Tregoning v. American Community Mut. Ins. Co.

• Decision Date: 27 August 1992
• Docket Number: No. 1:91-CV-605.,1:91-CV-605.
• Parties: Barbara J. TREGONING, Joe W. Hutchins, Joann Hartlerode, and Ripley Lance Petersen, Individually and on Behalf of all others similarly situated, Plaintiffs, v. AMERICAN COMMUNITY MUTUAL INSURANCE COMPANY, a Michigan Corporation, Intracorp, Inc., a Delaware Corporation and Industrial Insurance Services, Inc., a Michigan Corporation, Defendants.
• Court: U.S. District Court — Western District of Michigan

815 F. Supp. 1054

Barbara J. TREGONING, Joe W. Hutchins, Joann Hartlerode, and Ripley Lance Petersen, Individually and on Behalf of all others similarly situated, Plaintiffs, v. AMERICAN COMMUNITY MUTUAL INSURANCE COMPANY, a Michigan Corporation, Intracorp, Inc., a Delaware Corporation and Industrial Insurance Services, Inc., a Michigan Corporation, Defendants.

No. 1:91-CV-605.

United States District Court, W.D. Michigan, S.D.

July 15, 1992.

Opinion Denying Reconsideration August 27, 1992.

Bruce C. Conybeare, John C. Johnson, Conybeare Law Office, PC, St. Joseph, MI, for plaintiffs.

Thomas J. Mulder, N. Stevenson Jennette, III, Varnum, Riddering, Schmidt & Howlett, Grand Rapids, MI, Ronald E. McNulty, American Community Mut. Ins. Co., Law

Dept., Livonia, MI, for defendant American Community Mut. Ins. Co.

Charles S. Mishkind, Miller, Canfield, Paddock & Stone, Grand Rapids, MI, for Intracorp, Inc.

Earl R. Jacobs, Amy E. Anderson, Jacobs & Miller, Southfield, MI, Andrew C. Pringle, Jr., Pringle & Simonsen, P.C., Farmington Hills, MI, for Industrial Ins. Services, Inc.

OPINION

ROBERT HOLMES BELL, District Judge.

In this ERISA case, the remaining parties cross-move for summary judgment under Fed.R.Civ.P. 56. For the reasons set forth below, the plaintiffs' motion is DENIED and defendant American Community Mutual Insurance Company's motion is GRANTED.

I. BACKGROUND

A.

Defendant American Community Mutual Insurance Company ("American") provides group health insurance policies and self-insured arrangements to various companies. Watervliet Paper Company, Inc. ("Watervliet"), a non-party to this action, is currently in Chapter 11 bankruptcy. Plaintiffs are former employees of Watervliet.

In early 1989, American and Watervliet entered into a contract, called the Minimum Premium Agreement ("Agreement"). The Agreement provided that American would issue a group health policy, which, together with the Agreement, constituted a self-funded employee benefit plan ("Plan") under ERISA, see 29 U.S.C. § 1002, to Watervliet. The policy, effective March 6, 1989, provided coverage of various health care claims to the Plan beneficiaries. Watervliet's employees, including the plaintiffs, were the beneficiaries; they contributed, through a payroll deduction, a portion of Watervliet's premium paid to American.

Under the Agreement, Watervliet was first required to make a deposit of $98,753.16 into a cash reserve, called "Claims Fund." From this reserve, American paid the employees' health care claims on behalf of Watervliet.

To replenish the cash reserve, Watervliet was then billed for reimbursements each month. Watervliet had to remit its monthly reimbursements within 20 days of billing. In the event that Watervliet did not comply with the billing schedule, American had the right to stop its payment of the employees' health care claims, as well as to terminate the Agreement and the policy.

There was, however, no provision in the Agreement — or elsewhere in the policy — that mandated American to provide notice to Watervliet's employees, including the plaintiffs, of Watervliet's failure to remit its premium or reimbursement payments.

B.

Almost from the beginning, Watervliet, a financially-strapped company, had trouble paying its full monthly reimbursements in a timely fashion. American sent a number of overdue notices, including notices threatening termination of the policy. Nevertheless, Watervliet continued to fall behind on its payments. Indeed, by December 1989, Watervliet had initially stopped making its payments altogether.

On January 10, 1990, American preliminarily suspended any further payment of the employees' claims. Still, as Watervliet made additional — subsequent — reimbursement payments, American, combining those partial payments with the funds in the cash reserve, began to resume its payments of the employees' claims. For the next few months, American continued to pay the employees' pre-December 31, 1989 claims.

During those months, however, it became clear to American that Watervliet would never pay all the reimbursements necessary to completely replenish the cash reserve. In fact, because of Watervliet's recurring failure to pay the full reimbursements, the funds in the reserve were close to being depleted. American therefore decided to terminate the Watervliet's policy pursuant to the Agreement.

By letter of April 12, 1990, American informed Watervliet that it was terminating the policy, effective February 28, 1990, on the grounds of Watervliet's non-payment. That letter also informed Watervliet to notify all employees covered under the policy that the coverage had ended, and that American was not liable for any claims or losses after the termination date, unless otherwise provided in the policy. By another letter, dated May 17, 1990, American clarified to Watervliet that the effective termination date of the policy was December 31, 1989.

Meanwhile, neither American nor Watervliet notified the plaintiffs that Watervliet was failing to make its required monthly reimbursements. Nor did they give any prior notice about the termination of the coverage to the plaintiffs and other employees. Moreover, American's authorized agent, Intracorp, Inc. ("Intracorp") continued to provide pre-certification and other ancillary coverage services to the plaintiffs.

In early June 1990, Watervliet's business soured further. Watervliet was compelled to lay off its employees, including the plaintiffs. Concurrently, the plaintiffs learned, for the first time, that their health care insurance coverage had lapsed on December 31, 1989 for Watervliet's failure to make its premium and reimbursement payments. American therefore refused to pay or reimburse the employees' health care claims incurred after that date. Subsequently, Watervliet filed for bankruptcy.

This action ensued.

C.

Initially, the plaintiffs, suing for themselves and on behalf of all of the 200-plus employees of Watervliet who were affected by the lapse of the policy, filed a state court complaint in the Berrien County Circuit Court on May 22, 1991. The state court complaint alleged a host of state law claims related to the cancellation of the group health insurance policy against American Community and other former defendants, Intracorp, and Industrial Insurance Services, Inc. ("Industrial").¹

On July 17, 1991, American removed the case to this Court on the basis of federal question jurisdiction. On August 15, 1991, the plaintiffs amended their complaint to add an ERISA claim.

On October 10, 1991, the Court dismissed, by a bench ruling, all the state law claims in the First Amended Complaint on the grounds of ERISA preemption. See Hearing Transcript of October 10, 1991.

D.

The only remaining claim is the ERISA claim. See First Amended Complaint, Count XVIII. Under the claim, the plaintiffs allege two theories: (1) that American, as a fiduciary of the ERISA Plan, breached its fiduciary duty to the plaintiffs, the Plan beneficiaries (pursuant to 29 U.S.C. § 1109(a)); and (2) that American, even if it were not a fiduciary, must comply with the terms of the Plan by paying all the employees' health care claims that were otherwise payable but for American's termination of the policy (pursuant to 29 U.S.C. § 1132). See First Amended Complaint ¶¶ 165-173.

II. DISCUSSION

At this time, the parties cross-move for summary judgment on the remaining ERISA claim. In their cross-motions, both parties, without expressly stating so, agree that there is no triable issue of fact. The parties then advance their own legal arguments.

In support of its motion, American makes two contentions. First, the actual language of the ERISA Plan — comprising of the Agreement and the policy — shows that American had no duty to continue paying the plaintiffs' health care claims after Watervliet failed to make full reimbursement payments; in other words, American's denial of the plaintiffs' health care claims was not contrary to the terms of the Plan. Second, American breached no ERISA fiduciary duty by not notifying the plaintiffs of Watervliet's failure to meet its payment obligations to American.

On the other hand, the plaintiffs return with one argument. They assert that, independent of the terms of the Plan, American breached its ERISA fiduciary duty by not notifying the plaintiffs of Watervliet's failure to meet its obligations to American and by allowing its authorized agent, Intracorp, to continue to provide pre-certification and other services to the plaintiffs.

A.

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate if "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." To be genuine, the dispute must concern evidence upon which "a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

To meet this standard, "the burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). It requires a determination of whether the party bearing the burden of proof has presented a jury question as to each element of its case. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. "In other words, the movant could challenge the opposing party to `put up or shut up' on a critical issue." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1478 (6th Cir.1989).

In determining a summary judgment motion, "the mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson, 477 U.S. at 252, 106 S.Ct. at 2512. Accordingly, viewing the evidence in the light...