567 F.2d 692 (7th Cir. 1977), 77-1281, Wayne Chemical, Inc. v. Columbus Agency Service Corp.

Docket Nº:77-1281.
Citation:567 F.2d 692
Party Name:WAYNE CHEMICAL, INC., Robert C. Tribolet and Thomas C. Tribolet, Plaintiffs-Appellees, v. COLUMBUS AGENCY SERVICE CORPORATION, Defendant-Appellant.
Case Date:November 08, 1977
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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567 F.2d 692 (7th Cir. 1977)

WAYNE CHEMICAL, INC., Robert C. Tribolet and Thomas C.

Tribolet, Plaintiffs-Appellees,



No. 77-1281.

United States Court of Appeals, Seventh Circuit

November 8, 1977

Argued Sept. 29, 1977.

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Clifford E. Simon, Jr., Fort Wayne, Ind., Duke W. Thomas, Columbus, Ohio, for defendant-appellant.

Theodore L. Sendak, Atty. Gen., Indianapolis, Ind., David J. Brummond, Milwaukee, Wis., for amicus curiae.

Sherrill William Colvin, Vincent J. Heiny, Fort Wayne, Ind., for plaintiffs-appellees.

Before SWYGERT, CUMMINGS and TONE, Circuit Judges.

TONE, Circuit Judge.

Thomas C. Tribolet suffered an injury that made him a quadriplegic while he was 18 years old and still covered by a group medical insurance policy purchased by his father's employer. The insurance agency

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through which the policy had been obtained had changed insurers 24 days earlier, and it ultimately developed that, under the policy issued by the new carrier, Thomas' benefits would end on his 20th birthday. This result was not permitted under Indiana law. Also, the new insurer was not authorized to insure risks in Indiana, which made the agent liable under Indiana law if the insurer defaulted on its obligation, as it ultimately did. The determinative question on this interlocutory appeal is whether these provisions of Indiana law favorable to Thomas were preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq., commonly known as ERISA.

In this action by Thomas, joined by his father and his father's employer, against the agent and others, the District Court held that ERISA did preempt state law but that a federal common law should be developed to fill the regulatory void created by preemption, and that under that federal common law Thomas' insurance benefits could not be terminated. The court entered a preliminary injunction against the agent enjoining it from terminating coverage and also ordering it to make available to Thomas a policy of individual hospital and surgical insurance, as provided by the policy that had been superseded 24 days before Thomas' injury. Wayne Chemical, Inc. v. Columbus Agency Service Corp., 426 F.Supp. 316 (N.D.Ind.1977). We modify the order and affirm it as modified, but rely on reasons different from those relied on by the District Court.

The Initial Purchase of Insurance

In 1974 plaintiff Wayne Chemical, Inc. purchased group medical insurance coverage for several of its employees and their families from an insurance salesman for a Fort Wayne, Indiana, insurance firm, defendant O'Rourke, Andrews & Maroney, Inc. One of these employees was plaintiff Robert C. Tribolet, father of Thomas. The O'Rourke firm obtained the insurance, through an intermediate broker or agent, from defendant Columbus Agency Service Corporation, also known as "CASCO." The latter firm describes itself in its brief as "an insurance and health plan brokerage company," which "acts as agents for entities such as National Multiple Employers Foundation and Association Life Insurance Company." 1 Apparently affiliated with CASCO in some way are the CASCO Insurance Trust Fund and its trustees, about whom the record tells us little else. CASCO placed the insurance with Association Life Insurance Company.

The insurance salesman from the O'Rourke firm filled in, and Wayne's president signed, an application for insurance addressed to Association Life. The printed application form included a section entitled "Employer Agreement and Subscription to Trust," which recited that Wayne "does hereby apply for Group Insurance Benefits set forth in the proposal dated 4-29-74 and subscribes to the Agreement and Declaration of Trust establishing the . . . Insurance Trust Fund." The proposal referred to is not in the record. No agreement and declaration of trust appears in the record, nor does it appear that Wayne was ever shown or ever signed such a document.

As evidence of the insurance, Wayne received a "certificate of insurance," which described the Trustees of the CASCO Insurance Trust Fund as the "policyholder," defined the "certificateholder" as the insured employee, and referred to Group Policy No. 1438, and in which "certain provisions of the Policy (were) summarized." Apparently neither Wayne nor its employees obtained copies of the policy.

The Transfer to a New Carrier

The insurance continued with Association Life until July 1, 1975. Sometime earlier that year Wayne received an undated notice from CASCO bearing the salutation, "To our policyholders," which stated:

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"We have been advised by the carrier of our CASCO Insurance program, the Association Life Insurance Company, that effective July 1, 1975, a rate increase of approximately 100% Will be necessary. We wish to advise you that effective July 1, 1975, a new carrier with increased coverages will be made available for continuance of your coverages.

"We feel that the new plan will give you a much broader base of coverage and will be a part of a larger block of business; therefore, this should be a very distinct advantage in any cost calculations in the future. We will keep you advised as to the benefits of the new plan and the cost structure within the next ten days."

Subsequently Wayne received another undated notice from CASCO with the salutation, "To our policyholders," which stated:

"We are very pleased to announce that arrangements have been made to transfer your coverage to a new carrier. This coverage will be automatic as of July 1, 1975.

"You will notice that your attached premium statements for July are still on the old basis. Effective Aug. 1, 1975, we will have an increase in the health premium of approximately 121/2%. Within a few weeks we will make available for you the option of maintaining your original plan with a few minor changes or a plan giving increased benefits. This has been a very monumental task and we want to thank you for your patience and understanding while these details have been worked out."

CASCO sent a copy of the latter notice to its agents with a separate notice advising the agents as follows:

"We are attaching a copy of the letter that was mailed to our policyholders with their July premium statements. We will have a plan very similar to their present coverage with a few minor changes. We will also have two other plans carrying increased benefits that will also be available through another carrier. We feel that by utilizing two different carriers that we can give you a better cross section of coverages than by using one carrier and one plan."

The O'Rourke firm received copies of the latter two notices.

All of these notices were presumably sent before July 1, 1975 and in any event before Thomas Tribolet's tragic accident on July 24 of that year. The last transition notice received by Wayne from CASCO bore the salutation, "Dear Policyholder," and stated as follows:

"As mentioned in our last letter to you, effective August 1 the rates for your group insurance have been increased. The new rates, as reflected on the accompanying billing, are 121/2% Higher than before but affect only the health portion of your statement. Also, because of increasing costs we have been forced to raise the administration charge slightly. We hope you understand the necessity of these increases and realize that we are doing our utmost to offer you the best available coverage at the lowest possible cost.

"There is also one change in your coverage which I think you will agree is an improvement. You now have a $100 calendar year deductible with a one-year accumulation period rather than a $50 deductible which had to be accumulated in 90 days. If you have any questions about this or any aspects of your coverage, please contact your agent who will be happy to answer them for you."

Neither Wayne nor the Tribolets were advised of the identity of the "new carrier" or of any adverse change in the terms of coverage until many months after the changeover. As late as November 5, 1975 Wayne, after having repeatedly requested copies of the new policy, received a letter from the O'Rourke firm stating as follows:

"Per our discussion, enclosed are several outlines of your group insurance coverage. The only changes made in the program from the previous coverage was the deductible. I am told that new certificates are currently at the printers."

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The "outline" referred to in the letter said nothing about any changes in policy terms with respect to either continuation of coverage for an insured disabled at the time coverage would otherwise terminate or convertability at that time without evidence of insurability. It ultimately appeared, however, that the new coverage was, with respect to these matters, materially less advantageous to beneficiaries than the Association Life policy. This fact was first disclosed in late December 1975 when CASCO sent Wayne a pamphlet describing the new coverage.

The front cover of the pamphlet bears the title, "Comprehensive Major Medical Benefits," the name CASCO combined with the initials NMEF in a pictorial trademark, and the name National Multiple Employers Foundation. On the back cover appears the recital, "Plan Design and Administration by CASCO" and the name Columbus Agency Service Corporation. The inside of the cover bears the following legend:

The record before us contains, in addition to the pamphlet just described, an unsigned document entitled "National Multiple Employers Foundation Plan and Trust Agreement" and dated January 1, 1975, which did not come to light until after this action was filed. Named as parties are NMEF, Nicholas J. Dolwett, and Lorraine Dolwett, the Dolwetts being designated as trustees. The...

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