Chicago Bd. Options Exchange, Inc. v. Connecticut General Life Ins. Co.

• Decision Date: 11 July 1983
• Docket Number: No. 82-2967,82-2967
• Citation: 713 F.2d 254
• Parties: 4 Employee Benefits Cas. 1927 CHICAGO BOARD OPTIONS EXCHANGE, INC., Contractholder, and Donald R. James, Charles J. Henry, and William J. Young, Trustees of and Participants in the Chicago Board Options Exchange, Inc. Retirement Income Plan, Plaintiffs-Appellants, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, A Connecticut Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 254

713 F.2d 254

4 Employee Benefits Cas. 1927

CHICAGO BOARD OPTIONS EXCHANGE, INC., Contractholder, and

Donald R. James, Charles J. Henry, and William J. Young,

Trustees of and Participants in the Chicago Board Options

Exchange, Inc. Retirement Income Plan, Plaintiffs-Appellants, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, A Connecticut

Corporation, Defendant-Appellee.

No. 82-2967.

United States Court of Appeals, Seventh Circuit.

Argued April 13, 1983.

Decided July 11, 1983.

Robert W. Gettleman, Lawrence J. Moss, D'Ancona & Pflaum, Chicago, Ill., for plaintiffs-appellants.

James T. Otis, Keck, Mahin & Cate, Chicago, Ill., for defendant-appellee.

Before CUMMINGS, Chief Judge, PELL, Circuit Judge, and BROWN, Senior Circuit Judge. ^*

PELL, Circuit Judge.

Plaintiffs appeal the dismissal of their three count complaint against defendant Connecticut General Life Insurance Company (Connecticut General). The dispute has its genesis in Connecticut General's unilateral amendment of an annuity contract it entered into with Chicago Board Options Exchange, Inc. (CBOE). The contract was designed to fund retirement benefits provided by CBOE under its Retirement Income Plan. CBOE objected to the amendment and unsuccessfully tried to withdraw from the contract. After Plaintiffs' complaint to the Illinois Department of Insurance proved fruitless they filed this suit. Plaintiffs charged Connecticut General with breach of contract, breach of its fiduciary duty under the Employment Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (ERISA), and violation of the Illinois Uniform Deceptive Trade Practices Act. Ill.Rev.Stat. ch. 121 1/2, § 311 et seq. The district court found that none of the counts stated a cause of action and granted defendant's motion to dismiss pursuant to Rule 12(b)(6), Fed.R.Civ.P. Chicago Board Options Exchange, Inc. v. Connecticut General Life Insurance Co., 553 F.Supp. 125 (N.D.Ill.1982).

I The Annuity Contract.

Effective July 1, 1978, CBOE converted its existing Retirement Income Plan (Plan) from a defined benefit pension plan to a defined contribution money purchase pension type of thrift plan. In order to fund the Plan efficiently CBOE entered into an annuity contract with Connecticut General.

Under the contract contributions on behalf of each employee were paid into that employee's account, which in turn was divided into two different investment accounts: a "Variable Account" and a "Guaranteed Account."

The two accounts differed in the manner in which they were funded by Connecticut General and in the manner in which interest rates were determined. Contributions to a Variable Account were invested in a pool of securities and, as the name implies, the rate of return varied according to the performance of the securities. Contributions to a Guaranteed Account, on the other hand, were invested in Connecticut General's general portfolio. Connecticut General guaranteed the amount of interest to be paid in advance, although the rate of return could be changed by Connecticut General "from time to time." Connecticut General also guaranteed all contributions and interest already credited to the account.

The Variable and Guaranteed Accounts also differed in the ease with which a participant could withdraw money from the account. Contributions to a Variable Account could be withdrawn at any time, but contributions to a Guaranteed Account could only be withdrawn under certain circumstances. If the amount sought to be withdrawn, together with (1) other amounts to be withdrawn on that date from the Guaranteed Account funds of contracts in the same class of business, and (2) amounts already transferred or withdrawn from Guaranteed Account funds of contracts in the same class of business during that calendar year, exceeded 10% of the total Guaranteed Account funds for contracts in the same class of business, then Connecticut General could limit the withdrawal to 10% of the Guaranteed Account balance and defer withdrawal of the remainder to later years.

The contract allowed a contractholder, such as CBOE, to discontinue contributions and transfer accumulated assets to a new funding agent. Discontinuance did not become effective until 90 days from the first day of the month after Connecticut General received notice of the contractholder's desire to terminate. Transfer of funds to a new funding agent was subject to the same 10% restriction that applied to withdrawals from a Guaranteed Account.

II Amendment of the Guaranteed Account.

In late 1981 Connecticut General informed contractholders that it was amending the annuity contract to serve better beneficiaries "without sacrificing any of their existing rights." The effect of the amendment was to redesignate each existing Guaranteed Account as "Guaranteed Account A," while creating a new "Guaranteed Account B." The new "B" account was supposed to provide a higher rate of return than the old Guaranteed Account. Each year 10% of the funds in Guaranteed Account A would be transferred to Guaranteed Account B. The obvious result was that each year, for the next 10 years, the 10% transfer quota would be filled by this inter-account transfer, thus triggering Connecticut General's right to defer any other withdrawals from the Guaranteed Accounts.

CBOE thought that the purpose of the amendment was to enhance Connecticut General's profits by freezing funds in the Guaranteed Accounts, which had been paying below market rates. CBOE sought to discontinue the contract, but was unable to withdraw its funds before the amendment took effect. After the Illinois Department of Insurance ruled that the amendment did not violate the Illinois Insurance Code, plaintiffs filed this suit.

III Breach of Contract.

Proceeding under diversity jurisdiction, CBOE alleged that Connecticut General's unilateral amendment was not permitted under the contract. The district court ruled that Connecticut General had the right to effect this type of amendment unilaterally. In reaching this conclusion the court relied upon the following provisions in the contract:

11.02 Change of Contract (a) Any or all of the terms of this contract may be changed from time to time by agreement in writing between the Insurance Company and the Contractholder. However, any such change shall not affect in any way the amount or terms of any Retirement Annuity purchased before the effective date of such change.

(b) The Insurance Company may, at any time, make any changes, including retroactive changes to the provisions of this contract to the extent that such changes are required in order to conform the contract to the provisions of Section 401(a) of the Internal Revenue Code as amended, ERISA or any regulation issued by any Governmental agency to which the Plan or the Insurance Company is subject.

(c) The Insurance Company may change the rates in Table A sub2 without giving advance notice of the change, providing such change is not made more frequently than once annually....

On or after the first anniversary of July 1, 1978 the Insurance Company may change from time to time any or all of the other terms of this contract. Such other change may be made by the Insurance Company giving 90 days advance notice in writing to the Contractholder. Any such change may not affect (i) the terms or amount of any Retirement Annuity purchased before the effective date of such change, and (ii) the amount of interest credited or accrued prior to the effective date of such change.

11.03 Consent not Required. Consent of any Participant, Beneficiary, Survivor Annuitant, or Contingent Annuitant shall not be required to effect any change in the contract.

The district court read section 11.02(c) of the contract as authorizing a unilateral amendment by Connecticut General without the consent of CBOE. The court rejected CBOE's contention that the contract could be construed as either requiring CBOE's consent or allowing CBOE to withdraw from the contract when Connecticut General elected to amend. The court reasoned that CBOE's construction rendered the 90-day notice provision "wholly meaningless." 553 F.Supp. at 128. Plaintiffs now contend that the court erred in not adopting their construction of the contract or, alternatively, in not finding the contract ambiguous and considering extrinsic evidence to aid in interpretation.

We begin our analysis with the observation that, "Insurance policies should be construed as a whole, giving effect to every part, as far as it is possible." Hartford Accident & Indemnity Company v. Case Foundation Company, 10 Ill.App.3d 115, 121, 294 N.E.2d 7, 12 (1973). In this case the relevant portions of the contract are found in section 11.02(c) and 11.03, which provide that (1) "the Insurance Company may change from time to time any or all of the other terms of the contract," (2) unilateral amendment may be effected by Connecticut General "giving 90 days advance notice in writing to the Contractholder," and (3) such amendments do not require the consent of the persons listed in 11.03.

The district court read these provisions as clearly granting Connecticut General the right to amend unilaterally. While we do not agree with plaintiffs' contention that the contract, on its face, requires CBOE's consent or, at the least, allows CBOE to withdraw during the 90-day notice period, we also do not find the clarity that the district court relied upon in dismissing this count. The question, at this stage of the litigation, is not whether the contract allows Connecticut General to amend unilaterally, but rather whether "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Mescall v. Burrus, 603 F.2d 1266, 1269 (7th Cir.1979) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957)). If the contract provisions are so clear that there can be no question as to their meaning, then the district...