Chicago Bd. Options Exchange, Inc. v. Conn. Gen. Life Ins., 82 C 3841.

• Decision Date: 17 November 1982
• Docket Number: No. 82 C 3841.,82 C 3841.
• Citation: 553 F. Supp. 125
• Parties: CHICAGO BOARD OPTIONS EXCHANGE, INC., et al., Plaintiffs, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Illinois

553 F. Supp. 125

CHICAGO BOARD OPTIONS EXCHANGE, INC., et al., Plaintiffs, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Defendant.

No. 82 C 3841.

United States District Court, N.D. Illinois, E.D.

November 17, 1982.

Robert W. Gettleman, Charles E. Levin, D'Ancona & Pflaum, Chicago, Ill., for plaintiffs.

James T. Otis, Robert A. Creamer and Patty J. Dyer, Keck, Mahin & Cate, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Chicago Board Options Exchange, Inc. ("CBOE") and the Trustees of its Retirement Income Plan (the "Plan") sue Connecticut General Life Insurance Company ("Connecticut General"), which entered into a group annuity insurance contract (the "Contract") with CBOE to fund benefits under the Plan. Plaintiffs' Complaint charges Connecticut General with:

1. breach of contract (Count I);

2. deceptive conduct in violation of the Illinois Uniform Deceptive Trade Practices Act (the "Illinois Act," Ill.Rev. Stat. ch. 121½, §§ 311-17) (Count II); and

3. fiduciary improprieties in violation of the Employee Retirement Income Security Act ("ERISA," 29 U.S.C. §§ 1001-1461) (Count III).

Connecticut General has moved under Fed. R.Civ.P. ("Rule") 12(b)(6) to dismiss the entire Complaint for failure to state any cognizable claim. For the reasons stated in this memorandum opinion and order, Connecticut General's motion is granted.

Allegations of the Complaint¹

In 1977 CBOE and Connecticut General negotiated the Contract to fund Plan benefits effective July 1, 1978. In entering into the Contract CBOE relied on claimed misrepresentations in Connecticut General's June 1977 proposal (the "Proposal," Complaint Ex. C), including the following sentence in its "highlights" page in which it "summarized the advantages" of its product:

Funds may be transferred to a new carrier if Connecticut General's performance is not entirely satisfactory.

Under the Contract the Administrator² was to direct Connecticut General as to the manner of crediting contributions made on behalf of the Plan's Participants (CBOE employees). Credits were to be allocated to either or both of two types of investment accounts, in such mix as the Administrator designated:

1. a "Variable Account," representing an undivided interest in a group of pooled assets (the "Separate Account") maintained by Connecticut General in connection with the Contract and other group annuity contracts (understandably, the value of the Variable Account always reflected the market value of the underlying assets); and

2. a "Guaranteed Account," providing a yield in the form of an interest rate periodically set in advance by Connecticut General (both that interest rate and the principal of the Guaranteed Account were guaranteed by Connecticut General).

Contract Parts XII and XIII defined CBOE's right to part company with Connecticut General by discontinuing further contributions and causing a transfer of the Participants' Accounts to a new funding agent (keeping the Plan qualified under the Internal Revenue Code).

All amounts allocated to Variable Accounts have always been transferable without limitation upon such discontinuation, subject only to compliance with appropriate procedures for valuation and distribution. As for Guaranteed Accounts, however, Contract § 13.03 has always permitted Connecticut General to defer full payout under these circumstances:

1. If the aggregate proposed transfers and withdrawals from Guaranteed Accounts on the effective date of CBOE's departure, together with previous transfers and withdrawals during the same calendar year — taking into account in each instance not only the Contract itself but all "contracts in this class of business" — exceed 10% of the total Guaranteed Contract funds for all "contracts in this class of business" as of the beginning of that calendar year, the current transfers could be deferred.

2. In any event such deferral could not block a Participant from the transfer of at least 10% of his or her Guaranteed Account in each year.

Non-transferred portions of the Guaranteed Accounts would continue to draw interest in the same manner as before.

What triggered the current dispute was an attempted amendment of the Contract by Connecticut General. Contract § 11.02 deals with "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 A2 without giving advance notice of the change, provided such change is not made more frequently than once annually. Any such change shall be applicable to this contract and to all other contracts in the same class of business as this contract using the same Assumed Investment Return and shall take effect as of the date the Insurance Company makes such change. On and 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 by giving 90 days advance notice in writing to the Contractholder. Any such change may not affect (i) the terms or amounts 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.

Connecticut General purported to amend the Contract by unilateral action in September 1981, to take effect January 1, 1982 (Connecticut General claims it complied with the 90-day notice provision of Section 11.02(c), though Complaint ¶ 12 states, "On November 13, 1981, CBOE became aware, for the first time of the purported amendment³). By that amendment (the "Amendment") Connecticut General substituted "Guaranteed Account A" for the existing Guaranteed Account and created a new "Guaranteed Account B" for all contributions made after December 31, 1981. Because the Amendment also contemplated an automatic annual transfer of 10% of Guaranteed Account A to Guaranteed Account B, the deferral provisions of Contract § 13.03 would be automatically triggered every year.⁴

By letter dated December 14, 1981 (Complaint Ex. G) the Administrator directed Connecticut General to transfer all CBOE employees' accounts (including both Variable and Guaranteed Accounts) to a new funding agent July 1, 1982. One week later the Administrator wrote Connecticut General challenging the Amendment and the proposed Guaranteed Account transfer as invalid (Complaint Ex. H). Connecticut General has refused to accede to that direction and challenge, adhering instead to the terms of the Amendment.

CBOE's first effort to invalidate the Amendment took the form of a complaint filed with the Illinois Department of Insurance (the "Department") December 31, 1981. Some months later the Department rejected that challenge entirely:

After a comprehensive review of this letter, your complaint letter and the contract provisions, we are unable to discern any violation of the Illinois Insurance Code by the insurer's amendments to the contract. The contract entered into between the Chicago Board of Options Exchange and Connecticut General granted Connecticut General the right to unilaterally amend the contract as stated in Section 11.02 of the General provisions. No unfair discrimination or detrimental capability is caused by the amended contract provisions.

CBOE has sought review of the Department's decision by an administrative review complaint (still pending) in the Circuit Court of Cook County.

This opinion will deal in turn with each aspect of plaintiffs' three-pronged assault identified at the outset. None successfully states a cause of action.

Count I

Apart from the notice contention referred to at n. 3, Count I claims the Amendment breached Contract § 11.02 because CBOE did not give its "agreement in writing" under Section 11.02(a). That argument is frankly nonsensical and scarcely merits discussion.

In literal terms Contract § 11.02(c) authorized the Amendment by Connecticut General's sole action, simply by notice to (and not consent of) CBOE. There are several reasons for not distorting that literal meaning, as CBOE's contention would do:

1. Each of Contract §§ 11.02(a), (b) and (c) is stated independently of the others. As even CBOE recognizes, Section 11.02(b) and the first paragraph of Section 11.02(c) do not incorporate the consent provision of Section 11.02(a). There is then no rational basis for skewing the second paragraph of Section 11.02(c) by reading it with a totally different meaning.

2. If CBOE's written consent were required under Section 11.02(c)'s second paragraph, its 90-day advance notice provision would be rendered wholly meaningless. By contrast, Section 11.02's literal reading gives all of its provisions a rational meaning and relationship.

3. Section 11.01 states flatly the Contract "may be modified or amended only by written agreement of the Insurance Company..." — a requirement wholly consistent with Connecticut General's concurrence being required under each subsection of Section 11.02 (subsection (a) with CBOE's agreement, (b) and (c) without). Section 11.01 does not however impose a like condition of CBOE's agreement to all amendments.

Because nothing in CBOE's allegations supports the notion its agreement to the Amendment was needed,⁵ Count I cannot survive Connecticut General's motion.

Count II

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