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Alton Memorial Hospital v. Metropolitan Life Insurance Co.

decided: July 29, 1981.

ALTON MEMORIAL HOSPITAL, ETC., PLAINTIFF-APPELLEE,
v.
METROPOLITAN LIFE INSURANCE COMPANY, DEFENDANT-APPELLANT, V. SCOTT H. JOHNSTON, ET AL., THIRD PARTY DEFENDANTS.



Appeal from the United States District Court for the Southern District of Illinois, Alton Division. No. 78 C 5122 -- William L. Beatty, Judge .

Before Sprecher and Cudahy, Circuit Judges, and East, Senior District Judge.*fn*

Author: Sprecher

A hospital maintained a pension plan for its employees. Based upon the advice of its enrolled actuary, an insurance company, the hospital changed the plan from contributory to non-contributory. The insurance company had stated that the change could be made at a minimal cost to the hospital.

But the insurance company had mistakenly calculated the cost of the change. Upon discovering its mistake, the insurance company informed the hospital of the correct, substantially higher cost to the hospital. The hospital approved the plan as revised, but sued the insurance company for damages under common law principles of negligence, gross negligence, and fraud. The insurance company answered with denials of certain allegations and a defense of, among other theories, contributory negligence.

Subsequently, the insurance company filed a counterclaim against the hospital alleging that the hospital was liable to the insurance company under ERISA because the hospital and the insurance company were co-fiduciaries and one co-fiduciary can seek contribution and indemnification from another. The district court dismissed the counterclaim because the only harm occurred to the hospital, not to the plan or its beneficiaries. We agree, and affirm.

I

Prior to January, 1977, Alton Memorial Hospital ("Hospital"), an Illinois not-for-profit corporation, maintained a contributory, defined benefit pension plan for its employees. This plan required a contribution to the pension plan both by each employee and by the Hospital. Metropolitan Life Insurance Company ("Metropolitan"), a New York mutual insurance company, was the enrolled actuary for the plan. The plan guaranteed a defined benefit for each eligible employee; the benefit was calculated according to a formula set out in the plan. Under the defined benefit plan, the risks of the plan's performance rested solely on the hospital, not on the plan participants or beneficiaries. In such a plan, the employer pays into the fund an amount determined by the amount of reserves in the plan and other defined factors. If the reserves are low, the employer pays a higher amount; if the reserves are high, the employer pays a lesser amount.

According to the Hospital, prior to January 7, 1977, John P. Neal, a pension consultant for Metropolitan, orally suggested that the Hospital change its plan from contributory to non-contributory. By this change, employees would no longer contribute to the plan; the Hospital would make all contributions. The Hospital states that it then requested Metropolitan to prepare cost figures for the proposed non-contributory plan. Metropolitan's Technical Services Union prepared those cost estimates and quoted them to Neal who, in early January, 1977, quoted them to the Hospital. The Hospital then requested written verification of the cost.

Neal's written verification of the cost was dated January 7, 1977. In his letter to the Hospital, he stated:

As we discussed, I have two suggestions to make with regard to your plan.

....

My first suggestion then would be, because of the increased cash flow, that you consider having the plan operate on a non-contributory basis....

If you were to go non-contributory as of 1-1-76, the cost of the plan would be $12,700. This would be the total cost of the plan. If the cost factors e. g., number of employees, salaries, turnover, etc. stayed the same, then there would be a minimal increase in this cost as the ...


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