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WAPENSKY v. JOHN HANCOCK MUT. LIFE INS. CO.

September 25, 1991

VLADIMIR A. WAPENSKY, DONALD HILLMAN, THEODORE SIELER, REX GOLOBIC, and HARRY WELLS, not in their individual capacities, but as Trustees of the BPAA Group Insurance Trust, an Illinois Trust, Plaintiffs,
v.
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, a Massachusetts Corporation, Defendant



The opinion of the court was delivered by: SHADUR

 MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 Vladimir A. Wapensky ("Wapensky"), Donald Hillman ("Hillman"), Theodore Sieler ("Sieler"), Rex Golobic ("Golobic") and Harry Wells ("Wells") (collectively "Trustees"), as Trustees of the Bowling Proprietors' Association of America, Inc. ("BPAA") Group Insurance Trust (the "Trust"), have sued John Hancock Mutual Life Insurance Company ("Hancock") for breach of contract, breach of fiduciary duty, negligence and unjust enrichment. Trustees' Complaint seeks both damages and an equitable accounting.

 Trustees now move under Fed. R. Civ. P. ("Rule") 56 for summary judgment on their claims of breach of contract and breach of fiduciary duty. For the reasons stated in this memorandum opinion and order, Trustees' motion is granted in part and denied in part.

 Facts1

 Wapensky is a citizen of Texas, Hillman and Golobic are California citizens, Sieler is a citizen of Oklahoma and Wells is an Ohio citizen. *fn2" They are Trustees for BPAA Trust, which provides among its services group insurance to its approximately 1500 members through policies issued by a licensed insurance carrier. Hancock is a Massachusetts corporation with its principal place of business in Boston. Among other services, Hancock engages in financial services such as the underwriting and administration of insurance plans.

 In August 1975 Trustees *fn3" and Hancock entered into a written agreement ("First Agreement") under which Hancock agreed to perform certain services related to the administration of the Trust. On December 28, 1983 Trustees and Hancock terminated the First Agreement and executed another agreement ("Second Agreement") under which Hancock again agreed to perform essentially the same services.

 Among the services Hancock agreed to perform under both Agreements (First Agreement § 2(d) and Second Agreement § I.G *fn4" ) was to:

 
prepare and send billings to participating member establishments indicating the Trust contribution amounts due for each employee and or member. . . .

 Hancock did in fact calculate the amounts of the monthly billings to BPAA members, send out those billings and collect the resulting monthly payments from BPAA members.

 Included in the amount billed to members was the insurance premium (which was paid to the insurance carrier *fn5" to cover the cost of insurance) and the trust load contribution (the "Load," which covered the other costs of administering the program). In each instance the amount of the Load that was added to the bills of a member depended on the number of lives insured in its bowling establishment and the type of insurance coverage offered.

 Throughout the course of the Trust's administration, Hancock (as per First Agreement § 2(h) and Second Agreement § V.(b)) sent Trustees a monthly "consolidated statement showing the amount of premium due the Insurer" and also reflecting Hancock's administrative fee. At all times Trustees paid the premiums and Hancock's administrative fee in accordance with Hancock's monthly figures. Additionally (as called for in First Agreement § 5(a) and Second Agreement § V.(a)) Hancock deposited and transferred funds to the Trust's bank account.

 Hancock's fee was to be determined on a different basis under the two Agreements. According to First Agreement § 4 (emphasis added):

 
Hancock shall be paid for the performance of administrative services under this agreement an amount equal to: 3.2% of the premium amount billed member firms each month.

 Second Agreement Art. III (emphasis added) changed that to an arrangement under which:

 
Hancock/Dikewood shall be paid for the performance of services under this Agreement an amount equal to: 93% of the total trust contribution load received from the participating member establishments each month.

 Hancock calculated its own administrative fee throughout the time that the Agreements were in force. And there is no evidence showing that Trustees were aware that under the Second Agreement Hancock continued to determine its fee based on the monthly amount billed -- in direct violation of the contract.

 As contrasted with the uncontroverted proof of Hancock's violation of its obligation to calculate and retain its own fees, Trustees have not established a right to summary judgment as to Hancock's nonperformance of its administrative duties. There is no uncontradicted evidence showing that Hancock failed either to "endeavor to collect" any amounts due from members, or properly to terminate accounts, or otherwise to maintain or provide reports or other administrative material, such as "necessary controls, validation steps and audit trails."

 P. Mem. 19 and 20-23 present a final issue centering on Hancock's calculation of the Trust's "spendable income," which was reflected on the statements that Hancock supplied Trustees (at their request) beginning in February 1979. Since that time Trustees have set aside funds for spendable income in accordance with the monthly figures that Hancock provided and have drawn those funds to compensate BPAA for the marketing and administrative services it provided for the Trust. It is unquestioned that Trustees requested the inclusion of the spendable income figure on the monthly statements: In January 1979 Wapensky (relaying the request through broker Charles Goetz ("Goetz")) asked Hancock to do so.

 There is considerable disagreement, however, as to how the spendable income figure was to be calculated. Hancock contends that Goetz provided the following formula for calculating "spendable income" to Katherine Farmer ("Farmer"), who was then Hancock's analyst handling the Trust account (Farmer Aff. paras. 1, 4-5):

 
Trust Contribution Load*
 
25% surcharges*
 
5% surcharges*
 
= Total Trust Income
 
- Hancock administrative fee
 
= "Spendable Income"

 Farmer says Goetz gave her that format over the telephone and also sent it to her in writing, although she says the written document was apparently discarded at some point (Farmer Aff. para. 4). She also acknowledges that she knew that the purpose of the calculation was to give Trustees a "rough idea" of how much money they could spend (Farmer Dep. 77). But Goetz says he gave Farmer only the "format" -- not the manner in which it should be calculated (Goetz Dep. 50). He also testified as to the purpose of the figure (Goetz Dep. 73):

 
Q What did you intend it [the spendable income report] to be?
 
A I intended it to be a way for headquarters to be able to determine how much spendable income there was each month.
 
Q Exactly how much was available each month?
 
A To the penny.

 In any event, the spendable income calculation that appeared on each monthly statement did not describe the calculation, nor did it indicate whether it was derived from the Load as billed or as received.

 Claims Now at Issue6

 Trustees move for summary judgment on two of their claims:

 
1. Count I, which contends that Hancock breached:
 
(a) the Second Agreement by calculating its fee as a percentage of the premium billed to participating firms each month, rather than as a percentage of the amount "received" from those billings; and
 
(b) both the First and Second Agreements by failing to provide the necessary controls, validations steps and audit trails.
 
2. Count II, which asserts (Complaint para. 28):
 
John Hancock breached its fiduciary duty to the BPAA Trust when it administered the BPAA Trust's group insurance program in a manner which created a final shortage of approximately $ 152,914.00.

 Trustees ask for an accounting, damages, costs, expenses and fees. Each claim will be addressed in turn. *fn7"

 Breach of Contract

 Hancock plainly had a number of obligations delineated in its contracts with Trustees. It does not challenge the existence and validity of those contractual arrangements. Instead it argues that:

 
1. the allegation regarding its taking more than its contractual share of the Load must fail because Trustees have waived the right to make or are estopped ...

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