Gerlach v. Allstate Insurance (338 F. Supp. 642, 1972)

SUMMARY JUDGMENT FOR DEFENDANT

MEHRTENS, District Judge.

This is an action brought under the Truth in Lending Act (15 U.S.C. Sec. 1601 et seq.) by the plaintiff, Marion Gerlach, hereafter plaintiff, against the defendant, Allstate Insurance Company, hereafter Allstate, assertedly a “creditor” of plaintiff in a “consumer credit” transaction, to recover the $100 penalty and attorney’s fees provided by 15 U.S.C. Sec. 1640(a) for failure to disclose information required by the Act in such a transaction.

\ Jurisdiction in this Court is specifically provided by 15 U.S.C. Sec. 1640(e).

Plaintiff also seeks to maintain this action as a class action on behalf of all others similarly situated.

All facts which the parties believe to be material to a determination of the merits of this action have been agreed to in the pretrial stipulation, which recites that there are no issues of fact to be tried, and that the parties do not believe a trial is necessary.

Plaintiff and Allstate each move for a summary judgment.

The agreed facts, insofar as they are material, are:

Plaintiff is a citizen and resident of Miami, Florida.

Allstate is an Illinois corporation engaged in a general lines insurance business, and is authorized to and is doing a general lines insurance business in Florida. The Florida business done by Allstate, insofar as the underwriting, collection of premiums and handling of claims is concerned, is completely managed and controlled out of Allstate’s regional office in St. Petersburg, Florida, and is largely autonomous from Allstate’s home office in Northbrook, Illinois. The administrative work in the handling of policies, notices, premiums, cancellations, etc., as far as possible, is accomplished by computers located at Allstate’s St. Petersburg regional office. The Allstate agents who deal with the Florida insurance buying public, for the most part, are stationed in and operate out of the retail merchandising stores of Sears, Roebuck and Co. located throughout Florida.

The business which Allstate does in Florida is conducted in accordance with Florida’s comprehensive laws regulating insurance (F.S. Insurance Code, Chs. 624-632, F.S.A.), under the supervision of the Insurance Commissioner of Florida.

One of Allstate’s principal lines in Florida is automobile insurance.

On November 28, 1967 plaintiff executed an application for an Allstate automobile insurance policy. This Application contained, over plaintiff’s signature, a number of declarations of fact concerning plaintiff and her automobile material to the issuance of automobile insurance coverage. It did not contain any agreement on plaintiff’s part to pay premium for the insurance. Further, plaintiff has never executed any contract to pay premium.

The Allstate agent who prepared plaintiff’s application for her signature explained to plaintiff that she had an election to pay premium under any one of the three following plans:

1. A full year’s premium in one payment, payable at the time of the application.

2. In installment payments under either of the two following plans:

(a) 40% of a full year’s premium payable at the time of application, 30% payable at the end of three months, and 30% at the end of six months.

(b) 10% of a full year’s premium payable at the time of application, and 10% payable on the same day of the month each month thereafter until a total of ten such payments were made.

The agent further explained that a premium payment under one of these plans was required at the time he accepted the application and bound the coverage; further, that if she elected to pay in installments, there would be a flat service, or payment, charge, (at that time $0.50) payable with each installment payment, which charge would be the same for each installment payment, regardless of the number .of such payments.

Plaintiff elected to pay premium in ten installments, paid the agent 10% of the annual premium and the service charge, the agent noted the payment in the application form, and bound Allstate to the coverage in the box provided in the application form for that purpose.

Thereafter, Allstate’s regional office in St. Petersburg issued and delivered plaintiff’s policy. The policy guarantees that it will be extended, or renewed by Allstate every year for five years, provided, in substance, that plaintiff makes the premium payments and does not lose her driver’s license. The premium rate provided for on each annual renewal is to be the Allstate rate prevailing at the time of renewal.

The policy also provides for cancellation of the insurance coverage upon plaintiff’s failure to pay premium, as well as cancellation by plaintiff at will.

Each November 29 since 1967 Allstate has issued to plaintiff a certificate for extension of insurance coverage under plaintiff’s policy for an additional year at the premium rate then prevailing.

With each certificate of extension Allstate has issued to plaintiff a premium payment notice setting forth the then prevailing annual premium and giving plaintiff the same election as to premium payment plans, i. e., in one payment, in three payments or in ten payments, that she was given at the inception of the coverage. The amount of the payment under each of these plans is set forth, as well as the service charge, which is now $1.00 with each installment payment.

Plaintiff is still paying under the ten payment plan.

In addition to the premium notice issued with each annual extension certificate, in advance of the 29th of each month in which a premium payment is payable, Allstate has issued plaintiff a notice that the premium is payable on the 29th of the month, and of the amount of the payment and the amount of the service charge.

On occasion since November 29, 1967, plaintiff has failed to make a premium payment on time. Also on occasion, Allstate has issued to plaintiff a notice that unless the premium payment was made by a day certain, the insurance would terminate on that day. On each such occasion plaintiff has made the premium payment before the termination date. Plaintiff’s policy is still in force.

Allstate has followed the same procedure with respect to the three plans of premium payment, and annual extension of insurance coverage for five years, with millions of Allstate automobile insurance policyholders throughout the United States, and many thousands of such policyholders in Dade County, Florida. In addition, the same three plans of premium payment are in effect for other lines of insurance coverage afforded by Allstate, such as homeowners insurance, and other types of coverage.

Each premium payment made under any of the installment plans pays for insurance coverage to a date beyond the time the next premium payment is due. When, under an installment plan of premium payment, a premium is not paid on a payment date, a computer calculates the date to which the last premium payment made paid for insurance coverage in advance, and, allowing at least the ten days’ notice required by Florida law for cancellation for non-payment of premium (F.S. Sec. 627.0852(3) (a), F.S.A.), issues a notice to the policyholder that unless the premium payment is made by a date certain, i. e., either the end of the statutory ten days or the date to which coverage has been paid, whichever is later, the coverage is terminated. If payment is not made by such termination date, the policy is cancelled. In no event, regardless of the time or manner of cancellation, does Allstate seek to enforce, or make, any claim against the policyholder for premium earned, but not paid for.

Although Allstate clearly advises its policyholders of the dollar amount of the .service charge collected with each premium installment payment, it makes no contention that it gives its policyholder all the items of information required by the Trutn\in Lending Act (15 U.S.C. Secs. 1638 1639), and the regulations thereunder (Regulation Z, 12 C.F.R. Sec. 226.8(e) and. (d)).

Under the pleadings and the agreed facts, the following legal issues are presented :

I. WHETHER THIS ACTION SHOULD BE MAINTAINED AS A CLASS ACTION.

II. WHETHER. ALLSTATE’S PLANS OF INSTALLMENT PREMIUM PAYMENT CONSTITUTE A “CONSUMER CREDIT” TRANSACTION WITHIN THE MEANING OF 15 U.S.C. SEC 1640(a).

III. WHETHER ALLSTATE IS A “CREDITOR” OF PLAINTIFF WITHIN THE MEANING OF THE TRUTH IN LENDING ACT.

IV. WHETHER THE MeCARRAN ACT PRECLUDES APPLICATION OF THE TRUTH IN LENDING ACT TO ALLSTATE’S INSURANCE PREMIUM TRANSACTIONS.

I. CLASS ACTION

Plaintiff originally claimed the right to maintain this action as a class action on behalf of all others similarly situated nationwide. Allstate, in opposition, submitted affidavits that it has millions of policyholders who have elected to make payment of premiums in installments under plans identical with that offered to plaintiff. Plaintiff thereafter indicated that she would prefer to maintain this action as a class action on behalf only of those Allstate automobile policyholders within Dade County, Florida. This would still involve some 50,000 policyholders to whom, since their identity is ascertainable from Allstate files at its regional office in St. Petersburg, Florida, at least first class mail notice would be required as to each member of the class.

In addition, the identification of such policyholder, requiring as it would a special computer programming and run, would entail a substantial expense running into several thousands of dollars. Plaintiff has not indicated a willingness to bear this expense.

The maintenance of this action as a class action on the basis asserted in the complaint, even if restricted to Dade County, Florida, would result in insurmountable problems in the management of the action, among which are (1) the creation of a class so large as to be unmanageable, (2) an enormous expense with respect to notice as well as administration of the action as a class action, and (3) a potential result, if plaintiff’s position were sustained, of rendering Allstate unable to meet its commitments to provide insurance coverage to its policyholders, since the imposition of the $100 penalty with respect to each policyholder would run into approximately a billion dollars and as a consequence plaintiff’s position is adverse to those policyholders who would prefer insurance coverage to the $100 penalty and risk of loss of coverage. Further, since Truth in Lending provides an attorney’s fee for a successful claimant to the Section 1640 (a) penalty, there is not the reason for class maintenance of claims for all sums of money in Truth in Lending actions that exist in actions for which no attorney’s fees are provided by law. The Court, therefore, concludes that on the basis of subparts (A), (B), (C) and (D) of Rule 23(b) (3) and the considerations mentioned in the notes of the Advisory Committee which drafted the Rule, the maintenance of a class action in this case is not appropriate. For further reasons, and a more detailed explanation, the Court adopts the opinion in Buford v. American Finance Co. (N.D.Ga.1971), 333 F.Supp. 1243, insofar as it relates to maintenance of actions for the penalty provided in Truth in Lending.

II and III. ALLSTATE’S PLANS OF INSTALLMENT PREMIUM PLAN DO NOT CONSTITUTE A “CONSUMER CREDIT” TRANSACTION, AND ALLSTATE IS NOT A “CREDITOR” OF PLAINTIFF WITHIN THE MEANING OF THE ACT

The provisions of. 15 U.S.C. Sec. 1640 (a), so far as material and in substance, are that any “creditor” who fails in connection with any “consumer credit transaction” to disclose required information is liable to the debtor for a penalty of $100 and a reasonable attorney’s fee.

The information required to be disclosed in a consumer credit transaction is itemized in the Truth in Lending Act (15 U.S.C. Sees. 1637 (open end credit), 1638 (credit sales other than open end credit), and 1639 (loans other than open end credit)), and in Regulation Z promulgated by the Federal Reserve Board pursuant to’ that Act (12 C.F.R. Sees. 226.7 (disclosures, open end credit) and 226.8 (disclosures other than open end credit)).

Allstate does not contend that it gives its policyholders the information required to be given by a creditor in a consumer credit transaction. It does contend that it is not a “creditor”, and that its installment premium payment plans are not “consumer credit” transactions. As the Court noted in Mourning v. Family Publications Service, Inc., 5 Cir. (1971), 449 F.2d 235, 240, it is essential to the applicability of Sec. 1640 (a) that there be both a “creditor” and a “consumer credit” transaction.

No Allstate insured is obligated by any agreement to make any premium payment. At the inception of every policy for which the insured policyholder elects to pay premium in installments, Allstate collects a premium payment; either 40% of a year’s premium, or 10% of a year’s premium. Whichever of the alternatives it may be, the payment pays for insurance coverage for a period of time that extends beyond the next installment premium payment date. Not only is this stipulated as a fact — it is obvious from the fact that under the three-payment plan, the full year’s premium has been paid at the end of six months, and under the ten-payment plan it is paid at the end of nine months and one day. If the insured fails to pay on a payment date, he is notified that unless he pays by a date certain his insurance is terminated. The last mentioned date is the date to which he has already paid for insurance coverage in advance, unless the statutory ten days’ notice requirement sets the termination date beyond the date for which coverage has already been paid, in which latter event the termination date is at the end of the statutory ten days. But regardless of the time of cancellation by Allstate’s notice, Allstate neither seeks to enforce nor makes any claim against the insured for any earned premium for insurance coverage provided by Allstate and not paid for by the insured. In short, if the policy is cancelled there is no further obligation on the part of the insured.

Thus, within the meaning of Sec. 1640(a) and the definitions set forth in 15 U.S.C. Sec. 1602 as well as in Regulation Z, 12 C.F.R. Sec. 226.2, the policyholder is not a debtor of Allstate, Allstate is never in the position of being a “creditor” of the insured, there is no “credit”, and there is no “consumer credit” ; — not as the quoted terms are defined and used in the Act, or in Regulation Z, and not as any of the foregoing terms have any commonly accepted meaning.

The transaction in this action is not to be confused with the premium financing transaction, where the insured becomes obligated to a broker, bank, the issuing company or other creditor to pay the premium, or an indebtedness for premiums, and is contractually obligated to make payments, such as was involved in Stefanski v. Mainway Budget Plan, Inc., (S.D.Fla.1971), 326 F.Supp. 138. There, of course, the creditor-debtor relationship comes into existence between the insured and the party he is obligated to pay. In the present transaction the insured is under no obligation to pay any amount of premium. If he doesn’t make the first payment at the time of application,