Hill

In this nationwide class action, 50 million present and former policyholders of State Farm Mutual Automobile Insurance Company (State Farm) contend that during the class period, 1983 to 1998, State Farm breached a duty to pay billions of dollars in dividends and, as a result, created an excessive surplus.

State Farm moved for summary judgment based on the business judgment rule, asserting that the board of directors (Board) had made its financial decisions on an informed basis, in good faith, and with the honest belief that it was acting in the company’s best interests. Plaintiffs countered that the rule was not applicable because (1) the Board did not adequately consider whether to declare dividends but merely rubberstamped management’s recommendations; (2) the Board was not sufficiently informed about dividends; (3) the Board’s dividend practices were fraudulent or dishonest; and (4) the Board’s dividend decisions were totally without merit.

The trial court granted summary judgment, concluding that the business judgment rule applied as a matter of law. We agree. First, the Board could properly rely on information from State Farm’s management and actuarial department…