809 F.2d 617 (9th Cir. 1987), 85-6342, Credit Managers Ass'n of Southern California v. Kennesaw Life and Acc. Ins. Co.

Docket Nº:85-6342.
Citation:809 F.2d 617
Party Name:CREDIT MANAGERS ASSOCIATION OF SOUTHERN CALIFORNIA, State Court Receiver for Far West Administrators, Inc., the Compete Association, the Compete Master Trust and Fincomp Insurance Marketing, Inc., Plaintiff-Appellant, v. KENNESAW LIFE AND ACCIDENT INSURANCE COMPANY, a Georgia Corporation, Defendant- Appellee.
Case Date:February 05, 1987
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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809 F.2d 617 (9th Cir. 1987)


Court Receiver for Far West Administrators, Inc., the

Compete Association, the Compete Master Trust and Fincomp

Insurance Marketing, Inc., Plaintiff-Appellant,



Corporation, Defendant- Appellee.

No. 85-6342.

United States Court of Appeals, Ninth Circuit

February 5, 1987

Argued and Submitted Dec. 3, 1986.

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[Copyrighted Material Omitted]

Page 619

Kent Keller and Gail E. Cohen, Los Angeles, Cal., for plaintiff-appellant.

Douglas L. Hallett, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before SNEED and SCHROEDER, Circuit Judges, and BROWNING [*], District Judge.

SNEED, Circuit Judge:

Credit Managers Association (CMA), plaintiff-appellant, is the receiver for four entities that were involved in a program that provided medical care benefits to employees through their employers. Kennesaw Life and Accident Insurance Company (Kennesaw), defendant-appellee, contracted to provide some coverage in connection with these benefits. The precise nature of the coverage is subject to some dispute. CMA, in an effort to restore some measure of liquidity to the entities in receivership, sued Kennesaw on five theories: violation of California Insurance Code section 803, breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA), breach of fiduciary duty under California law, unfair claims practices, and fraud. The district court granted summary judgment to Kennesaw on the first two claims and dismissed the other three claims because CMA did not have standing to assert them. We reverse on the ERISA count and affirm in all other respects.



The four entities of which CMA is the receiver are the Continental Organization of Medical, Professional and Technical Employees (COMPETE); the C.O.M.P.E.T.E. Master Trust a.k.a. Continental Organization of Medical, Professional and Technical Employees Trust (COMPETE Master Trust); Fincomp Insurance Marketing, Inc. (Fincomp); and Far West Administrators (Far West). COMPETE was an unincorporated association of employers that offered a variety of benefits to its members, including medical care benefits for their employees. Far West was a California corporation that administered the COMPETE medical care benefits program. Fincomp was a California corporation that marketed the COMPETE program. On or about February 21, 1981, COMPETE created the COMPETE Master Trust to fund the COMPETE program.

COMPETE operated in the following fashion. It issued certificates of insurance to covered employees that explained the medical care benefits provided. 1 Excerpt of Record (E.R.) item 1, at 479-504. Each covered employee had the choice of either seeking treatment from a member of Far West's Health Panel and paying nothing, or seeking treatment from a health care provider of his choice and paying twenty percent of the charges. There also were deductible amounts for certain treatments. The first alternative, the so-called "Health Maintenance Option," resembled a health care service plan subject to the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act), Cal. Health & Safety Code Secs. 1340-1399.64. The second alternative, the so-called "Conventional Option," resembled a group insurance policy subject to the California Insurance Code. Kennesaw, however, may have had a third view. It alleges that at the time it did business with COMPETE, it thought the COMPETE Master Trust was a multiple employer trust, unregulated under California law.

The COMPETE Master Trust procured essentially two policies from Kennesaw. The first was Group Insurance Policy No. 600000001 (the 01 policy), which it was agreed would be retroactive to March 1, 1981. The policy covered only claims exceeding $25,000. Otherwise, it provided

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benefits substantially in accordance with the certificates issued by COMPETE. 1 E.R. item 1, at 153; cf. 3 E.R. item 14, at 36-39. The COMPETE Master Trust also procured Group Insurance Policy No. 600000002 (the 02 policy) from Kennesaw, effective July 1, 1981. Coverage under the 02 policy is essentially the same as under the 01 policy, but it is not restricted to claims exceeding $25,000. Kennesaw rolled over employers from the 01 policy to the 02 policy when and if it ascertained that they met Kennesaw's underwriting requirements. Kennesaw later issued Group Policy Nos. 6-0002-CA, -CO, and -ID, retroactive to July 1, 1981, to supersede the 02 policy. These policies will be referred to collectively as the 02 policy. According to Kennesaw, the 01 policy lapsed effective October 31, 1981, due to nonpayment of premiums.

On March 12, 1982, two state agencies intervened. At the instance of the Insurance Commissioner, the Superior Court of California issued a temporary restraining order enjoining Far West, COMPETE, and Fincomp from transacting insurance business without a license. 1 E.R. item 4, exhibit B. On the same day, at the instance of the Commissioner of Corporations, the Superior Court appointed CMA as receiver for COMPETE, the COMPETE Master Trust, Fincomp, and Far West, because they were transacting health care service plan business without a license and were making misrepresentations. Id. at exhibits C and D. Thereafter CMA filed an adversary proceeding against Kennesaw in bankruptcy court, but the court abstained from jurisdiction, in part because COMPETE and the COMPETE Master Trust were probably insurers. Id. at exhibit E.

CMA filed its complaint in district court on November 14, 1983. It sought to hold Kennesaw liable for all claims under the 01 policy, whether or not they exceeded $25,000. CMA also asked for punitive damages. Kennesaw has never repudiated the 02 policy, and it continues to pay claims under the 01 policy in accordance with its interpretation of its liabilities thereunder. Kennesaw contests only its liability under the 01 policy for claims less than $25,000. Such claims in the aggregate are very substantial.



The district court granted summary judgment to Kennesaw on two claims and dismissed the remaining three claims for lack of standing. This court reviews an order granting summary judgment de novo. Gabrielson v. Montgomery Ward & Co., 785 F.2d 762, 764 (9th Cir.1986). It also reviews an order of dismissal for failure to state a claim de novo. Securities Investor Protection Corp. v. Vigman, 803 F.2d 1513, 1516 (9th Cir.1986).



  1. Was CMA properly appointed as receiver?

    Kennesaw launches a two-pronged attack against CMA's standing as receiver. First it challenges CMA's authority to sue under the Insurance Code on the ground that the Insurance Commissioner alone may be appointed as receiver of an insolvent insurer. Kennesaw next questions whether any of the entities represented by CMA engaged in business as a health care service plan within the meaning of the Knox-Keene Act. Consequently, it contends that the Commissioner of Corporations did not have the authority to have CMA appointed as receiver for any purpose. The...

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