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Anderson v. State Farm Life Insurance Co.

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

January 16, 2018

IRENE B. ANDERSON, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
COUNTRY LIFE INSURANCE COMPANY, Defendant. RICK OCHOA, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
STATE FARM LIFE INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          Robert W. Gettleman United States District Judge.

         Plaintiffs Irene Anderson and Rick Ochoa filed nearly identical class action complaints against Country Life Insurance Company (“Country”) and State Farm Life Insurance Company (“State Farm”), respectively, alleging breach of contract stemming from noncompliance with the Illinois Insurance Code, 215 ILCS 5/2-1615, and seeking damages.[1] Country and State Farm (“defendants”) have moved to dismiss the complaints under Fed.R.Civ.P. 12(b)(6) for failure to state a claim. For the reasons discussed below, those motions are granted.

         BACKGROUND[2]

         Defendants are Illinois-domiciled life insurance companies. Plaintiffs, residents of Illinois (Anderson) and California (Ochoa), each own at least one “participating” life insurance policy through each respective defendant. As owners of those policies, plaintiffs are entitled to some amount of annual dividends, which are paid to plaintiffs out of defendants' annual surplus. Plaintiffs acknowledge that they have received, and continue to receive, annual dividends from defendants, but claim that defendants retain more of their surplus than the Illinois Insurance Code (“the Code”) allows, which reduces the dividends paid to plaintiffs. According to plaintiffs, this alleged noncompliance with the Code, and resulting underpayment, is a breach of plaintiffs' contracts with defendants.

         The Dividend Provisions sections of plaintiffs' insurance policies say little regarding the payment of annual dividends, and nothing regarding what amount will be paid, or how that amount will be calculated. Ochoa's State Farm policy reads, “We may apportion and pay dividends each year. Any such dividends will be paid at the end of the policy year if all premium dues have been paid.”[3] 17 C 4274, Doc. 34 at Exh. A. Anderson's County policy reads as follows:

This is a participating policy, which means it may share in any dividends We pay to policy Owners. Each year We determine how much money may be paid to Our policy Owners as divisible surplus. We then determine how much of that divisible surplus should be allocated to this policy as an annual dividend. Dividends may be allocated to this policy only while it is in full force or continued as paid-up life insurance.

17 C 4270, Doc. 39 at Exh. A.

         In asserting their breach of contract claim, plaintiffs rely not on the above policy provisions, but rather on Section 243 of the Code, which plaintiffs claim is incorporated into their policies as a matter of law.[4] Plaintiffs acknowledge that Section 243 (which does not include a private right of action to enforce it) has nothing to say regarding disbursement of dividends to policy owners, but instead dictates how much life insurance companies can retain in a “contingency reserve, ” which is meant to act as a buffer in the event of unforeseen financial obligations. Thus, Section 243 addresses the financial management of life insurance companies, not the relationship between these companies and their policyholders, by limiting contingency reserves to no more than 10% of their net values.

         Acknowledging that Section 243 does not address disbursement of dividends, plaintiffs' argument ties Section 243 to Section 224, which mandates a number of provisions that must be included in life insurance policies that are issued or delivered in Illinois.[5] Plaintiffs specifically rely on Section 224(e), which mandates that any such policy contain:

A provision that the policy shall participate annually in the surplus of the company beginning not later than the end of the third policy year; and any policy containing provision for annual participation beginning at the end of the first policy year, may also provide that each dividend be paid subject to the payment of the premiums for the next ensuing year; and the insured under any annual dividend policy shall have the right each year to have the dividend arising from such participation either paid in cash, or applied in reduction of premiums, or applied to the purchase of paid-up additional insurance, or be left to accumulate to the credit of the policy, with interest at such rate as may be determined from time to time by the company, but not less than a guaranteed minimum rate specified in the policy, and payable at the maturity of the policy, but withdrawable on any anniversary date, subject to such further provisions as the policy may provide regarding the application of dividends toward the payment of any premiums unpaid at the end of the grace period; and if the insured fails to notify the company in writing of his election within the period of grace allowed for the payment of premium, the policy shall further provide which of such options are effective.

215 ILCS 5/224(e).

         Plaintiffs implicitly acknowledge that the Dividend Provisions sections in their policies comply with Section 224(e), but argue that those provisions have been impermissibly “weakened” by defendants' alleged noncompliance with Section 243 of the Code.

         DISCUSSION

         I. ...


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