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Anderson v. Continental Cas. Co.

JUNE 24, 1968.




Appeal from the Circuit Court of Winnebago County; the Hon. JOHN S. GHENT, Judge, presiding. Reversed and remanded.

MR. JUSTICE MORAN DELIVERED THE OPINION OF THE COURT. This case involves the interpretation of a group insurance policy issued by the defendant Continental Casualty Company to the defendant trustees of the Construction Industry Welfare Fund of Rockford, Illinois. The Welfare Fund was established in 1954, pursuant to a collective bargaining agreement between employers in the construction industry and various trade unions in that industry, including Local No. 364 of the International Brotherhood of Electrical Workers. Pursuant to the terms of the collective bargaining agreement, the employers contributed 5¢ per hour (raised to 10¢ per hour in 1955) into the fund for each hour worked by an employee. The fund was administered by six trustees, three of whom were designated by the employers and the other three were designated by the union. The purpose of the fund was to procure group health, accident and life insurance for the employees. The trust agreement provided that the employer contributions should be used to pay premiums on policies of insurance, to pay the costs of administering the fund (including the leasing of premises, payment of salaries of administrative and clerical personnel, purchase of supplies, and the like), as well as to accumulate reserves. The agreement further provided that the trustees could, in their sole discretion, invest any funds, which they considered not to be required for current expenditures, in bonds or obligations of the United States Government. The fund was established pursuant to the authority granted by section 302 (c) (5) of the Labor Management Relations Act of 1947, 29 U.S.C. commonly known as the Taft-Hartley Act.

The trustees did procure group insurance from the defendant Continental Casualty Company, and the premiums were paid from the employer contributions. In 1966, Local 364 of the Electrical Workers Union negotiated a new collective bargaining agreement with the employers, pursuant to which, effective May 1, 1966, the employers would no longer make contributions to the fund in question, but would, insofar as the electrical workers were concerned, make the contributions to a new welfare fund having no connection with the fund in question. Pursuant to that agreement, the employers did in fact cease making contributions to the old fund as of that time.

The plaintiffs in this case are members of Local 364, and the basic question is whether they are entitled to insurance benefits from the old fund for claims which arose subsequent to May 1, 1966, at which time their employers were no longer making contributions to the old fund. The reason the question arises is that the claims in question arose during the exclusionary period under the new fund, when plaintiffs were not eligible for the new coverage provided by that fund. Accordingly, if they are not entitled to benefits under the terms of the old policy, their claims are not covered by any insurance at all.

The case was tried in the lower court on an agreed statement of facts, supplemented by some testimony. The trial court held that plaintiffs were not entitled to benefits under the old policy for the claims in question, and they appeal from this determination.

To summarize the positions of the parties, plaintiffs claim that, under the eligibility provisions of the old policy, they are entitled to benefits for the claims in question, even though the claims arose after their union ceased to participate in the old fund and their employers had ceased to make contributions on their behalf to the old fund. The defendant trustees and the insurance company, on the other hand, contend that coverage terminated when plaintiffs' union withdrew from the fund and the employers ceased contributing on behalf of the plaintiffs.

The matter is not free from doubt, because neither the trust agreement nor the insurance policy states, in so many words, what happens upon the contingency here involved. However, we believe the matter can be resolved by a reasonable construction of the terms of the insurance policy. (The record does not contain the master insurance policy, but only a specimen of an individual certificate of insurance, evidencing the insurance but not necessarily purporting to set forth all terms of the policy. As we will later point out, this is perhaps unfortunate. However, since neither side has raised any question as to the adequacy of this certificate to evidence the actual terms of the policy, we will proceed on the assumption that the certificate is adequate for our purposes.)

We will first consider the positions of the defendants. They rely upon two provisions of the insurance certificate (which we will hereafter refer to as the policy). The first of these provisions is the following:

"Any Employee Member of a Participating Union or a Participating Employer within the various jurisdictions of the Fund, shall be eligible for insurance coverage providing that sufficient Credited Hours have been recorded to his account."

Defendants take the position that this provision limits eligibility to those employees who are members of a Participating Union or employed by a Participating Employer at the time their claims arise. Even standing alone, we do not believe this language is subject to that interpretation. The provision appears in the introductory portion of the policy, and we think it simply describes the persons who are participating in the fund, without purporting to prescribe the conditions for payment of a particular claim. The quoted provision does not specify what the relationship is between the time of participation and the eligibility for benefits, and this is the crucial question in the case. The provision does provide one specific limitation, namely, that sufficient credited hours have been recorded to the employees' account, but, as we will see later, the parties agree that the plaintiffs in this case met that requirement.

The other policy provision upon which the defendants rely is the following:

"Individual Terminations

"The insurance of the Insured Person shall terminate: (1) on the date the policy is terminated; (2) as of the premium due date when the Trustees fail to pay the required premium for the Insured Person except as the result of inadvertent error; (3) on the date the Insured Person ceases to be eligible for insurance according to the rules for eligibility established by the Trustees and agreed to by the Company; (4) on the date the Insured Person, if a Dependent, ceases to be a Dependent as defined."

The foregoing provision sets forth four conditions under which the insurance of an employee is terminated. The first and fourth conditions are not involved here, but defendants rely upon conditions (2) and (3). As to condition (2), the defendants, and especially the insurance company, point out that, as of May 1, 1966, the trustees ceased paying premiums to the company for the plaintiffs. Defendants take the position that, since the trustees did not pay premiums, there should be no insurance. However, this argument begs the question. The policy provides that the trustees shall pay premiums for employees who are eligible, and, if in fact the plaintiffs were eligible, the premiums should have been paid. In our view, the nonpayment of premiums is unavailable as a defense to the insurance company if it is unavailable to the trustees, because, as we will point out later, we believe the trustees were the agents of the company for the purpose of determining eligibility and remitting the required premiums.

We turn now to condition (3) of the above-quoted provision concerning "Individual Terminations." Defendants contend that, according to this provision, plaintiffs ceased to be eligible when they ceased to be members of a participating union or employees of a participating employer, since membership in one of those categories, by virtue of the earlier provision we have already considered, was a condition of eligibility. ...

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