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SCHULIST v. BLUE CROSS OF IOWA

December 15, 1982

DANIEL 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.



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

  MEMORANDUM OPINION AND ORDER

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.*fn1 This matter is presently before the Court on the parties' cross-motions for summary judgment.*fn2 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.*fn3

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.*fn4 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)

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