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Helft v. Allmerica Financial Life Insurance and Annuity Co.

March 24, 2006

JOHN HELFT, RALPH HELFT, PLAINTIFFS,
v.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY CO., FIRST ALLMERICA LIFE INSURANCE CO., DEFENDANTS.



The opinion of the court was delivered by: Norman A. Mordue, Chief Judge

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Presently before the Court is defendants' motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and plaintiffs' motion to amend the complaint pursuant to Rule 15 of the Federal Rules of Civil Procedure.

II. BACKGROUND

On or about November 19, 2002, plaintiffs filed a summons and complaint in New York State Supreme Court, County of Rensselaer alleging that defendants Allmerica Financial Corp., Allmerica Financial Life Insurance and Annuity Co., First Allmerica Life Insurance Co., Allmerica Investments, Inc., Allmerica Investment Management Co., Inc., Allmerica plus Insurance Agency, Inc., (collectively "Allmerica") breached the terms of the variable life insurance policies (the "policies") plaintiffs had purchased from Allmerica by imposing restrictions on plaintiffs' trading activities.

On January 7, 2003, Allmerica filed a Notice of Removal on the basis of diversity jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1441. Plaintiffs are citizens of New York, none of defendants is a citizen of New York, and the amount in controversy exceeds $75,000. Thus, the Court has jurisdiction over this action.

In a Memorandum-Decision and Order dated September 24, 2004, the Court granted defendants' motion for judgment on the pleadings dismissing plaintiffs' breach of contract claim. The Court also granted plaintiffs' motion to amend the complaint to allege causes of action for modification and waiver, and directed plaintiffs to file an amended complaint.

On October 13, 2004, plaintiffs filed an amended complaint alleging two causes of action for modification and waiver. Defendants move to dismiss the amended complaint pursuant to Fed. R. Civ. P. 12(b)(6). Plaintiffs oppose defendants' motion and cross-move to file a second amended complaint pursuant to Fed. R. Civ. P. 15 to cure the deficiencies identified in defendants' motion to dismiss and to advance a third cause of action for specific performance.

Defendants oppose plaintiffs' cross-motion.

III. The Amended Complaint

In the amended complaint, plaintiffs allege as follows:

THE FIRST THREE POLICIES

In or about 1992, an agent of Defendants, Thomas Ward, contacted Plaintiff John Helft, and informed Mr. Helft about a type of life insurance policy called Flexible Premium Variable Life Insurance (or "FPVLI") that could be used as an investment vehicle and would allow him to buy and sell large interests in mutual funds inside a life insurance policy.

Plaintiff John Helft expressed an interest in purchasing a FPVLI life insurance policy as an investment vehicle, with the stipulation that his investment strategy required unfettered discretion to buy and sell large interests in mutual funds very quickly.

Mr. Ward assured Mr. Helft that a FPVLI policy would allow him to execute his investment strategy inside a life insurance policy.

In the FPVLI, a substantial portion of the cash value may be allocated to an account called the variable account held by Allmerica.

The variable account is divided into sub-accounts, each of which is available for allocation of policy cash value.

Each of these sub-accounts invests solely in shares of a corresponding series of mutual funds, which have designated, distinct investment objectives.

A policy cash value allocated to the variable account will depend on the investment performance of the underlying fund.

The policy permits its owner to manage his investments by transferring assets back and forth as often as daily among the various sub-accounts, depending on the policyholder's assessment of needs, market conditions, and other factors.

Plaintiff John Helft asked Mr. Ward to check with Defendants to be sure that they understood the speed and volume of his trades and the amounts of money that would ultimately be involved if he purchased a FPVLI policy.

Mr. Ward then checked with one or more Defendants, and after a period of several days verified to Plaintiff John Helft that Defendants would not restrict the frequency, timing, or amounts of Mr. Helft's transfers between the policy's sub-accounts of the variable account on a rapid and large basis consistent with his investment strategy.

Mr. Ward provided Plaintiff John Helft with a standard form policy prepared exclusively by Defendants.

The policy form contained a provision entitled "Transfers of Value," which stated:

You may transfer amounts between the General Account and the sub-accounts of the Variable Account or among the sub-accounts of the Variable Account by sending the Company a written request. Once during the first 24 months after the date of issue and during the first 24 months after an increase in the face amount, you may transfer, without charge, all or part of the policy value in the Variable

Account to the General Account of this policy. If you do so, future payments will be allocated to the General Account unless you specify otherwise. All other transfers are subject to the following rules and will be permitted only with the consent of the Company.

If the Company consents to a transfer, the minimum and maximum amounts that may be transferred shall be determined by the Company according to its then current rules. In addition, the Company reserves the right to limit the number of transfers which may be made in each policy year and to establish other reasonable rules restricting transfers.

If a transfer would reduce the policy value in the sub-account from which the transfer is to be made to less than the then current minimum balance required by the Company for such sub-account, the Company reserves the right to include such remaining value in the amount transferred.

There will be no charge for the first six transfers per policy year. A transfer charge of up to $25 will be imposed on each additional transfer and deducted from the amount that is transferred. Transfers as a result of a policy loan or repayment thereof are not subject to these rule.

In reliance on Mr. Ward's representations and the plain language of the policy, on July 27, 1992, Plaintiff John Helft purchased FPVLI Policy V550904, a copy of which is attached hereto as Exhibit "A." The policy contained the "transfers of value" provision quoted above.

Again, in reliance on Mr. Ward's representations and the plain language of the policy, on March 4, 1993, Plaintiff John Helft purchased FPVLI Policy V564447, a copy of which is attached hereto as Exhibit "B."

The policy contained a "transfers of value" provision stating in its first sentence that the contract owner was authorized to "transfer amounts between the General Account and the sub-accounts of the Variable Account or among the sub-accounts of the Variable Account . . . ."

Such provision confirmed Defendants' representations that Plaintiff John Helft was permitted to make transfers in the sub-accounts of the variable account without limitation.

Again, in reliance on Mr. Ward's representations and the plain language of the policy, on December 2, 1995, Plaintiff John Helft purchased FPVLI Policy Y611503, a copy of which is attached hereto as Exhibit "C."

The policy contained a "transfers of value" provision stating in its first sentence that the contract owner was authorized to "transfer amounts between the General Account and the sub-accounts of the Variable Account or among the sub-accounts of the Variable Account . . . ."

Such provision confirmed Defendants' representations that Plaintiff John Helft was permitted to make transfers in the variable ...


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