seeking a judicial remedy for failure to exhaust their internal remedies. The SPD provides at page 46:
LEGAL ACTION. Legal action to recover any lost benefits under this Plan may not be brought:
(1) until the Plan's appeal procedure, including utilization of a professional/peer review committee, has been exhausted per the terms of ERISA . . . or
(2) later than three (3) years after the expense/disability was incurred.
In Kross v. Western Elec. Co., Inc., 701 F.2d 1238 (7th Cir. 1983), the court stated that "application of the exhaustion doctrine . . . is a matter within the discretion of the trial court," id. at 1244, "and that as a matter of sound policy [the court] should usually [apply it]." Id. at 1245 (quoting Amato v. Bernard, 618 F.2d 559, 568 (9th Cir. 1980)). Courts will not apply the doctrine, however, if pursuing internal procedures would yield an inadequate remedy or if such effort would be a futile gesture. Dale v. Chicago Tribune Co., 797 F.2d 458, 466 (7th Cir. 1986).
In the present case we decline to apply the exhaustion doctrine because requiring the Klostermans to pursue the internal procedures set out in the SPD would be an exercise in futility. The record indicates that effective October 31, 1990, Prairie Maize ceased all operation, laid off all its employees, and had its assets assumed by Banc Ohio. No claims were processed beyond November 1990. Therefore, plaintiffs had no internal avenues available. Defendants have not come forward with any evidence or argument to persuade us otherwise.
C. Guarantee Mutual as a Proper Party
We now consider whether Guarantee Mutual can be dismissed from this action as a matter of law. We hold that it can. Plaintiffs charge that Guarantee Mutual was a fiduciary of the conversion option and, therefore, an action against it is proper under ERISA. Plaintiffs also allege that Guarantee Mutual is estopped from denying conversion coverage due to Guarantee's "promise" to provide such coverage.
A fiduciary with respect to a plan is defined as someone who
exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets . . . [or someone who has] any discretionary authority or discretionary responsibility in the administration of such plan.
29 U.S.C. § 1002(21)(A).
It is not disputed that Guarantee Mutual exercised discretion once a conversion policy was issued, but whether the conversion policy can be considered a "plan," and Guarantee Mutual a fiduciary of that plan, is far from clear. However, the answer is not necessary to our disposition of this matter. Even assuming Guarantee Mutual was a fiduciary for purposes of § 1002(21)(A), any duty it might have had to provide conversion coverage to plaintiffs ended on October 30, 1990, the date prairie Maize ceased active business operations. The Adoption and Participation Agreement, in which only Prairie Maize and Guarantee Mutual were parties, sets forth the eligibility requirements for employees. It states, in the "Termination" section, that "The Employer will cease to participate in this Plan and any right to become insured for medical care conversion insurance under this Plan terminates as to its employees (and their dependents) on the date the Employer: (1) suspends active business operations or is placed in bankruptcy. . . ." Therefore, once the underlying plan was terminated Guarantee Mutual was not obligated to provide plaintiffs, or any other Prairie Maize employees, with conversion coverage.
Also, plaintiffs' estoppel theory fails. If estoppel is a viable theory in the instant case, at a minimum it will require a showing that Guarantee Mutual made a misleading representation in which plaintiffs reasonably and detrimentally relied. See Black v. TIC Investment Corp., 900 F.2d 112, 115 (7th Cir. 1990). Simply put, Guarantee Mutual, as a matter of law, never made a representation, much less a misleading one, to plaintiffs. The insurer agreed with Prairie Maize to provide conversion coverage to participants so long as Prairie Maize remained in business. Therefore, Guarantee Mutual can be properly dismissed from this action.
D. Western General as a Proper Party
We next consider whether Western General is a proper defendant. Plaintiffs claim Western General was a plan administrator and/or fiduciary of the Plan. Therefore, plaintiffs argue, Western General is liable for not informing plan participants, through the SPD, that conversion coverage would terminate once the Plan terminated, in violation of ERISA's disclosure requirement.
Plaintiffs also contend that Western General is estopped from denying coverage based on its representative's statement to Mrs. Klosterman that Brent Klosterman was in fact insured. Western General, on the other hand, argues that as a third party administrator it owes no duty to provide conversion benefits.
The SPD provides the following:
The Plan Administrator is responsible for the administration of the Plan. Functions performed by the Plan administrator include: the receipt and deposit of contributions, maintenance of records of the Plan participants, authorization and payment of Plan administration expenses, selection of consultants, selection of Third Party Administrator and assisting the Third Party Administrator with the determination of the eligibility of individual claimants for receipts of benefits. . . The Plan is administered by the Plan Administrator with Western General Services a Third Party Administrator acting as claims paying agent.
SPD at 42 (emphasis added). This language strongly suggests that Western General had responsibility -- perhaps primary responsibility -- for determining who got paid what and how much. The fact that Western General published the SPD only supports this suggestion. Although Sharon Baldinger is listed as the Plan Administrator, the question of whether Western General is a fiduciary under § 1002(21)(A) is still very much at issue. As mentioned earlier, one qualifies as a fiduciary if he or she has any discretionary authority, control, or responsibility over plan assets or with respect to the administration of plan. See 29 U.S.C. § 1002(21)(A). Viewing the facts in the light most favorable to plaintiffs, which we must do at this stage of litigation, see Mosley v. Klincar, 947 F.2d 1338, 1339 (7th Cir. 1991), we cannot say that Western General is an improper defendant.
The Klostermans' theories of recovery against Western General remain viable.
For the reasons stated above, we grant defendants' motion to dismiss with respect to Guarantee Mutual and deny their motion to dismiss with respect to Western General.
JAMES B. MORAN
Chief Judge, United States District Court
August 14, 1992.