## Facts

- In 1987, Ladislaus Von Hoffmann bought $30 million in “vanishing premium” whole life insurance issued by Prudential and brokered by Alexander & Alexander, Inc. (A & A).
- The program was illustrated as requiring premium payments for seven years, after which dividends were expected to cover future premiums.
- Sales materials included disclaimers stating dividends and future performance were not guaranteed and that additional premiums could be required if returns were lower than expected.
- Illustrations and marketing also emphasized that actual dividends had exceeded illustrated dividends over the prior twenty years.
- Premiums did not vanish as projected; policy costs exceeded initial projections by more than $3.3 million.
- Plaintiffs alleged A & A failed to disclose that Prudential had changed its methodology for calculating dividends, making the touted twenty-year dividend history non-comparable and misleading.
- Plaintiffs settled their claims against Prudential; remaining were plaintiffs’ claims against A & A and Prudential’s cross-claims against A & A for indemnification and contribution.

## Issues

1. Whether A & A’s failure to disclose a change in Prudential’s dividend-calculation methodology could constitute a material omission supporting fraud and negligent misrepresentation, notwithstanding written disclaimers about non-guaranteed dividends.
2. Whether plaintiffs’ fraud-based and negligence-based claims were barred in whole or part by New York statutes of limitations, including the fraud discovery rule.
3. Whether A & A, as broker, owed duties sufficient to support negligence and negligent misrepresentation claims and whether reliance and causation could be shown.
4. Whether A & A violated New York Insurance Law § 2123 and whether any such claim was timely.
5. Whether Prudential’s cross-claims against A & A should be dismissed as moot following Prudential’s settlement.

## Decision

- The court granted A & A’s summary-judgment motion in part and denied it in part.
- The principal common-law fraud claim against A & A survived summary judgment; a reasonable jury could find a material omission in failing to disclose the dividend-methodology change.
- The court dismissed time-barred portions of plaintiffs’ other claims, including negligent misrepresentation, negligence, and the New York Insurance Law § 2123 claim, to the extent untimely or otherwise insufficient.
- The court granted A & A’s unopposed motion to dismiss Prudential’s cross-claims for indemnification and contribution as moot after settlement.

## Legal Principles

- Generic disclaimers about uncertain future performance do not necessarily defeat fraud where the alleged misconduct is nondisclosure of a specific, present fact that renders promotional historical data misleading.
- A change in the methodology underlying performance metrics used in sales illustrations can be a material fact; nondisclosure may support a fraud claim if it undermines the probative value of the historical experience cited to induce purchase.
- Under New York law, fraud is subject to the greater of six years from accrual or two years from when the fraud was or should have been discovered with reasonable diligence.
- When negligent misrepresentation is based on the same alleged misstatements or omissions as fraud, limitations analysis may track fraud’s discovery rule, potentially barring untimely portions.
- Cross-claims for indemnification and contribution may be dismissed as moot when the underlying liability is resolved by settlement and the request is unopposed.

## Conclusion

The court allowed plaintiffs’ central fraud theory to proceed because a jury could find that the broker’s failure to disclose a dividend-calculation methodology change materially distorted the meaning of a touted historical dividend record, even though the transaction documents warned that dividends were not guaranteed; other overlapping claims were narrowed or dismissed as time-barred, and settled-party cross-claims were dismissed as moot.


Hoffmann v. Prudential Insurance Co. of Am., 202 F. Supp. 2d 252 (S.D.N.Y. 2002)