Schulist v. Blue Cross of Iowa

Decision Date15 December 1982
Docket NumberNo. 80 C 6585.,80 C 6585.
Citation553 F. Supp. 248
PartiesDaniel SCHULIST, August E. Loefler, Jr., John Snellgrove, John Damas, Gale T. Jaffke, Joseph B. Grow, Jack L. Gabelhausen, Sr., Johan Faber, Jack Long, Charles N. Young, Richard Steffey, Carl D. Prohaska, Tom Bagwell, Stanley J. Kuchay, Harry Forber, and Richard J. Blankenheim, as Trustees of the Pattern Makers' Health and Welfare Trust, Plaintiffs, v. BLUE CROSS OF IOWA and Blue Shield of Iowa, Iowa corporations, Defendants.
CourtU.S. District Court — Northern District of Illinois

COPYRIGHT MATERIAL OMITTED

Bernard J. Echlin, John A. Relias, N. Morrison Torrey, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for plaintiffs.

Donald J. Duffy, Kirkland & Ellis, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

Plaintiffs in the instant case, the Trustees of the Pattern Makers' Health and Welfare Trust ("Trustees"), have sued Blue Cross of Iowa and Blue Shield of Iowa ("Blue Cross and Blue Shield") in a three-count complaint arising out of a Health and Welfare plan ("Plan"). Plaintiffs allege fraud, breach of contract and breach of fiduciary duty under the Employee Retirement Income Security Act ("ERISA") of 1974.1 This matter is presently before the Court on the parties' cross-motions for summary judgment.2 For reasons stated below, (1) defendants' motion for summary judgment is granted as to Counts I and III; (2) plaintiffs' motion for partial summary judgment is denied; and (3) defendants' motion for summary judgment as to Count II is denied, but Count II is remanded to an appropriate state court of Iowa.3

Plaintiffs established a joint labor-management trust for the purpose of providing employee health and welfare benefits through the Plan in 1977. On September 15, 1977, plaintiffs appointed as broker D.J. Cusack, instructing him to solicit bids for providing a health and welfare plan to trust beneficiaries. Defendants, which provide health benefit plans to individual and group subscribers, bid for and received the trust's business. The parties then entered into a Health and Welfare Plan for 1978 and 1979.

Plaintiffs argue in Count I of the complaint that defendants failed to comply with the information reporting and disclosure requirements contained in section 103 of ERISA, 29 U.S.C. § 1023, and several regulations promulgated thereunder, thus breaching fiduciary duties established by that statute. They further assert that defendants breached fiduciary duties under ERISA by failing to return for the benefit of the Plan an alleged surplus of $349,000 in policyholder reserves for 1978 and 1979. Count II alleges fraud on the part of defendants, in that information provided to plaintiffs contained false representations. Count III alleges that the failure to return the aforementioned alleged surplus constituted breach of contract.

In considering these motions, we begin by observing that the party moving for summary judgment has the burden of clearly establishing that no genuine issues of material facts exist, and that he or she is entitled to judgment as a matter of law. Cedillo v. International Association of Bridge & Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 10 (7th Cir.1979). Doubts as to the existence of material issues of fact must be resolved against the moving party. Moutoux v. Gulling Auto Electric, Inc., 295 F.2d 573, 576 (7th Cir. 1961). Where cross-motions for summary judgment are filed, as in the instant case, the court must rule upon each party's motion individually, based upon affidavits and other proof submitted by the parties. 10 Wright and Miller, Federal Practice and Procedure § 2720 (1973). It is with these standards in mind that we consider the parties' motions.

Count I

Plaintiffs argue that defendants failed to comply with information disclosure and reporting requirements set forth in ERISA.4 As this Court recently observed, "ERISA resulted from concern over the rapid growth in size, scope and number of employee benefit plans, many of which had inadequate safeguards to protect the requisite funds." McDougall v. Donovan, 552 F.Supp. 1206, 1214 (N.D.Ill.1982). In enacting ERISA, Congress codified its concern that sufficient information regarding plan operations be provided to plan participants and beneficiaries. H.R.Rep. No. 93-533, 93d Cong., 2d Sess. (1974), reprinted in 1974 U.S. Code Cong. & Ad.News 4639. Section 103, for example, requires the administrator of an employee benefit plan to file an annual report concerning the plan with the Secretary of Labor and make it available to plan participants. 29 U.S.C. § 1023. Moreover,

If some or all of the information necessary to enable the administrator to comply with the requirements of this subchapter is maintained by —
(A) an insurance carrier or other organization which provides some or all of the benefits under the plan or holds assets of the plan in a separate account ... such carrier ... shall transmit and certify the accuracy of such information to the administrator within 120 days after the end of the plan year (or such other date as may be prescribed under regulations of the Secretary). (Emphasis added).

Section 103(e) goes on to declare that:

(e) If some or all of the benefits under the plan are purchased from and guaranteed by an insurance company, insurance service, or other similar organization, a report under this section shall include a statement from such insurance company, service, or other similar organization covering the plan year and enumerating —
(1) the premium rate or subscription charge and the total premium or subscription charges paid to each such carrier, insurance service or other similar organization and the approximate number of persons covered by each class of such benefits; and
(2) the total amount of premiums received, the approximate number of persons covered by each class of benefits, and the total claims paid by such company, service, or other organization; dividends or retroactive rate adjustments, commissions, and administrative service or other fees or other specific acquisition costs paid by such company, service, or other organization; any amounts held to provide benefits after retirement; the remainder of such premiums; and the names and addresses of the brokers, agents, or other persons to whom commissions or fees were paid, the amount paid to each, and for what purpose. (Emphasis added)

It is thus apparent that defendants' failure to certify information on the Schedule A forms violated § 103 of ERISA; the failure to indicate the payment of commissions to Mr. Cusack in initial Schedule A forms also violated that section. Plaintiffs further argue that these omissions violated guidelines in ERISA governing the conduct of plan fiduciaries. Section 404 of ERISA sets forth the general standards of fiduciary duty.5 But before deciding whether defendants deciding whether Blue Cross and Blue Shield violated these fiduciary standards, we must determine whether they are, under ERISA, fiduciaries of the Plan in the instant case.

Insofar as a person exercises discretionary authority or control concerning the management or administration of a plan, he or she is a fiduciary under ERISA.6 In fact, Blue Cross and Blue Shield admit that they acted in a fiduciary capacity in the processing of health benefit claims. Memorandum in Support of Cross-Motion for Summary Judgment at 16. Although some courts have held that insurance companies are not necessarily fiduciaries solely by virtue of providing contractual benefits, Austin v. General American Life Insurance Co., 498 F.Supp. 844, 845, 846 (N.D.Ala. 1980); cf. Cate v. Blue Cross & Blue Shield of Alabama, 434 F.Supp. 1187, 1190 (E.D. Tenn.1977), we believe, as did the court in Eversole v. Metropolitan Life Insurance Co., 500 F.Supp. 1162 (D.C.Cal.1980), that an insurance company with the authority to grant or deny claims is a fiduciary under ERISA. Since defendants had such authority, they are fiduciaries under ERISA.

But an analysis of the general standard of fiduciary duty under § 404 of ERISA, see note 4 infra, does not persuade us that Blue Cross and Blue Shield's failure to comply with § 103 of ERISA amounts to a breach of their fiduciary duties under § 404. Blue Cross and Blue Shield eventually did provide plaintiffs with the name of the broker and the amount of commissions paid to him, albeit after initially submitting inconsistent Schedule A forms. While the forms were not certified, in violation of § 103, this lack of certification, in our opinion, does not rise to a violation of § 404; we cannot help but note that the information required was provided.7

Count I goes on to assert that Blue Cross and Blue Shield's failure to return an alleged policyholder reserve surplus for 1978 and 1979 constituted a breach of fiduciary duties under ERISA. According to plaintiffs, the 1978 premium rate led to a premium surplus of $317,000, and the 1979 premium rate led to yet another surplus of approximately $32,000. By failing to return this surplus to the Plan or use it to provide future benefits to the participants, the Trustees argue that Blue Cross and Blue Shield (1) breached § 404(a) of ERISA. See note 4, supra; and (2) violated § 406 and § 408 of the statute. We will consider each of these arguments in turn.

Although Blue Cross and Blue Shield are fiduciaries under ERISA in that they exercised discretionary authority and control concerning management of the Plan, the retention of premiums paid under the terms of the Health and Welfare Plan does not constitute a violation of Blue Cross and Blue Shield's fiduciary duty to act "solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administrating the plan." 29 U.S.C. § 1104(a). While we are mindful that ERISA is a comprehensive statutory scheme to protect participants and...

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