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September 14, 2001


The opinion of the court was delivered by: McMAHON, District Judge.


Most insureds were nine or ten years old when these "marriage rider" policies were purchased. La Suisse originally calculated the premiums based on marriage statistics in Switzerland (where as much as 40% of the population never marries and those who marry do so in their mid-twenties) and Israel (where marriage rates and ages are, in general, similar to those in Europe). By contrast, marriage at an early age, 18 or 19, and sometimes younger, is common, in fact almost universal, in certain Orthodox Jewish communities, such as the Chassidim.

Plaintiffs anticipated using the policies as an investment to help pay for wedding expenses. When plaintiffs began to assert claims upon the marriages of their children, La Suisse allegedly stalled, refused to accept proof of marriage from plaintiffs, and avoided payment on the claims. Plaintiffs' amended complaint alleges breach of contract, and discrimination under 42 U.S.C. § 1981.

Defendant counterclaims for fraud, alleging that (1) fraud may be imputed to the plaintiffs through their brokers, who allegedly misled La Suisse officials with respect to the risk and profitability of the policies, and (2) plaintiffs themselves knew that La Suisse was unaware of the policyholders' marriage practices. Plaintiffs move to dismiss the counterclaim (1) as precluded by certain prior Swiss court decisions, and (2) on the grounds that fraud by the brokers cannot be imputed to plaintiffs. In their reply papers, plaintiffs also argue that the counterclaim is time-barred, and move for summary judgment on the substance of defendant's counterclaim. I provided defendant an opportunity to respond to the statute of limitations argument, and defendant did so in a letter brief submitted to the Court on September 7, 2001.


The Alleged Broker Fraud

Defendant contends that, in 1989, Elias Horowitz, president and sole shareholder of Bituswiss S.A., and Dr. Berysz Rosenberg, Bituswiss' representative in Switzerland, asked a former La Suisse agent to approach La Suisse about marketing life insurance policies with marriage riders. La Suisse agreed, and combined its "Global E" mixed endowment policy with an existing marriage rider product, the "256," to create the "Global E 256" product. Under the terms of the life-insurance portion of the policy, payment of benefits occurs either upon expiration of the contract term or, before that date, upon the death of the insured. The marriage rider provides for payment of the benefits if the insured marries before the end of the contract term.

Bituswiss began selling the "Global E 256" policies in July 1989. It sold the policies exclusively to members of the Orthodox Chassidic communities in New York. In the first three months, Bituswiss obtained more than 700 applications for the Global E 256. (Muller Decl. at Ex. B.)

Before approaching La Suisse, Horowitz (using the alias Sam Mendelsohn) sold between 400 and 500 similar policies issued by Winterthur, another Swiss insurance company, to members of the Orthodox Chassidic community. (Horowitz Dep. at 52-53, Muller Decl. at Ex. F.) According to defendant, Winterthur calculated its premiums for these policies based on the average marriage age of Swiss persons (26 years for men and 24 years for women) and the percentage of the Swiss population that marries. In March 1989, Winterthur changed the terms and conditions of the policies, setting a minimum age of 20 for the payment of benefits and reducing the face amount of the policies. (Horowitz Dep. at 256, Olson Decl. at Ex. G.) Officials at Winterthur told Horowitz that the company was making the changes because the portfolio was not profitable. (Horowitz Dep. at 248, Olson Decl. at Ex. I.) It was after this change was made that Horowitz approached La Suisse.

La Suisse initially priced its policies using marriage statistics for Switzerland and Israel (Muller Decl. at Ex. G.). Almost immediately, however, La Suisse told Horowitz that it wanted to refine the terms of the policies and adopt a minimum age of 20 on which to pay benefits (similar to the change Winterthur had made in its policies). (Muller Decl. at Ex. I.) Horowitz advised La Suisse that Bituswiss would not market the policies with these changes. (Muller Decl. at Ex. B at 6.; Id. at Ex. J at 55; Id. at Ex. K at 161-63.) La Suisse contends that Horowitz and Rosenberg argued against the policy changes, despite their knowledge of the "catastrophic" unprofitability of Winterthur's portfolio prior to making such changes. (Rosenberg Dep. at 169-70, Olson Decl. at Ex. O.) Apparently, La Suisse was unaware of the Winterthur situation.

To avoid losing the business, La Suisse did not adopt the minimum age. On August 17, 1989, it offered a compromise solution (proposed by Horowitz): beginning October 1, 1989, La Suisse would deduct from benefits paid to persons who marry before age 20 all unpaid premiums otherwise due until age 20. (Muller Decl. at Ex. L.) But Bituswiss lobbied against any changes to the policy as originally written. To this end, the Bituswiss brokers allegedly provided reassurances to La Suisse that the policies were accurately priced. In a meeting between Rosenberg and La Suisse officials on March 28, 1990, Rosenberg claimed (according to company notes) that "the marrying age fluctuated over observation periods of 8-10 years."*fn2 (Muller Decl. at Ex. C.)

In addition, defendant claims that Bituswiss hid the fact that it was marketing the policies only to a small subset of the general Jewish population (Chassidim) whose marriage profile differed significantly from that of the Jewish population at large. Rather, Bituswiss allegedly made statements that caused defendant to believe that the policies were being marketed more widely.*fn3 Thus, in a letter brief from Rosenberg to La Suisse outlining Bituswiss' grievances with the company, Rosenberg wrote:

It mustn't be forgotten that more than 3,000,000 Jewish people live in the state of New York; more than in the entire state of Israel. Consequently the potential is huge. . . . Bituswiss S.A. began to expand to other regions in the world in which high concentrations of Jewish people can be found (Great Britain, Canada, other states). But with the introduction of the new conditions on October 1, 1989 (or more correctly, with its announcement), this was cut off.

(Muller Decl. at Ex. B at 8.) (emphasis added)

La Suisse alleges that, in reliance on Rosenberg's representations, it withdrew the new terms on March 28, 1990. Instead, defendant adopted an additional premium (referred to by La Suisse officials as a "surprime") for all policyholders living abroad. The surprime was to be refunded if the policyholder did not marry before the age of 20. Under La Suisse's agreement with Bituswiss, the company had to give the brokers three months notice of any policy changes. Thus, the surprime was not to take effect until July 1, 1990. (Muller Decl. at Ex. N.)

Bituswiss sold a large number of policies between March 28, 1990 and the July 1 deadline, after which date sales stopped. (Rosenberg Dep. at 167, Muller Decl. at Ex. Q.) During this time, La Suisse claims that Bituswiss lobbied against the surprime, and to this end, brokers made further misrepresentations about the average marriage ages and rates of those purchasing the policies. The Chairman of the Board of Directors of La Suisse, George Muller, states in his declaration:

At various meetings, brokers informed La Suisse that the new terms were not justified because they would lead to huge administrative burdens, and the surprime made the premiums so expensive the sales would stop. Finally, the brokers repeatedly assured La Suisse that there was absolutely no risk of endemic early marriages.

(Muller Decl. at ¶ 21.) (emphasis in the original)

Muller does not state whether he was at any of the above described meetings, or who at La Suisse heard these statements. Defendant fails to provide affidavits or testimony from anyone to whom any such statements may have been made. The only direct evidence of any representation is a November 8, 1990 memo from Gerhard Mayer, a then-employee of La Suisse, in which Mayer writes that a broker named Moses Aschkenazi informed him that "the average marriage age is 23." (Muller Decl. at Ex. R.) There is no evidence in the record that Aschkenazi is in any way connected to either Bituswiss or the plaintiffs.

No policies were sold between July 1 and the end of 1990. In December 1990, La Suisse (always eager to retain business) rescinded the July 1990 surprime, and introduced a third change in the policies, effective January 1, 2001. Under the 1991 terms, policyholders living outside of Switzerland would be charged a smaller surprime, and the face value of any policy could be reduced if the insured married before age 19. Sales of the marriage rider policies resumed as soon as these changes were implemented, and the 1991 terms governed the marriage rider policies until 1995. La Suisse alleges that Bituswiss continued to conceal the real marriage practices of the Orthodox Chassidic community throughout this period.

During this time, defendant also claims that Horowitz affirmatively misled the company on at least one occasion. During a March 1994, meeting with Blaise Grivel, then an officer at La Suisse, Grivel asked Horowitz when he was married, when his brothers and sisters were married, and about the likelihood of early marriage. In his deposition, Horowitz stated:

I told him that we do marry earlier than the standard, than the general community. He asked me, "Does everyone marry prior to age 20?" and I told him no. In fact, I told him that my brother-in-law was 24 years old at the time, to which he asked me, "Why then do you illustrate [to prospective policyholders] marriage to age 20?" and I told him that people are not concerned — parents are not concerned about marriage after age 20. Children who get older before they get married generally are able to finance their own or at least help to the extent that it becomes less of a problem to the parent. It is the early marriage that concerns most parents, if they marry early before they had a chance to earn anything on their own.

(Horowitz Dep. at 56, Olson Decl. at Ex. P.)

La Suisse claims that, as a result of Bituswiss' and Horowitz's omissions and affirmative misrepresentations, the company did not learn of the true average marriage age of the New York insureds until mid-1995. The "realization" began in March 1995, when the first New York policyholder submitted a claim on behalf of a child who married at age 15. (See Muller Decl. at ¶¶ 26-28; Def. Answer to Am. Compl. and Counterclaim at ¶ 1 241.) Then, in June 1995, La Suisse hired Roland Chlapowski as President of the company. Chlapowski was familiar with the high unprofitability of the marriage insurance policies, although the record does not state from where. He informed La Suisse of the fact that similar marriage-rider policies sold by other insurance companies had proven highly unprofitable. (Muller Dep. at 68.) As a result, La Suisse immediately stopped selling the policies. (See Minutes of La Suisse Board Meeting, attached to Muller Decl. at Ex. T.)

La Suisse followed up on Chlapowski's "bombshell" (Muller Dep. at 153, Horowitz Decl. at Ex. A.) by making inquiries of other insurance companies. On July 24, 1995, Swiss Reinsurance Company responded with copies of information it had provided to other Swiss insurance companies in 1993 and 1994. This information made clear that the marriage statistics for the general Jewish population in North America were not reflective of the customs of the Chassidic policyholders.*fn4 (Muller Decl. at ¶ 27; Ex. U.)

Plaintiffs allege that thereafter defendant engaged in the following practices: refusing to pay benefits due; failing to confirm coverage under the policies; failing to acknowledge correspondence from policyholders, beneficiaries, or policy assignees; failing to reinstate cancelled policies in accordance with policy terms and conditions; inducing lapses and breaches under the policy terms; refusing to honor loan requests in accordance with the policy terms, failing to notify plaintiffs of coverage lapses or interest lapses; and failing to acknowledge proof of marriage.

The Policyholders' Relationship to Bituswiss

La Suisse contends that Bituswiss, Horowitz, Rosenberg and other brokers acted as the policyholders' agent in inducing La Suisse to issue marriage-rider policies (1) because the policyholders actually designated them as their agent, and (2) because Bituswiss handled all aspects of the transactions and correspondence with La Suisse. For instance, plaintiffs signed forms stating: "I hereby designate `Bituswiss S.A.' as the sole broker authorized to act on my behalf to apply to La Suisse for insurance on the life of the insured person mentioned above." (Muller Decl. at Ex. V.) Bituswiss employees completed plaintiffs' insurance applications. (Olson Decl. at Ex. R.) On the applications, the policyholders appointed Meliro Treuhand, one of Horowitz and Rosenberg's Swiss corporations, as their Swiss legal representative (an act that defendant fails to point out was required by La Suisse). (Muller Decl. at 31.)

In addition, policyholders gave their premium payments to Horowitz, who converted the money to Swiss francs and paid La Suisse on their behalf. (Horowitz Dep. at 57-58, Olson Decl. at Ex. S.) After the policies were purchased, the policyholders signed forms granting power of attorney to Bituswiss and Horowitz to obtain loans on the policies from La Suisse. (Muller Decl. at Ex. X.) Bituswiss also offered its own loans to policyholders. (Muller Decl. at Ex. Z.) ...

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