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KLOSTERMAN v. WESTERN GEN. MGMT.

August 14, 1992

EDWARD A. KLOSTERMAN and DEBBIE A. KLOSTERMAN, Plaintiffs,
v.
WESTERN GENERAL MANAGEMENT, INC., a Delaware corporation and GUARANTEE MUTUAL LIFE COMPANY, Nebraska corporation, Defendants.



The opinion of the court was delivered by: JAMES B. MORAN

 Plaintiffs Edward A. Klosterman and Debbie A. Klosterman, as parents and next friends of Brent E. Klosterman ("Klostermans") filed suit in the Illinois Circuit Court of DuPage County against defendants Western General Management, Inc. ("Western General") and Guarantee Mutual Life Company ("Guarantee Mutual"), alleging several violations of state common law in regard to health care coverage. Defendants petitioned to remove the action to a federal forum on the grounds that plaintiffs' claims were governed by the Employment Retirement Income Security Act of 1974 ("ERISA"). Defendants now move to dismiss the action on the grounds that they are improper defendants. For the following reasons we grant defendants' motion in part and deny it in part.

 BACKGROUND

 Edward Klosterman was employed by Prairie Maize Company ("Prairie Maize"), an Ohio popcorn processor, from November 1989 to August 20, 1990. During his employment Mr. Klosterman and his eligible dependents participated in the Prairie Maize Company employee Health Benefit Plan ("the Plan"). The Plan was self-funded. Guarantee Mutual contracted with Prairie Maize to be the excess insurer for employee claims over $ 10,000. Guarantee Mutual also agreed to provide conversion coverage to eligible participants whose employment had terminated. Sharon Baldinger, manager of Prairie Maize Human Resources, was listed as the plan administrator. Western General, the publisher of the summary plan description ("SPD"), was listed as third party administrator with the responsibility of determining, with the assistance of the plan administrator, the benefit eligibility of individual claimants.

 On August 29, 1990, following Mr. Klosterman's termination, Prairie Maize notified him that he could receive continued medical coverage, as provided by the Plan and guaranteed under the Consolidated Omnibus Budget Reconciliation Act (COBRA), for a premium of $ 315.84 per month. Thereafter, Mr. Klosterman submitted three checks to Prairie Maize to cover COBRA insurance for the months of September, October, and November.

 The following day, Mr. Klosterman applied for conversion coverage. The application, which was sign by Ms. Baldinger, stated that the reason coverage had terminated was that the Plan had terminated on October 31, 1990. The application also stated that conversion coverage was contingent on Guarantee Mutual's acceptance of the attached premium. The check, post-dated November 30, was made payable to Western General in the amount of $ 3,293.75. Western General returned the check, uncashed, to plaintiffs on December 3, 1990, after it was rejected by Guarantee Mutual.

 The Klostermans filed suit in state court against Western General and Guarantee Mutual. The complaint seeks declaratory relief and damages under state common law. Counts I and II allege essentially the same thing, that defendants, by denying conversion coverage, breached their obligation under the Plan to make available conversion coverage when group coverage terminates. Plaintiffs assert that the SPD does not inform participants that the conversion coverage would be unavailable if the Plan terminates. Count III alleges fraud by Western General when it informed Mrs. Klosterman on November 8, 1990, that her son was insured. Count IV alleges intentional inflict ion of emotional distress for extreme and outrageous conduct on the part of defendants. Count V charges breach of covenant to act in good faith and deal fairly.

 Defendants filed a motion pursuant to 28 U.S.C. § 1441 to remove the case to federal court on the grounds that plaintiffs' allegations "relate to" an employee benefit plan under 29 U.S.C. § 1001 *fn1" and thus are preempted by ERISA. Defendants further assert that they are neither plan administrators nor fiduciaries under ERISA and, therefore, not amenable to suit. Plaintiffs contend that even if their claims are preempted by ERISA, defendants can be properly sued. All parties agree that plaintiffs have not exhausted their internal remedies as required by the Plan. Defendants argue for dismissal on this ground, while the Klostermans urge that we waive the requirement.

 DISCUSSION

 A. Preemption

 By enacting ERISA, Congress intended to

 protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

 29 U.S.C. § 1001(b).

 To ensure uniformity in the law, Congress decided to insulate ERISA-related adjudication from state laws. To this end, § 1144(a), the ...


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