Rick Ochoa v. State Farm Life Insurance Comp

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 18-1336 & 18-1338
RICK OCHOA and IRENE B. ANDERSON,
Plaintiffs-Appellants,
v.
STATE FARM LIFE INSURANCE COMPANY
and COUNTRY LIFE INSURANCE COMPANY,
Defendants-Appellees.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 17 C 4274 & 17 C 4270 — Robert W. Gettleman, Judge.
____________________
ARGUED SEPTEMBER 5, 2018 — DECIDED DECEMBER 13, 2018
____________________
Before KANNE, SYKES, and ST. EVE, Circuit Judges.
SYKES, Circuit Judge. Rick Ochoa and Irene Anderson hold
participating life-insurance policies from State Farm Life
Insurance Company and Country Life Insurance Company
respectively. The policies guarantee policyholders annual
dividends from their insurers’ surpluses, but the insurers
decide the dividend amounts.
2 Nos. 18-1336 & 18-1338
Dissatisfied with their dividends, Ochoa and Anderson
filed nearly identical class-action complaints claiming that
the dividend provisions in their policies violate the Illinois
Insurance Code. In a single decision, the district court dis-
missed the complaints. We consolidated the appeals and
now affirm. Illinois requires only that life-insurance policies
of this type contain a provision for policyholders to partici-
pate in their insurers’ surpluses. The policies at issue here
contain such a provision.
I. Background
The dividend provisions in the State Farm and Country
Life policies do not materially differ. The State Farm provi-
sion reads: “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.” 1 Similarly, the Country
Life provision states:
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 allo-
cated to this policy as an annual dividend. Div-
idends 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.
1 Ochoa holds five policies from State Farm, some of which contain a
slightly different version of the dividend provision.
Nos. 18-1336 & 18-1338 3
Ochoa and Anderson concede that their annual divi-
dends satisfied the terms of their respective policies. But
they contend that their policies do not contain a standard
dividend provision mandated by the Illinois Insurance
Code. Asserting claims for breach of contract, they sued the
insurers in the Northern District of Illinois invoking class-
action jurisdiction. See 28 U.S.C. § 1332(d). Because the suits
were functionally equivalent, the cases were assigned to the
same judge.
The insurers moved to dismiss for failure to state a claim.
See FED. R. CIV. P. 12(b)(6). The judge resolved the motions in
a single decision, holding that the policies in question con-
tain the standard provision required by Illinois law. The
judge accordingly entered judgment for the insurers, and
Ochoa and Anderson appealed. Because the appeals are
materially identical, we consolidated the cases.
II. Analysis
We review a Rule 12(b)(6) dismissal de novo. Avila v.
CitiMortgage, Inc., 801 F.3d 777, 786 (7th Cir. 2015). To survive
a motion to dismiss, the plaintiffs’ complaints must state a
plausible claim to relief. Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
While styled as claims for breach of contract, the claims
actually rest on an interpretation of section 224 of the Illinois
Insurance Code, which describes the standard provisions
that all life-insurance policies issued in Illinois must “con-
4 Nos. 18-1336 & 18-1338
tain[] in substance.” 215 ILL. COMP. STAT. 5/224 (2016). The
standard provisions required by statute “form a part of” a
life-insurance policy and control when they conflict with the
actual policy provisions. DC Elecs., Inc. v. Emp’rs Modern Life
Co., 413 N.E.2d 23, 28 (Ill. App. Ct. 1980).
At issue here is section 224(e), the standard provision
governing dividends, which requires “that the policy shall
participate annually in the surplus of the company begin-
ning not later than the end of the third policy year.” 215 ILL.
COMP. STAT. 5/224(e). The question for us is whether a policy
that indisputably provides for annual dividends but allows
insurers discretion to set dividend amounts complies with
this provision.
Ochoa and Anderson insist that the answer is “no.” Their
argument recasts section 224(e) as requiring “full annual
participation” in the insurers’ surpluses. But section 224(e)
doesn’t require “full” participation. It requires only that
policyholders “participate” in the company’s surplus. The
ordinary meaning of “participate” at the time of the section’s
enactment in 1907 did not speak to the extent of participa-
tion; nor has the meaning changed since then. See Participate,
WEBSTER’S NEW INTERNATIONAL DICTIONARY (1st ed. 1907)
(“to receive a part of”); Participate, OXFORD ENGLISH
DICTIONARY (1st ed. 1909) (“to take or have a part or share of
or in”); Particpate, WEBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY (1981) (“to have a part or share in something”).
The plaintiffs contend that “participate” is a term of art
that requires a set dividend amount, but they do not articu-
late “a fixed and technical meaning in the law” to support
their view. Vicencio v. Lincoln–Way Builders, Inc., 789 N.E.2d
290, 301 (Ill. 2003) (quoting Galowich v. Beech Aircraft Corp.,
Nos. 18-1336 & 18-1338 5
441 N.E.2d 318, 321 (Ill. 1982)). Nor can they. Reading the
term “participate” in the insurance context does not alter its
meaning in their favor. See Participating Insurance, BLACK’S
LAW DICTIONARY (10th ed. 2014) (“A type of insurance that
allows a policyholder to receive dividends.”); Participating
<~insurance>, WEBSTER’S THIRD NEW INTERNATIONAL
DICTIONARY (“entitling the holder to a share in any distribu-
tion of surplus by the issuing insurance company”).
Perhaps recognizing the weakness of their argument,
Ochoa and Anderson ask us to hitch section 224(e) to sec-
tion 243 of the Insurance Code, which governs contingency
reserves and allows State Farm and Country Life to “accu-
mulate and maintain in addition to an amount equal to the
net value of its participating policies … a contingency re-
serve not exceeding … ten per centum thereof.” 215 ILL.
COMP. STAT. 5/243 (2016). The plaintiffs assert that these two
provisions, read in pari materia, require insurers to distribute
any surplus above the contingency-reserve limit as divi-
dends to policyholders.
But in Illinois “[i]t is fundamental that before the rule of
in pari materia is applied, the statute to be construed must be
found to be ambiguous.” People v. 1946 Buick, 537 N.E.2d 748,
750 (Ill. 1989). Section 224(e) unambiguously does not regu-
late dividend amounts. We have no need to resort to the in
pari materia canon. 2
2 Illinois courts have never held otherwise. Ochoa and Anderson rely
heavily on dicta in Lubin v. Equitable Life Assurance Society of the United
States, 61 N.E.2d 753 (Ill. App. Ct. 1945), which they contend “explains
the link” between the two sections. But Lubin does not even consider the
Illinois Insurance Code, much less the sections at issue here.
6 Nos. 18-1336 & 18-1338
Undeterred, Ochoa and Anderson next insist that be-
cause section 224(e) imposes a standard contract term, we
must consider legislative intent and public-policy concerns
in order to interpret it. 3 We decline the invitation to depart
from the well-established rule that “[s]tatutory words and
phrases are given their ordinary meaning.” Singh v. Sessions,
898 F.3d 720, 725 (7th Cir. 2018). Indeed, the Illinois Supreme
Court has relied on “plain and ordinary meaning” when
interpreting section 224. See Lauer v. Am. Family Life Ins. Co.,
769 N.E.2d 924, 926 (Ill. 2002).
Finally, Ochoa and Anderson jettison section 224(e) alto-
gether and claim that section 243—the contingency-reserve
provision—is incorporated directly into their policies. But
unlike section 224(e), section 243 does not prescribe a stand-
ard policy provision. And as with most of the Illinois Insur-
ance Code, it lacks a private right of action. Instead, it is
enforced by the Illinois Director of Insurance. See Vine St.
Clinic v. HealthLink, Inc., 856 N.E.2d 422, 439 (Ill. 2006) (citing
215 ILL. COMP. STAT. 5/401-07 (2004)). Ochoa and Anderson
cannot circumvent this barrier by framing an alleged statuto-
ry violation as a breach of contract. See Village of McCook v. Ill.
Bell Tel. Co., 780 N.E.2d 335, 341 (Ill. App. Ct. 2002) (rejecting
the use of a breach-of-contract claim to enforce statutory
provisions that lack a private right of action).
Even setting this problem aside, their argument is wholly
unsupported by section 243, which says nothing about
3 Ochoa and Anderson support their claim with Kolbe v. BAC Home Loans
Servicing, LP, 738 F.3d 432 (1st Cir. 2013) (en banc), and Feaz v. Wells Fargo
Bank, N.A., 745 F.3d 1098 (11th Cir. 2014). Neither opinion purports to
create the exception that Ochoa and Anderson propose.
Nos. 18-1336 & 18-1338 7
dividends or distribution. Nor does it define “surplus” in
relation to section 224(e). There is no ambiguity. Section 243
does not limit insurer discretion to set dividend amounts.
The State Farm and Country Life policies comply with
section 224(e). Ochoa and Anderson do not have a cause of
action to sue under section 243, which in any event would
not create a right to the relief they seek. Because both com-
plaints fail to state a claim for breach of contract, the judg-
ments below are
AFFIRMED.