Marciella v. Prudential Ins. Co. of America, 93-3559
| Decision Date | 18 July 1994 |
| Docket Number | No. 93-3559,93-3559 |
| Citation | 30 F.3d 134 |
| Parties | NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Andrew J. MARCIELLA, et al., Plaintiffs-Appellants, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Before: GUY and NELSON, Circuit Judges, and LIVELY, Senior Circuit Judge.
This is an appeal from a summary judgment for the defendant insurance company in a purported class action brought by participants (and dependents or designated beneficiaries thereof) in a single-employer welfare benefit plan. The insurance company had contracted with the plan sponsor, the company by which the participants were employed, to pay group life and health insurance benefits in accordance with the contract of insurance. The employer--which ultimately went into bankruptcy--stopped paying insurance premiums when it became financially embarrassed. Several months thereafter it stopped making payments to a self-insurance fund from which some of the benefits were supposed to come, and it failed to remit premiums paid by employees who, when they lost their jobs, elected to purchase their own health care continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), 29 U.S.C. Secs. 1161 et seq. The employer also failed to give retired employees proper notice of their right to elect continuation coverage under COBRA. Although the employer gave notice of conversion rights under the life insurance coverage, finally, it failed to advise of the time limits within which such rights were to be exercised.
The plaintiffs contend that the insurance company was a co-fiduciary under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001 et seq. As such, the plaintiffs say, the insurance company had a fiduciary duty to make sure that the obligations of the employer and the trustees of the plan were fulfilled. The insurance company having violated its own fiduciary obligation in this respect, the plaintiffs assert, it should have made the plan whole and should have honored benefit claims that it would not otherwise have been obligated to pay.
The plaintiffs claim standing to enforce the asserted fiduciary obligation under Sec. 502(a)(2) of ERISA, 29 U.S.C. Sec. 1132(a)(2), which authorizes participants and beneficiaries, among others, to bring an action for appropriate relief under Sec. 409 of the Act, 29 U.S.C. Sec. 1109. Section 409 provides that a fiduciary whose breach of duty results in loss to the plan shall be liable to make good the loss.
The district court concluded as a matter of law that there had been no breach of duty on the part of the defendant insurance company with regard to the giving of notice about continuation and conversion rights. The court further concluded that any claim for breach of fiduciary duty under ERISA could only be brought on behalf of the plan, as opposed to individual participants and beneficiaries. The relief sought by the latter would not benefit the former, the court decided, and judgment was therefore rendered in favor of the insurer. In addition, the court dismissed for want of prosecution claims asserted by the plaintiffs against "unknown" trustees of the plan. 1 The court's disposition of the case made it unnecessary to decide the class certification issue.
We find no abuse of discretion in the dismissal (which was without prejudice) of any claims against the plan and the unknown trustees. Upon de novo review, moreover, we conclude that the insurance company was entitled to summary judgment. We shall therefore affirm the judgment of the district court in its entirety.
The plan sponsor, an office furniture manufacturer known as GF Corporation (formerly The General Fireproofing Co.), established the Group Health and Life Insurance Plan for Hourly and Retired Employees of GF Corporation pursuant to a collective bargaining agreement with Local 1617 of the United Steelworkers of America. The plan, of which GF was the administrator as well as the sponsor, covered unionized employees and retirees at a GF facility located in Youngstown, Ohio. The Prudential Life Insurance Company of America, the principal defendant herein, wrote group insurance (term life, accidental death and dismemberment, hospital expense, surgical expense, hospital medical expense, and major medical expense) for those covered by the plan.
Prudential and GF had a "minimum premium" arrangement for the group health coverage. Under this arrangement GF was to make monthly deposits into an account, called the PruMarc Account, on which Prudential would draw in order to pay current health insurance claims up to an agreed maximum. Although Prudential handled the paperwork, GF was a self-insurer with respect to such health care claims. Prudential undertook to use its own funds for payment of health care claims in excess of the agreed maximum, and GF was not a self-insurer with respect to the remaining coverage specified in the plan. Coverage not funded through the PruMarc Account was known as "Column I" coverage. Premiums for Column I coverage were payable on a monthly basis.
GF paid no Column I premiums after December 31, 1989. For the first three months of 1990, however, GF continued to make deposits into the PruMarc Account.
On February 15, 1990--two weeks after the Column I premium for January had become past due--GF closed the Youngstown plant and laid off all its hourly-paid employees. GF gave COBRA notices to the active employees at this point, advising them of their right to purchase continuing medical coverage, but never sent such notices to the retired employees. GF did negotiate a retiree health plan with the union, however, and letters were sent to the retirees urging them to take advantage of it. (Most did not do so.)
On April 18, 1990, GF filed for protection under Chapter 11 of the Bankruptcy Code. In a letter dated May 8, 1990, GF advised Prudential that all insurance coverage was terminated at the time of filing. Prudential took this to mean that GF had canceled its group insurance policy effective at midnight on April 17, 1990.
Prudential promptly sent GF a letter acknowledging cancellation as of April 17 and noting that covered employees had certain rights to convert their insurance coverage to individual policies. The letter told GF that it should send conversion notices to the affected individuals. GF did so by letter dated May 11, 1990; the letters were technically deficient, however, in that they failed to inform participants of the time limits for conversion.
Before describing the lawsuit that followed these events, we shall pause to give a somewhat more detailed account of the vicissitudes of the insurance coverage during the first part of 1990.
Under COBRA, the sponsor of a group health plan must provide that upon the occurrence of a "qualifying event" which would otherwise cause a beneficiary of the plan to lose coverage thereunder, the beneficiary may elect continuation coverage at his own expense. 29 U.S.C. Sec. 1161(a). Termination of a covered employee's employment is one such qualifying event. See 29 U.S.C. Sec. 1163(2). GF, apparently treating the plant closure and layoff of employees as a termination of employment, sent "COBRA notices" to all active hourly-paid employees in mid-February of 1990.
In response to these notices, several employees advised GF that they were electing to continue their health coverage. GF collected the required premiums for the continuation coverage, but there has been no showing that Prudential was aware of this fact--and it does not appear that GF forwarded any of the premiums to Prudential.
GF continued to fund the PruMarc account for a time, and Prudential continued to pay health insurance claims from the account. GF deposited no additional funds in the PruMarc account in April, however, and the account was soon exhausted. With no money in the PruMarc account, and with no Column I premium payments having been made since the end of the preceding year, Prudential put all claims for benefits "on hold."
The filing of GF's bankruptcy petition on April 18, 1990, was a "qualifying event" that triggered an obligation on the part of GF, as plan administrator, to notify its retired employees of their COBRA rights. See 29 U.S.C. Secs. 1163(6) and 1166(a)(4)(A). GF failed to discharge this statutory duty, and we gather that none of the retirees attempted to exercise the election prescribed by COBRA.
On June 1, 1990, the bankruptcy court ordered a sale of GF's assets. Soon thereafter the court entered an order requiring GF to pay post-bankruptcy retiree health claims out of the proceeds of the sale. Prudential used its own funds to pay retiree claims that had arisen prior to the filing of the petition in bankruptcy, and active employees' pre-bankruptcy claims that had been placed on hold were likewise paid by Prudential out of its own funds.
GF's cancellation of the policy meant that covered employees, both active and retired, had 31 days within which they could convert their life insurance to individual policies without proof of insurability. In a letter sent to GF on May 8, 1990, Prudential stated that it would "waive this [31 day] requirement, but you need to inform your active and retired employees that their conversion option(s) must be elected no later than June 15, 1990." (Emphasis in original.) The conversion notices sent out by GF failed to mention the June 15 cutoff date, but Prudential subsequently decided to waive the deadline for anyone who applied late for conversion.
The instant lawsuit was filed in the United States District Court for the Northern District of Ohio on July...
To continue reading
Request your trial