KANSAS CITY — The U.S. District Court for the Western District of Missouri denied a motion for summary judgment filed by State Farm Life Insurance Company after concluding there is a reasonable dispute of how the company calculates its Cost of Insurance Rates (COI).
U.S. Magistrate Judge Nanette K. Laughrey in her April 10 ruling found there is a genuine dispute of the material facts of the case.
State Farm's calculation for COI is based on "the insured’s age on the policy anniversary, sex, and applicable rate class," according to court documents.
State Farm argued the phrase “based on” permits the company to add factors such as State Farm’s profits and expenses to calculate the monthly cost of insurance rates.
Mathew Vogt, on behalf of himself and all others similarly situated, argued those are the only factors that may be considered in setting the cost of insurance rate.
The court cited Norem v. Lincoln Ben. Life Co., which defined "based" as the principal ingredient or the fundamental element and explained this reasoning through a cake recipe analogy.
The Southern District of New York observed in Fleisher v. Phoenix Life that the recipe analogy fails because "recipes are exhaustive lists of all the ingredients needed and do not permit the cook to add other, undisclosed ingredients," according to court documents.
The court further noted that the Missouri Supreme Court and Eighth Circuit Court have used "based on" to refer to an exhaustive list, as well.
Given the language in the policy, the court concluded that "no reasonable layperson would expect that State Farm was permitted to use any factor it wanted to calculate the cost of insurance."
Under Missouri law, this ambiguity must be construed against the insurance company because State Farm wrote the policy, and had the opportunity and necessary understanding to make clear to the insured how the COI would be calculated.