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Woerner v. Bankers Life & Casualty Co.

United States District Court, N.D. Illinois, Eastern Division

October 27, 2016

Joseph Woerner, individually and on behalf of all others similarly situated, Plaintiff,
Bankers Life and Casualty Company, Defendant.


          Honorable Thomas M. Durkin, United States District Judge.

         Joseph Woerner was an insurance agent for Bankers Life and Casualty Company. He alleges that his hiring by Bankers Life was part of a pyramid scheme in which Bankers Life hires more agents than it needs in order to exact the fees it charges new agents, and to claw back sales commissions under false pretenses when surplus agents inevitably leave the company. Woerner alleges that Bankers Life's conduct constitutes: a violation of his agency contract (Count I); a violation of the covenant of good faith and fair dealing under Illinois law (Count II); and a violation of the Illinois Consumer Fraud Act (Count III). R. 1-1. Bankers Life has moved to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). R. 16. For the following reasons, that motion is denied in part and granted in part.

         Legal Standard

         A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g., Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). A complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.


         Woerner is a resident of Virginia, and Bankers Life is a Delaware corporation headquartered in Chicago. R. 1-1 at 7 (¶¶ 9-10). In October 2014, Woerner signed a contract to be an insurance agent for Bankers Life. Id. at 9 (¶¶ 17). The contract was a standard form signed by all Bankers Life agents (the “Agent Contract”). Id. at 4-5 (¶ 2), 37-48. The Agent Contract provides that the agent will be compensated by commissions on policies the agent sells. Id. at 9-10 (¶ 19), 39 (¶ 9). The Agent Contract also allows Bankers Life to “reject any application for insurance submitted by the agent without specifying the reason therefore, ” id. at 40 (¶ 12), and provides that “[w]henever a premium has been refunded to an applicant or policyholder, the agent agrees to immediately return to [Bankers Life] any commissions received on the amount refunded.” Id. at 40 (¶ 13). Bankers Life also has permission to “deduct” any commissions an agent is obligated to return to Bankers Life from any future commissions (or other payments Bankers Life may owe to the agent). Id. at 41 (¶ 14). When Bankers Life requires an agent to return a commission it is known as a “chargeback.” Id. at 5 (¶ 4). Agents generally continue to receive commissions on premiums for renewal of policies they sold even after they have left Bankers Life. Id.

         Woerner alleges that Bankers Life's business model “requires a huge number of agents, ” and that many agents quit or are fired within less than a year of their state date. Id. at 8 (¶ 13). Bankers Life requires new agents to pay “hundreds of dollars in non-refundable fees, ” including “licensing fees [and] list fees.” Id. at 8 (¶ 15). Bankers Life also requires new agents to pay “approximately $300” to create a “holdback” account out of which Bankers Life deducts chargebacks. Id.

         Woerner alleges that “it is common company practice at Bankers Life for senior agents to ‘re-write' policies [sold] by former agents in order to justify commission chargebacks and to reassign the policy [renewal] commission stream from the [former agent] to a current senior agent.” Id. at 5 (¶ 4). According to Woerner, “the ‘re-writing' of the policies is pretextual, with Bankers Life typically making nothing more than an immaterial change, such as altering the policy name.” Id. Bankers Life then seeks repayment of commissions from the former agent based on these “re-writes, ” while a current agent receives the commission for the “rewritten” policy.

         In the form letter Bankers Life sends to former agents seeking repayment of commissions, Bankers Life does not provide a specific justification for the chargeback, but instead lists the potential reasons for the chargeback. According to the form letter, these potential reasons include the following: the relevant policy “lapsed, canceled or issued as out for signature and not completed [sic], ” or the policy's “automatic bank draft was canceled, ” the policy's “Errors and Omissions Insurance premiums were unrecovered, ” or “other contractual charges were applied.” Id. at 11 (¶ 24). Woerner alleges that none of these stated reasons “is a legitimate basis for requiring a [former agent] to refund a commission” under the terms of the Agent Contract. Id. at 11 (¶ 25). Indeed, according to Woerner, the “rewrite” process does not “typically” involve refunding the premium to the policy-holder, id. at 11-12 (¶ 25), and Woerner contends that a premium refund is the only basis for a chargeback under the terms of the Agent Contract.

         Woerner alleges that his agency agreement with Bankers Life was terminated because he expressed that he did not want to participate in the “re- write” process. Id. at 12-13 (¶¶ 28-30). After his termination, Woerner received a letter from Bankers Life requesting the return of $473.96 in commissions. Id. at 14 (¶ 33). The letter did not specify the relevant policies for which premiums had been returned. Woerner alleges that Bankers Life responded to his request for an accounting with “a largely indecipherable account log which does not validate the debts or otherwise explain the charges or how they are derived.” Id. at 15 (¶ 38). Bankers Life sent two additional letters to Woerner explaining that the amount of commissions he was obligated to return had increased to $696.58. Id. at 14-15 (¶¶ 34, 37). Woerner then received a notice from a debt collator regarding this amount due. Id. at 15 (¶ 39). Woerner's complaint includes many statements posted to the internet by other former Bankers Life agents complaining of similar chargeback demands by Bankers Life. Id. at 16-28 (¶¶ 40-57).


         I. Breach of Contract

         Woerner claims that Bankers Life breached his Agent Contract by seeking chargebacks on policies for which the premiums were not returned. Woerner also alleges that Bankers Life's policy of charging new agents certain fees violates the Agent Contract.

         A. ...

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