Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.


United States District Court, Northern District of Illinois, E.D

December 13, 1982


The opinion of the court was delivered by: Shadur, District Judge.


George H. Germann ("Germann"), as executor of the estate of Godfrey J. Carlson ("Carlson"), sues various defendants (collectively "Midland"), asserting Midland violated the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621-34, by providing Midland employee Carlson less life insurance coverage than similarly situated employees under age 60. Both sides have now moved under Fed.R.Civ.P. ("Rule") 56 for summary judgment. For the reasons stated in this memorandum opinion and order, Midland's motion is granted and Germann's is denied.


Midland first employed Carlson (then age 62) in August 1977. Carlson remained in Midland's employ until his death February 3, 1979, when he was 64. As a Midland employee Carlson was covered by the company's non-contributory group policy (the "Policy") issued by Guardian Life Insurance Company of America ("Guardian"), providing major medical, basic health, basic term life and accidental death/dismemberment insurance (the latter affording the same coverage as the term life portion).

Except for the life and accidental death/dismemberment insurance components, the amount of Policy coverage afforded each Midland employee did not depend on age. But those two components involved a change once an employee reached age 60. Until that age the coverage was a function of the employee's occupational classification. Thus Carlson, as an auditor for Midland, would have had $20,000 in life insurance coverage had he been hired and died as a Midland employee before reaching 60. Such coverage was automatically reduced to $1,000 for any Midland employee (including Carlson) in the 60-64 age bracket (regardless of job category) and to $500 for any employee 65 or older.

Midland had not set out to acquire any life insurance coverage for its employees — like most employers in the competitive marketplace, it was looking to obtain one of today's expected "fringe benefits": group major medical and hospitalization insurance. It instructed its agent, Donchin-Hecht & Co. ("Donchin-Hecht"), to survey the field to enable Midland to provide those two types of coverage.

Donchin-Hecht solicited bids from numerous insurance carriers and ultimately selected Guardian January 28, 1972. All insurers surveyed by Donchin-Hecht included life insurance coverage in their package proposals (though not solicited to do so by Donchin-Hecht).*fn2 And each incorporated a provision cutting back such coverage with age as part of its non-negotiable insurance package. Guardian's interrogatory answer in this case characterized that cutback as "standard company procedure."

Guardian charged Midland the same composite rate for each employee covered by the Policy. Actuarial data — including the group's age composition — was used internally by Guardian to calculate the composite premium.*fn3 Guardian's rate thus reflects (1) the weighted average of the actuarial costs of insuring Midland employees in each age bracket and (2) its profit margin.

If Guardian's confusing (and at times contradictory) actuarial information is interpreted in the light most favorable to Germann,*fn4 a comparison between the effective costs to Midland (on which the composite rate was based) of insuring its employees in the 55-59 and 60-64 age brackets reveals:

    1. Costs of the basic health and major medical
  benefits provided to the older group were
  significantly higher than costs incurred for the
  younger group.*fn5

    2. Costs of the reduced life insurance (as well
  as accidental death/dismemberment insurance)
  afforded the older group were appreciably less
  than the costs of the life insurance coverage
  provided the younger group.

    3. Overall cost of covering a member of the older
  group was less than that incurred on behalf of an
  employee in the younger group (i.e., the cost
  differential in Paragraph 2 exceeded that in
  Paragraph 1).

    4. Had the difference in overall cost referred
  to in Paragraph 3 been applied to provide
  increased life and accident/dismemberment
  insurance coverage for each employee in the 60-64
  bracket (at the same rates used in Guardian's
  internal calculations of Midland's cost), an
  added $6,569 in insurance would have been

As already indicated at n. 3, Midland was never informed of the actuarial basis underlying the uniform composite rate charged per employee. It was wholly unaware of any negative differential in the cost of insuring an employee in the 60-64 age range vis-a-vis his or her counterpart in the 55-59 bracket.

Summary Judgment

Midland does not deny it "discriminated" against Carlson on the basis of his age by purchasing a group insurance policy that afforded less life insurance coverage to employees over 59.*fn6 Instead Midland calls on two affirmative defenses in its effort to avoid liability under ADEA:

    1. Guardian's life insurance cutback provisions
  were assertedly part of a bona fide insurance
  plan that was not intended as a subterfuge to
  evade the Act. Those facts would make Midland's
  conduct lawful under ADEA § 4(f)(2),
  29 U.S.C. § 623(f)(2).

    2. In purchasing the Policy Midland relied in
  good faith on a Department of Labor regulation
  (29 C.F.R. § 860.120) applying ADEA's § 4(f)(2)
  defense to insurance plans in which the payments
  made by an employer for benefits on behalf of
  younger workers are equal to those made on behalf
  of older workers. See 29 U.S.C. § 626(c) (applying
  to the Act the good faith reliance immunity
  established by the Portal-to-Portal Act, 29 U.S.C. § 259).

Disputing the availability of both defenses, Germann counters that Midland in fact contributed less for employees in the 60-64 age group than for those in the 55 to 59 bracket. Because this Court finds Midland entitled to summary judgment under ADEA § 4(f)(2), Midland's probable inability to prevail on its alternative ground becomes irrelevant.*fn7

ADEA § 4(f)(2) Defense

Before its 1978 amendment ADEA § 4(f)(2) provided:

  (f) It shall not be unlawful for an employer,
  employment agency, or labor organization. . . .

    (2) To observe the terms of a bona fide
    seniority system or any bona fide employee
    benefit plan such as a retirement, pension or
    insurance plan, which is not a subterfuge to
    evade the purposes of this chapter, except that
    no such employee benefit plan shall excuse the
    failure to hire any individual. . . .*fn8

To prevail under that section Midland must satisfy three criteria: It must have been (1) observing the terms (2) of a bona fide insurance plan (3) that is not a subterfuge to avoid compliance with ADEA.

Each of the first two elements is certainly present. As for the first, the Policy itself dictated curtailment of Carlson's life insurance coverage. See Sexton v. Beatrice Foods Co., 630 F.2d 478, 486 (7th Cir. 1980) (to meet the "observe the terms" requirement, the plan must "expressly sanction" the challenged discriminatory treatment). And as for the second, the Policy is "bona fide" because it "has truly existed and actually paid benefits to" Carlson. Smart v. Porter Faint Co., 630 F.2d 490, 494 (7th Cir. 1980).

Thus the third element — the "subterfuge" provision — is the key to this case. It may be met either by a subjective or by an objective showing.*fn9 As to the subjective — and more conventional — meaning of "subterfuge" as used in ADEA, United Airlines, Inc. v. McMann, 434 U.S. 192, 203, 98 S.Ct. 444, 450, 54 L.Ed.2d 402 (1977) teaches:

  In ordinary parlance, and in dictionary
  definitions as well, a subterfuge is a scheme,
  plan, stratagem, or artifice of evasion. In the
  context of this statute, "subterfuge" must be
  given its ordinary meaning and we must assume
  Congress intended it in that sense.

Midland has uncontrovertedly — and convincingly as well (see n. 1) — shown its plan was "not a subterfuge to evade the purposes of" ADEA.

As the affidavits of Donchin-Hecht's Martin Weininger and Midland's Eugene Pekow show conclusively, Midland was looking only for major medical and hospitalization insurance coverage for its employees.*fn10 It was nonetheless presented by every insurance carrier from which Donchin-Hecht obtained quotations with a package requiring that Midland buy some life insurance coverage as well. Each policy had a provision cutting back the life insurance coverage with advancing age. None of the insurers made Donchin-Hecht (or of course Midland) privy to the basis on which they calculated their rates and made their quotations.

Common sense tells all of us (as is the fact) that the incidence of medical and hospitalization expenses, and hence the cost of medical and hospitalization insurance, increase as we get older. By definition the same money buys less coverage with increasing age. And of course life insurance follows the same pattern. It follows logically then that some lesser amount of life insurance for older employees can represent equal treatment of those employees. A fortiori, coupling life insurance coverage with equal medical and hospitalization coverage for all employees permits an even greater disparity in the face amount of life insurance without any inequality of financial treatment of the older employee group.

Finally it is uncontroverted that Guardian's insurance proposal, "both as to rates, provisions and extent of coverage, was presented to Midland to either accept or reject without negotiation as to coverage or rates." Midland had no knowledge that Guardian's internal numbers were not wholly cost-responsive to age differentials. Nothing specifically put Midland on inquiry in that regard (if indeed a failure to inquire can ever be implied as a substitute for the wilfulness required by the McMann definition).

This is not the stuff of which a "subterfuge" can be found. Certainly nothing in the record raises a material fact issue in that respect, and Midland therefore satisfies ADEA's § 4(f)(2) as a matter of law.


There is no genuine issue of material fact, and Midland is entitled to a judgment as a matter of law. This action is dismissed with prejudice.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.