Wayne Chemical, Inc. v. Columbus Agency Service Corp.

• Citation: 426 F. Supp. 316
• Decision Date: 19 January 1977
• Docket Number: Civ. No. F 76-50.
• Parties: WAYNE CHEMICAL, INC., et al., Plaintiffs, v. COLUMBUS AGENCY SERVICE CORP. et al., Defendants.
• Court: U.S. District Court — Northern District of Indiana

426 F. Supp. 316

WAYNE CHEMICAL, INC., et al., Plaintiffs, v. COLUMBUS AGENCY SERVICE CORP. et al., Defendants.

Civ. No. F 76-50.

United States District Court, N. D. Indiana, Fort Wayne Division.

January 19, 1977.

Sherrill Wm. Colvin, Fort Wayne, Ind., for plaintiffs.

Clifford E. Simon, Jr., Fort Wayne, Ind., Duke W. Thomas, Columbus, Ohio, William F. McNagny, Fort Wayne, Ind., for defendant O'Rourke, Inc.

MEMORANDUM OF DECISION AND ORDER

ESCHBACH, Chief Judge.

This cause is before the court on the plaintiffs' request for a preliminary injunction. An evidentiary hearing was held on this request on December 30, 1976. For the reasons given below, the plaintiffs' request will be granted.

This case was originally filed in the Allen Circuit Court, Fort Wayne, Indiana. The defendants removed on the basis of diversity and federal question, and in the order of August 26, 1976, the court denied the plaintiffs' motion to remand. In that order, the court found federal jurisdiction based on diversity of citizenship and the requisite amount in controversy. Since entry of that order, the plaintiffs have, by amended complaint, joined certain nondiverse parties defendant. The addition of defendants who are nondiverse, under the weight of authority, does not defeat removal jurisdiction which has already properly attached. See 1A Moore's Federal Practice ¶ 0.1611 (2d ed. 1974). Moreover, although the court concludes that there is jurisdiction by reason of diversity of citizenship, the court finds also that there is jurisdiction based alternatively on the existence of a federal question. For reasons that will be discussed herein, the court concludes that the plaintiffs seek to enforce rights under an employee benefit plan, within the meaning of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132.

I.

Through stipulation of the parties, it has been established for purposes of this request for a preliminary injunction that Robert C. Tribolet is an employee of Wayne Chemical, Inc., and is covered by a group medical and health plan. Thomas C. Tribolet is the son of Robert C. Tribolet, and has been a covered dependent under said group medical and health plan. On or about July 24, 1975, Thomas Tribolet suffered catastrophic physical injuries requiring immediate medical care. These injuries rendered Thomas Tribolet a quadriplegic; his physical impairment requires and will require in the foreseeable future constant and extensive medical care and treatment.

Wayne Chemical procured the policy in question through the services of Kenneth Gray, an insurance salesman for O'Rourke, Andrews and Maroney, Inc. The policy was obtained from the Columbus Agency Service Corporation (CASCO). Coverage under the group medical plan became effective June 1, 1974. On June 1, 1975, Wayne Chemical received notice from CASCO that there had been a "substantial improvement in the Major Medical Coverage," effective June 1, 1975. Thereafter CASCO issued a notice "to our policyholders," stating that CASCO's program was being transferred to a new carrier, effective July 1, 1975, "for continuance of your coverage." Wayne Chemical later received notice from CASCO of a 12½% rate increase, effective August 1, 1975, and of a change in the deductible period. CASCO also notified its "Agents" that present coverage "with a few minor changes" would continue under the "new plan."

Wayne Chemical several times sought copies of the new policy from Kenneth Gray of O'Rourke, Andrews and Maroney, Inc. Gray informed Wayne Chemical, on November 5, 1975, that only the deductible had been changed. About December 18, 1975, Wayne chemical received from CASCO a set of pamphlets detailing the benefits for each employee.

On December 31, 1975, Kenneth Gray notified Wayne Chemical by letter that benefits for Thomas Tribolet would terminate on his reaching nineteen years of age, on January 6, 1976. Gray, on January 6, 1976, received from CASCO a notice of termination as to Thomas Tribolet. In a letter of January 7, 1976, Gray passed this information on to Wayne Chemical. By letter of April 6, 1976, however, Howard Morehouse, attorney for National Multiple Employers foundation, the "underwriter" of the successor policy, notified plaintiffs' counsel that the benefits for Thomas Tribolet would continue until his twentieth birthday (January 6, 1977). This termination date was reiterated by Morehouse in a letter dated September 28, 1976. CASCO and National Multiple have abided by the Morehouse letters. The parties agree that Wayne Chemical has paid all premiums to CASCO from May 1, 1975 to present. The authenticity of several documents relating to this claim has also been stipulated.

At the hearing on this cause, Mr. William E. Spindler, the president of Wayne Chemical, disclosed that he has yet to receive a copy of the "new policy." He has been led to understand that he presently holds not insurance but some other benefit program, the nature of which is unclear to him. Treating the arrangement as if it were nonetheless a major medical insurance program, Spindler has continued to make premium payments. Spindler confessed that he was not familiar with all the terms of the policy. At a meeting with Wally Berny, a CASCO representative, in December of 1975, Spindler first became aware that a "master policy" existed and that the pamphlets he had received did not constitute the policy. Spindler subsequently made several requests for a copy of the "master."

By way of background, Kenneth Gray testified at the hearing that CASCO is the designer and "administrator" of the program in question and that Association Life and National Multiple "underwrote" the "package" designed by CASCO. CASCO is part of the "brokerage inventory" carried by the Ash brokerage company, with whom Gray dealt. At some point National Multiple replaced Association Life as "underwriter" of the plan in question. Gray had no part in this change nor in the change in the policy deductible period. He knew, when he first sold the plan, that it contained a provision allowing "conversion" by covered minors without evidence of insurability. In early 1976, he learned, without formal notice, that under the National Multiple (substitute) plan, there was no conversion privilege of this kind.

Referring to the original policy issued by Association Life, Gray acknowledged that the policyholder is described as "Trustees of the Casco Insurance Trust Fund," Group Policy Number 1438. Gray's understanding of the arrangement was that Wayne Chemical was to join in an "insurance trust fund" and would have an identification number as participant. Gray understood that the fund was intended to cover small employers such as Wayne Chemical, although the fund was also underwritten. Gray agreed that, by the terms of communications from CASCO in 1975, Wayne Chemical was identified as a "policy holder," and Gray was termed an "agent." Gray did not dispute that he treated the plan as group health insurance and termed it as such in his dealings with Wayne Chemical. Gray agreed also that the original "master agreement" was drawn between Association Life and CASCO.

Mrs. Patricia Tribolet, the mother of Thomas Tribolet, testified also. She described Thomas Tribolet's paralysis as essentially total. He has immediate need of a specially made hospital bed, an electric wheelchair, special supports, and other custom-designed equipment. In order to obtain these items, insurance coverage must be established. With such equipment, it would be possible for Mrs. Tribolet to care for her son at home.

The plaintiffs argue that, under Indiana law, the representations of the defendants bind them to the issuance of an individual policy of health insurance to Thomas Tribolet, without evidence of insurability, as provided under the original insurance policy. Furthermore, they invoke Ind. Code § 27-8-5-10(B)(4) (Burns 1975), which provides that group health insurance coverage of a dependent of an employee may not terminate on attainment of a limiting age where the dependent, at the time he reaches the limiting age, is disabled. The defendants contend that Indiana law has been preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1144, and that no conversion privilege is available under the terms of the National Multiple (successor) policy.

II.

Resolution of this case must begin with a determination of the applicable substantive law. This question, in turn, is bound up with the scope of federal preemption under ERISA.

The preemption section of ERISA, 29 U.S.C. § 1144, is, in terms, quite broad. Under Section 1144(a), the provisions of ERISA "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." Under Section 1144(c), "State law" is defined to include "all laws, decisions, rules, regulations, or other State action having the effect of law, of any State." Section 1144(b)(2)(A) makes clear that there is no intent to invalidate all state insurance codes. However, under Section 1144(b)(2)(B), no "employee benefit plan" may hereafter be deemed an

insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.¹

The critical question, therefore, is whether the arrangement involved in this lawsuit is an "employee benefit plan" within the meaning of ERISA. This term is defined in 29 U.S.C. § 1002(3) so as to include "an employee welfare benefit plan." An "employee welfare benefit plan" in turn is defined as

any plan, fund, or program . . . established or maintained by an employer, . . . to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through

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