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The 7th U.S. Circuit Court of Appeals has affirmed a decision by the U.S. District Court for the Northern District of Illinois, rejecting claims by insureds with participating life insurance policies that the dividend provisions in their policies violated the Illinois Insurance Code.
Rick Ochoa and Irene Anderson held participating life insurance policies from State Farm Life Insurance Company and Country Life Insurance Company, respectively. The policies guaranteed policyholders annual dividends from their insurers’ surpluses, but the insurers decided the dividend amounts.
Dissatisfied with their dividends, Ochoa and Anderson filed nearly identical class-action complaints claiming that the dividend provisions in their policies violated the Illinois Insurance Code.
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In a single decision, the district court dismissed the complaints.
Ochoa and Anderson appealed to the 7th Circuit. They conceded that their annual dividends satisfied the terms of their respective policies, but they contended that their policies did not contain a standard dividend provision mandated by the Illinois Insurance Code.
The Insurance Policies
The dividend provision in the State Farm policy provided:
We may apportion and pay dividends each year. Any such dividends will be paid at the end of the policy year if all premiums due have been paid.
The Country Life provision stated:
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. If the policy is Extended Term Insurance, no dividends will be paid.
The 7th Circuit’s Decision
The 7th Circuit affirmed.