Class Action-Home-State Controversy Exception

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7^th Circuit Court of Appeals

Case Name: Angela Sudholt v. Country Mutual Insurance Company

Case No.: 23-2507

Officials: Wood, Hamilton, and Scudder, Circuit Judges.

Focus: Class Action-Home-State Controversy Exception

A class action lawsuit has been filed in Illinois against Country Mutual and 46 of its current and former officers and directors by both current and former policyholders. Each member of the proposed class is an Illinois citizen according to the Class Action Fairness Act (CAFA), 28 U.S.C. 1332(d)(2), including Country Mutual and 45 of the individuals involved. The 46th defendant, Bateman, is a citizen of Massachusetts. The plaintiffs have alleged that the company amassed and retained an excess surplus of more than $3.5 billion from premium revenues that exceeded the cost of claims, resulting in a failure to provide these policies at cost. The claims against the defendants include breach of contract, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, unjust enrichment, and breach of fiduciary duty.

Due to the potential class size, the value of the dispute, and the minimal diversity introduced by Bateman, Country Mutual removed the case to federal district court under 28 U.S.C. 1332(d) and 1453(b). However, the Seventh Circuit subsequently remanded it back to state court. This decision was based on CAFA’s internal affairs exception, which holds that each claim revolves around allegations of corporate mismanagement that necessitate an in-depth exploration of the discretion granted by Illinois law to officers and directors of a mutual insurance company in determining capital levels and surplus distributions to policyholder members. Additionally, the case falls under CAFA’s home-state controversy exception, 28 U.S.C. 1332(d)(4)(B), as Bateman, who introduces minimal diversity, is not considered a “primary defendant.”

Remanded and reversed.

Decided 10/02/23

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