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Fraser v. Prudential Insurance Agency, LLC

United States District Court, D. Massachusetts

December 20, 2018

PAUL FRASER and DEBORAH FRASER, Plaintiffs,
v.
PRUDENTIAL INSURANCE AGENCY, LLC, and PRUDENTIAL INSURANCE COMPANY OF AMERICA, a/k/a PRUDENTIAL, Defendants.

          OPINION AND ORDER

          GEORGE A. O'TOOLE, JR. UNITED STATES DISTRICT JUDGE.

         The magistrate judge to whom this matter was referred has filed a report and recommendation (dkt. no. 197) (“R&R”), recommending that the plaintiffs' requests for summary judgment and sanctions (dkt. nos. 171, 179, 181) be denied and that Prudential's Motion for Summary Judgment (dkt. no. 175) be granted. The plaintiffs filed timely objections to the recommendation, as well as a response to Prudential's reply.

         After reviewing the R&R, the parties' submissions, and the record, I OVERRULE the plaintiffs' objections and ADOPT the R&R in its entirety. The Plaintiffs' objections are meritless. I agree with the magistrate judge that the policy lapsed in accordance with its terms and that Prudential properly filed a Form 1099-R as a result.

         I am also in agreement with the magistrate judge on the imposition of sanctions: Prudential's request for sanctions is GRANTED insofar as the plaintiffs are hereby enjoined from filing any further pleadings against Prudential Insurance Company of America or Prudential Insurance Agency, LLC, relating to this insurance policy or related tax assessment without prior leave of court, except for the purposes of appealing this judgment.

         Accordingly, the plaintiffs' requests for summary judgment and sanctions (dkt. nos. 171, 179, 181) are DENIED. Prudential's Motion for Summary Judgement (dkt. no. 175) is GRANTED and its request for sanctions is GRANTED as described above. Judgement shall enter for Prudential.

         It is SO ORDERED.

         August 28, 2018

         REPORT AND RECOMMENDATION ON PRUDENTIAL'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFFS' MOTIONS FOR SUMMARY JUDGMENT

         I. INTRODUCTION

         The Plaintiffs[1] originally brought this pro se action against Prudential Insurance Company of America and Prudential Insurance Agency, LLC alleging those entities wrongfully cancelled Paul Fraser's life insurance policy, and fraudulently reported a resulting taxable gain to the Internal Revenue Service (“IRS”), thereby requiring Paul and Deborah Fraser to defend against a tax deficiency notice issued by the IRS. This court previously dismissed the action against Prudential Insurance Agency, LLC. (Docket No. 59). Therefore, the sole remaining defendant is Prudential Insurance Company of America, and that entity will be referred to herein as “Prudential.”

         Following the court's ruling on various dispositive motions, the sole remaining count in this action is Count IV against Prudential for the alleged improper cancellation of Paul Fraser's insurance policy. (See Docket Nos. 53, 59). This matter is presently before the court on Plaintiffs' “Objection to Electronic Order 169 [sic] and Renewed Motion for Summary Judgment” (“Plaintiffs' Objection and Renewed Motion”) (Docket No. 171), and Prudential's “Motion for Summary Judgment.” (Docket No. 175).

         The Plaintiffs filed an opposition and supplemental opposition to Prudential's motion, in which they also seek entry of summary judgment in their favor and imposition of sanctions against Prudential, as well as default judgments against Prudential and Prudential Insurance Agency, LLC. (Docket Nos. 179, 181). The court has already ruled numerous times that there is no basis for a default judgment against Prudential Insurance Agency, LLC since it was dismissed from this case on November 25, 2015, or against Prudential since it filed a timely answer on December 9, 2015. (See, e.g., Docket Nos. 31, 48, 61, 67-69, 74, 157). Plaintiffs have proffered no reason for this court to revisit those rulings. Additionally, at the motion hearing on July 11, 2018, Prudential requested that the court issue sanctions and enjoin Plaintiffs from continuously filing such motions against them in this court.

         For all the reasons detailed herein, this court recommends to the District Judge to whom this case is assigned that Prudential's “Motion for Summary Judgment” (Docket No. 175) be ALLOWED, and that Plaintiffs' requests for summary judgment in their favor (Docket Nos. 171, 179, 181) be DENIED. Additionally, this court recommends that Prudential's request for sanctions be GRANTED in that the Plaintiffs be precluded from filing any further pleadings against Prudential or Prudential Insurance Agency LLC relating to the Policy (as defined herein) or related tax assessment without prior leave of court, except in connection with an appeal of the rulings on any of the motions for summary judgment. Finally, this court recommends that the Plaintiffs' request for sanctions be DENIED.

         II. STATEMENT OF FACTS

         Scope of the Record

         The following facts are undisputed unless otherwise indicated. The facts are derived from “The Prudential Insurance Company's Statement of Facts” (Docket No. 176) (“DF”) and the exhibits attached to the Affidavit of Andrew Yonker (“Yonker Aff.”), which is attached as Exhibit A to “Defendant The Prudential Insurance Company's Motion for Summary Judgment” (Docket No. 175) (“Def. Ex. ___”).[2] Although Plaintiffs aver that the statements made by Prudential are “completely false” (see Docket No. 179), they cite no contrary evidence. Plaintiffs did not submit a counterstatement of facts nor did they dispute Prudential's Statement of Facts. As a result, Prudential's facts are deemed admitted pursuant to Local Rule 56.1.

         In court during oral argument on those motions, Mr. Fraser submitted additional documents in support of his contention that he paid the overdue premium and that, as a result, his policy did not lapse. In addition, at this court's request, Prudential provided the court with relevant tax court filings that were referred to by Mr. Fraser. Prudential objected to the court's consideration of these documents as not being properly filed. While the court agrees that they were not properly or timely filed, the documents are not in dispute and they form the basis of the claims at issue here. In order to fully address the outstanding issues, the documents have been considered by this court. This court has herewith filed the tax court decision and the government's pre-trial memorandum in the tax court provided by Prudential at the court's request as Docket No. 195, and the following documents provided by Mr. Fraser as Docket No. 196: a check dated June 15, 2010 (redacted), a letter dated July 6, 2010, a letter dated July 7, 2010, a letter dated October 4, 2010, and a letter dated February 2, 2011.

         Overview of the Policy

         Prudential issued Paul Fraser a whole life insurance policy (the “Policy”) on October 1, 1991 with a face value of $500, 000, insuring his life. (DF ¶ 3; Yonker Aff. ¶ 1). Deborah Fraser is the named beneficiary of the Policy. (DF ¶ 2). Under the Policy, Mr. Fraser was obligated to make premium payments of $525 on the first day of every month to keep the Policy in force. (Id. ¶¶ 4-6). If a premium was not paid by its due date, the Policy granted thirty-one days of grace (the “Grace Period”), which kept the Policy in force during those days. (Id. ¶ 7). If the premium was not paid before the Grace Period ended, the Policy provided that it “will end and have no value, except as [Prudential] state[s] under Contract Value Options.” (Id.; Def. Ex. A-1 at 6).

         If the Policy ended, the Policy provided that the net cash value would be used to provide extended term insurance, which provided a different type of insurance using the cash value of the Policy. (DF ¶ 11; Def. Ex. A-1 at 8). The Policy did not contain a provision that states the cash value of the Policy automatically applies to past due premium payments. (DF ¶ 12). Mr. Fraser would be able to reinstate his Policy after the Grace Period, but only after certain conditions were met, including an obligation that he “give [Prudential] any facts we need to satisfy us that the Insured is insurable for the contract” and “any contract debt . . . must be restored or paid back.” (Id. ¶ 8).

         The Policy allowed Mr. Fraser to borrow against the cash value of the Policy, thereby reducing the net cash value of the Policy. (Id. ¶ 10). Mr. Fraser did, in fact, routinely exercise his right to borrow against the cash value of the policy. (Id. ¶ 13). The loan requests Mr. Fraser completed provided that there might be tax consequences if the Policy ended. (Id. ¶ 15; Def. Ex. A-8). The Loan Request Form Mr. Fraser completed in 1998 provided that he understood “that there may be tax implications on the request(s) and that the request(s) (including tax reporting and income tax withholding) cannot be reversed once processed (because Prudential may not give legal or tax advice, you may want to consult your tax advisor)[.]” (Id. ¶ 15; Def. Ex. A-7).

         Finally, according to Prudential, in the event the Policy ended, Prudential was obligated to report both to the policyholder and the IRS on Form 1099-R any loan amount that was outstanding on the Policy to the extent that it excluded the total premiums paid to the Policy. (DF ¶ 30).[3]

         Failure to Pay Premium and Issuance of Form 1099-R

         On April 1, 2010, Mr. Fraser did not pay his $525 monthly premium. (Id. ¶ 16). As a result, the Policy entered into the Grace Period. (Id. ¶ 17). The Grace Period expired on May 2, 2010. (Id.). On May 10, 2010, Prudential sent Mr. Fraser a notice (the “May 10 Letter”) informing Mr. Fraser that the Policy had “lapsed” because Prudential had not received his monthly premium payment on April 1, 2010.[4] (Id. ¶ 18; Def. Ex. A-4). As explained in the May 10 Letter:

We're concerned because we haven't received your monthly premium payment that was due on April 1, 2010. As a result, your policy [number] lapsed on May 2, 2010. But don't worry, if you act quickly you can still reinstate your ...

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