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04/22/88 Sam Gadsby Et Al., v. Health Insurance

April 22, 1988





522 N.E.2d 865, 168 Ill. App. 3d 460, 119 Ill. Dec. 203 1988.IL.586

Appeal from the Circuit Court of Lake County; the Hon. Alvin I. Singer, Judge, presiding.


JUSTICE NASH delivered the opinion of the court. REINHARD and UNVERZAGT, JJ., concur.


Plaintiffs, Sam Gadsby (Gadsby) and Material Service Corporation , filed a complaint against defendants, Health Insurance Administration, Inc. , and ATI Carriage House, Inc. , in which they alleged violations of the Illinois Insurance Code (Ill. Rev. Stat. 1985, ch. 73, par. 613 et seq.), breach of contract, breach of contract implied in fact, and fraud. The trial court granted defendants' motion for summary judgment on plaintiffs' contract claim, finding no breach of contract, and granted defendants' motions to strike and dismiss, filed pursuant to section 2-615 of the Civil Practice Law (Ill. Rev. Stat. 1985, ch. 110, par. 2-615), as to the remaining claims for failure to state a cause of action. Plaintiff appeals.

Gadsby and ATI entered into an agreement for the purchase of Gadsby's retail furniture store. In conjunction with the transaction, they entered into a written employment contract which provided that ATI would employ Gadsby for a five-year period commencing September 1, 1979, and that, during the pendency of Gadsby's employment, he would be entitled to the same fringe benefits ATI furnishes to its retail store managers, including participation in ATI's medical and hospitalization insurance plan. Upon the earlier of Gadsby's fifth anniversary, death, voluntary retirement, or termination, ATI was no longer obligated to provide Gadsby with benefits except as follows:

"If Employee voluntarily retires pursuant to paragraph 9 hereof, Company will, if permitted so to do by its group insurance carriers, continue at its expense to include Employee under its group life insurance and medical and hospitalization insurance plans until the fifth anniversary hereof."

When the employment agreement was entered into, ATI provided health insurance to its employees but not to its retired employees.

Gadsby retired on or about December 15, 1981, at which time ATI provided health insurance to its employees through a partially self-insured medical plan which did not cover retired employees. On February 1, 1982, ATI changed to a self-funded plan with stop-loss insurance, naming HIA as the claims administrator. Again, the plan did not provide for retiree health insurance. When ATI instituted each of its plans, summary plan descriptions specifying benefits and eligibility were distributed to its employees. The plan document, which the then retired Gadsby received in February 1982, advised that the plan covered eligible employees, who were defined as "permanent full-time employees . . . who were working a minimum of 30 hours per week." A covered person was defined as "any full-time Employee or his Dependent while such Employee or Dependent is covered hereunder." The plan document also indicated that only employees actively at work were covered. Gadsby also received an identification card from HIA which provided that "[the] employee . . . and any eligible dependents has qualified for benefits under a program provided by the above named employer. Continuance of coverage is subject to the terms of the plan document. Please communicate with the employer to confirm eligibility." Subsequent to Gadsby's retirement, ATI, through its payroll service, continued to deduct, through approximately December 1982, contributions for dependent coverage from his retirement salary. Between February 1, 1982, and April 17, 1982, Gadsby submitted medical claims for himself and his dependents to ATI which were submitted by ATI to HIA for approval, and were processed, and either paid or applied against the appropriate deductible pursuant to ATI's medical plan.

On April 17, 1982, Gadsby suffered a stroke. Mrs. Gadsby contacted HIA and received a verbal acknowledgement that Gadsby was eligible for benefits under ATI's medical plan. At no time prior to Gadsby's stroke did Gadsby, or anyone on his behalf, inquire whether he was eligible for medical benefits. Claims relating to Gadsby's stroke were submitted to ATI, and pursuant to a claims administration agreement between ATI and HIA, ATI submitted these claims to HIA for a determination of eligibility and benefits. HIA denied Gadsby's claims because the ATI plan did not cover employees not working at least 30 hours per week, and it had no provision for retiree benefits. At the time of Gadsby's stroke, Mrs. Gadsby was employed by plaintiff, MSC, and Gadsby's claims were submitted to MSC and paid in accordance with its medical plan. MSC and Gadsby entered into a subrogation agreement whereby MSC was subrogated to all of Gadsby's rights and claims against ATI.

Plaintiffs first brought an action against defendants in the United States District Court for the Northern District of Illinois under the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq. (1982)). The court determined that, because Gadsby was not a participant under ATI's plan, he lacked standing to bring an action under ERISA and dismissed the suit.

On July 23, 1984, plaintiffs commenced this action in which a number of counts were pleaded, dismissed and repleaded. The following claims are pertinent to this appeal. Count IV of the complaint alleged violations of the Illinois Insurance Code and was dismissed on the grounds ATI's medical plan is governed by ERISA (29 U.S.C § 1001 et seq. (1982)) and not the Illinois Insurance Code (Ill. Rev. Stat. 1985, ch. 73, par. 613 et seq.). Counts I and II of the first amended complaint set forth claims for common law fraud against ATI and HIA, respectively, and count VII alleged a breach of contract implied in fact. The trial court

Plaintiffs contend that defendants violated the Illinois Insurance Code (Ill. Rev. Stat. 1985, ch. 73, par. 613 et seq.) by (1) misrepresenting facts or policy provisions relating to health insurance coverage; (2) failing to promptly respond to and investigate plaintiff's claims under ATI's medical insurance plan; and (3) failing to notify Gadsby regarding his rights of continuation or conversion under the plan. In essence, plaintiffs allege a breach of fiduciary responsibility in the administration of ATI's medical and hospitalization insurance ...

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