to “convince the court or jury that theirs is the accepted meaning in the industry,” not that “Pacific misrepresented the cost of insurance or omitted critical details.” Accordingly, the Court reversed the dismissal of the breach of contract claim and remanded it to the district court, requiring plaintiffs to amend their complaint to remove any allegations of fraud or active concealment.

Freeman Investments reaffirms that SLUSA should be applied broadly to class claims that are dependent upon proof of misrepresentations or omissions in connection with the purchase or sale of covered securities.

For further information, please contact John Stigi at (310) 228-3717 or Bridget Russell at (310) 228-2273.


Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.