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Supreme Court declines Country Mutual petition in case alleging excessive reserves

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Insurance | Legal
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The U.S. Supreme Court declined to review a lawsuit alleging Country Mutual Insurance Co. is in breach of contract by holding a $3.5 billion surplus. 

Country Mutual petitioned the high court after receiving conflicting opinions from a district court and The Court of Appeals for the Seventh Circuit on an attempt by the company to move the case out of Illinois state court and to the federal level. 

The U.S. Supreme Court’s decision ultimately sends the case back to the state court. The class action lawsuit was filed in 2022 in St. Clair County Circuit Court by four policyholders. It lists the company, its officers, and its directors as defendants in the breach of contract case.

Plaintiffs in the case say the reserves are excessive and the company breached its contractual obligations violating the Illinois Consumer Fraud and Deceptive Business Practices Act, according to court documents. Mutual insurance companies are owned by the policyholders and not by outside investors. 

It also claims some of the company’s former officers breached their fiduciary duties. The suit asks that the $3.5 billion in reserves be distributed to policyholders. 

Country Mutual, headquartered in Illinois, argues this would leave the company with no reserves in case of a catastrophic loss. 

The company asked for the case to be moved to federal court in December 2022 as the company’s former Chief Financial Officer and Executive Vice President Robert Bateman is a Massachusetts citizen. It claimed under the Class Action Fairness Act of 2005 (CAFA) the case could be moved under several of CAFA’s exceptions, including the internal affairs and home-state exceptions. 

A U.S. Southern District of Illinois Court ruling agreed with Country Mutual but the plaintiff’s appeal to the Seventh Circuit Court of Appeals reversed the district court’s ruling in October 2023 saying that “every named defendant can fit within” the definition of “primary defendant.” It also said Bateman did not qualify because the company accumulated the surplus, had the deepest pockets, and had more claims asserted against it than against Bateman. 

In Country Mutual’s petition to the Supreme Court, it said, “This case presents important questions that warrant this Court’s attention. First, the Court should address a circuit split with respect to the scope of the ‘internal affairs’ exception, and in particular when a claim ‘relates to’ the internal affairs of a corporation. And second, the Court should address the standard for determining whether a defendant is a ‘primary’ defendant for purposes of CAFA’s home-state exception, which has likewise divided the circuits.”

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Photo courtesy of Douglas Rissing/iStock

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