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Majestic Star Casino, LLC v. Trustmark Insurance Co.

October 8, 2009


The opinion of the court was delivered by: Judge Robert W. Gettleman


The Majestic Star Casino, LLC ("Majestic") has brought a five count second amended complaint against Trustmark Insurance Company ("Trustmark") arising from a Trustmark policy for "stop loss" insurance coverage for Majestic employee benefit plans. Majestic asserts claims for declaratory judgment (Count I); breach of contract (Count II); unfair claims practices under Nevada Revised Statutes § 686A.310 (Count III); bad faith (Count IV); and breach of fiduciary duty (Count V). Majestic also asserts Counts I, II, and IV against RMTS LLC ("RMTS"). Trustmark subsequently filed a four count counterclaim. The parties have filed cross motions for partial summary judgment under Fed. R. Civ. P. 56.*fn1 For the reasons explained below, the motions are granted in part and denied in part.


Majestic operates hotels and casinos in Las Vegas, Nevada, Tunica, Mississippi, Blackhawk, Colorado, and Gary, Indiana. As part of its employee benefits packages, Majestic sponsors self-funded health benefits plans for qualifying employees and their dependents. The plans are administered by Majestic's third party administrator, Benefit Administrative Systems ("BAS").

In early January 2004, BAS received an "Illustrative Quote" (the "Quote") from RMTS, a New York Limited Liability Company, outlining several specific and aggregate stop loss coverage options with either Trustmark, an Illinois insurance company, Gerber Life Insurance Company, or New York Life Insurance Company. The Quote outlines details for three different options for both specific and aggregate coverage plans. It also provides several special conditions for each plan that include specific separate retention levels for three named Majestic employees. The Quote further lists five so-called assumptions, stating in relevant part: "This quote assumes the following: . . . 2. A minimum of 80% of all eligible employees and families are covered under the proposed plan." There is no other language relating to this 80% participation rate.

Some time after receiving the Quote, Majestic completed an application (the "2004 Application") with Trustmark for aggregate and specific stop loss insurance coverage. The 2004 Application states: "This Application must be accepted and approved by the Company [Trustmark] prior to any Contract being in effect," and then solicits various information from the applicant. Page two of the application form includes a space for the applicant to enter the number of "[t]otal eligible employees" immediately followed by a space for the "[e]stimated initial enrollment." In its submitted 2004 Application, Majestic left the first of these two spaces blank and entered the number "1965" in the second space.

The stop loss policies were underwritten as of January 1, 2004 (the "2004 Contract"), and the applications were accepted as complete.*fn3 The 2004 Contract generally provides for reimbursement of eligible healthcare benefit claims paid by the plan in excess of $100,000 per year, per participant, with various exclusions and limitations, including higher deductibles for specific named employees. It includes a provision that expressly defines the "Entire Contract":

The entire Contract between the Company and the Policyholder will consist of this Contract, the Application (including the proposal and Disclosure Statement and any other information submitted by the Policyholder required for underwriting approval), letters of understanding, any continuance requests, approved amendments, the Policyholder's Plan Document which is on file with the Company, and the Trustmark Stop Loss Administrator Application.

The 2004 Contract was renewed for a term of one year (the "2005 Contract") effective January 1, 2005. The application for renewal (the "2005 Application"), like its predecessor, includes a space for number of eligible employees that Majestic left blank upon submission to Trustmark. The renewal contract (the "2005 Contract"), however, did not include a provision defining the "Entire Contract" or separately acknowledge the assumption that 80% of eligible employees are enrolled in the plan.

In early 2006, RMTS reviewed Majestic's public filings with the Securities and Exchange Commission and found that the number of employees listed in the filings did not correspond with the number Majestic reported to defendants as being enrolled in its health benefits plan. After reviewing the filings, Trustmark initiated an audit of Majestic on June 15, 2006, and stopped paying any pending 2005 stop loss claims until the audit was complete. Some of these claims have yet to be paid.

After approximately eight months, in early 2007, Trustmark suspended the audit because Majestic represented that it did not have information regarding the number of employees eligible to participate in the health benefit plans and the number of employees actually participating in the plans "as of" January 1, 2004, and January 1, 2005. Thereafter, Majestic filed the instant suit seeking reimbursement for $958,732.66 in claims that Trustmark denied under the stop loss contracts. Trustmark has filed a four count counterclaim alleging rescission based on intentional misrepresentation (Claim I), negligent misrepresentation (Claim II), breach of contract (Claim III), and declaratory relief (Claim IV).


I. Legal Standard

Both parties have filed cross-motions for summary judgment under Fed. R. Civ. P. 56. Summary judgment is appropriate if the evidence demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed. 2d 265 (1986); Village Church v. Village of Long Grove, 468 F.3d 975, 988 (7th Cir. 2006). The burden is on the moving party to identify portions of the pleadings, answers to interrogatories, and affidavits which demonstrate an absence of material fact. See Celotex, 477 U.S. at 323 (1986). The burden then shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(c). When reviewing a summary judgment motion, the court must read the facts in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed. 2d 202 (1986). The court's role "is not to evaluate the weight of the evidence or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact." Doe v. R.R. Donnelley & Sons Co., 42 F.3d 439, 443 (7th Cir. 1994).

II. Participation Rate

In support of its counterclaims Trustmark alleges that Majestic supplied false information about its participation percentage to Trustmark upon which Trustmark justifiably relied. Trustmark's claims are based on its assertions that Majestic knew that, (a) the policy assumed an 80% participation requirement, (b) the course of dealings between BAS and RMTS established the requirement as part of the contract, and (c) industry standards demanded such a requirement. Specifically, Trustmark argues that both the 2004 and 2005 stop loss policies are void because Majestic intentionally and negligently misrepresented that it had met the underlying 80% participation requirement that was a condition precedent to providing insurance coverage.

Majestic has moved for summary judgment on all four of Trustmark's counterclaims. Majestic contends that the 80% participation language in the 2004 stop loss Quote was merely an assumption, rather than a requirement. Majestic also argues that it never supplied any information about its participation percentage to Trustmark, including when BAS signed the Quote from RMTS, or later when Majestic signed the application it submitted to Trustmark.

Majestic further argues that even if there was a required participation rate, Trustmark waived this requirement when it underwrote and issued stop loss coverage without requiring disclosure of this information by Majestic.

Because the 2004 contract specifically incorporates the Quote as part of the entire contract, the assumption that 80% of eligible employees will participate in the health plan is part of the contract. Nonetheless, the parties dispute whether this assumption was waived, because Trustmark apparently disregarded Majestic's omission of the number of eligible employees when underwriting the contract. While Trustmark attempted to solicit this information from Majestic in the 2004 and 2005 applications, and in a follow-up e-mail correspondence, it ultimately failed to do so. Nonetheless, Trustmark went ahead and issued stop loss policies to Majestic in 2004 and 2005, and accepted monthly premiums from Majestic. Majestic correspondingly relied on Trustmark for coverage. Whether Trustmark actually relied on the "assumption" of an 80% participation rate is hotly contested.

In any event, Trustmark has failed to show that Majestic was guilty of misrepresentation in failing to obtain or communicate the number of eligible employees to Trustmark. Under Nevada law,*fn4 negligent misrepresentation is defined as:

One who, in the course of his business, profession or employment, or in any other action in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to ...

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