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National Production Workers Union Insurance Trust v. Life Insurance Company of North America

March 29, 2010

NATIONAL PRODUCTION WORKERS UNION INSURANCE TRUST, PLAINTIFF,
v.
LIFE INSURANCE COMPANY OF NORTH AMERICA DEFENDANT.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

This action stems from a September 2003 agreement between Plaintiff, National Production Workers Union Insurance Trust ("the Trust"), and Defendant, Life Insurance Company of America ("LINA"), for the purchase of two group insurance policies. Between September of 2003 and July of 2004, the Trust paid $382,332.50 in premiums to LINA under the policies. On August 18, 2004, following a dispute between the parties regarding the group life policy's beneficiary provision, LINA exercised its right to terminate the policies, effective September 30, 2004. LINA billed the Trust for the August and September 2004 premiums, but the Trust refused to pay those premiums.

In August 2005, the Trust filed this action in Illinois state court against LINA and CIGNA Corporation (LINA's indirect parent company), seeking rescission of the policies and a refund of the premiums it paid for those policies.*fn1 LINA and CIGNA removed the case to federal court based on both diversity and federal question jurisdiction (the latter on the theory that the policy was an Employee Retirement Income Security Act ("ERISA") plan). The Trust' s claims against CIGNA, and certain of its claims against LINA, since have been dismissed.*fn2 The Trust' s remaining claims include: a claim for declaratory judgment pursuant to 735 ILCS § 5/2-701 (Count I); a common law rescission claim (Count II), a breach of contract claim (Count III), and a claim for unjust enrichment (Count IV). On October 21, 2008, LINA filed a breach of contract counterclaim seeking to recover unpaid premiums in the amount of $75,295, plus interest and costs. See [180].

Currently before the Court is LINA' s motion for summary judgment [195], in which LINA seeks summary judgment in its favor on both the Trust' s claims and LINA' s counterclaim.*fn3 For the reasons set forth below, LINA' s motion is granted.

I. Background

The Court takes the relevant facts primarily from the parties'Local Rule ("L.R.") 56.1 statements*fn4 Defendant' s Statement of Facts ("Def. SOF") [198], Plaintiff's Response to Defendant' s Statement of Facts and Statement of Additional Material Facts ("Pl. Resp.") [202], Defendants' Response to Plaintiff's Statement of Additional Material Facts ("Def. Resp.") [211], Supplement to Defendant' s Statement of Material Facts ("Def. Supp. SOF") [216], Plaintiff's Response to Supplement to Defendant' s Statement of Material Facts ("Pl. Supp. Resp.") [218], and Defendant' s Response to Plaintiff's Supplemental Statement of Additional Material Facts ("Def. Supp. Resp.") [220].

Plaintiff is a trust that was jointly established by the National Production Workers Union ("the Union") and certain employers that have entered into collective bargaining agreements with the Union. Def. SOF ¶ 1. The Trust provides health and welfare benefits to members of the Union and their dependents. Def. SOF ¶ 2. Between 2001 and the end of 2005, Robert Mondo, Jr. and his firm, Executive Fidelity, Ltd., served as an insurance broker for the Trust. Def. SOF ¶ 11. As the Trust' s broker, Mondo obtained quotes on insurance policies for the Trust. Def. SOF ¶ 11. Mondo was independent of all insurance companies, including Defendant LINA. Def. SOF ¶ 14. Mondo had not had any dealings with LINA prior to obtaining the policies at issue in this case from LINA on the Trust' s behalf. Def. SOF ¶ 14.

In August of 2003, the Trust decided to obtain life insurance and accidental death and dismembership ("AD&D") insurance for Union members. Pl. Resp. ¶ 44. To that end, on August 13, 2003, Mondo e-mailed a request for proposals ("RFP") to various insurance companies at the direction of Union officer Anthony Monaco and on behalf of the Trust. Def. SOF ¶¶ 15-16. The RFP sought proposals for providing Union members with $100,000 in group life coverage and $100,000 in AD&D coverage, and stated that "The NPWU Insurance Benefit Trust is the owner of the policy and also the beneficiary." Def. SOF ¶ 15. The RFP further stated that "[y]our normal life and AD&D contract will suffice." Ex. 2 to Def. SOF at 2913.

Defendant LINA is a corporation that provides life, accident, and disability insurance to "employee welfare benefit plans," as that term is defined by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1002(1). Def. SOF ¶ 3. John Tuerk, an employee of one of LINA' s affiliates, was among the recipients of the RFP. Def. SOF ¶ 18. On August 27, 2003, Tuerk e-mailed Mondo LINA' s proposal, which called for $100,000 in group life and AD&D coverage for actively employed Union members, with premium rates of $0.25 per $1,000 in life coverage and $0.025 per $1,000 in AD&D coverage. Def. SOF ¶ 18. The proposal stated that "CIGNA Group Insurance contract language will be used." Def. SOF ¶ 18. LINA's proposal contained a disclaimer under the heading "This is not a contract," which stated:

This proposal outlines in general some of the important features of the proposed group insurance program. The controlling provisions will be in the group insurance policy, and this proposal is not intended in any way to modify the provisions or their meanings.

Def. SOF ¶ 18. The proposal made no mention of the designation of beneficiaries. Ex. 2 to Def. SOF at 1858-62.

Mondo told Tuerk that the Trust was interested in LINA' s proposal. Def. SOF ¶ 19.

According to Mondo, he told Tuerk on at least two occasions prior to the issuance of the policies that the Trust was going to be the beneficiary, and that Tuerk told him that was not going to be a problem. Pl. Resp. ¶¶ 47, 49; Mondo Dep., pp. 91-96.

On September 9, 2003, LINA' s Implementation Coordinator, Mary Ellen Rapp, e-mailed Mondo documents that LINA would use to issue final versions of the insurance policies. Def. SOF ¶ 19. The documents attached to Rapp' s e-mail included drafts of the AD&D policy and group life policy, an application for group insurance, a subscription agreement, a subscription and joinder agreement, and a chart describing the purpose of the attachments and the action that the Trust was requested to take. Def. SOF ¶¶ 20-21; Ex. 2 to Def. SOF at 2534 (Rapp e-mail), 1552 (chart), 1561-77 (draft life policy), 1588-1606 (draft AD&D policy). The chart identifies the "Action Required" as to the draft policies as "Please review and provide corrections where applicable."*fn5 Def. SOF ¶ 21.

Neither of the draft policies specifically designated the Trust as a beneficiary of the coverage. Def. SOF ¶ 23. The draft AD&D policy provided that "[t]he beneficiary is the person or persons the Employee names or changes on a form executed by him and satisfactory to Us." Def. SOF ¶ 23. The draft life insurance policy provided that "Death Benefits will be paid to the Insured' s named beneficiary, if any, on file at the time of payment. If there is no named beneficiary or surviving beneficiary, Death Benefits will be paid to the first surviving class of the following living relatives: spouse; child or children; mother or father." Def. SOF ¶ 24. The draft life insurance policy further provided that "[t]he Insured may change the Beneficiary at any time by giving written notice to the Employer or the Insurance Company." Def. SOF ¶ 24. On September 16, 2003, Rapp asked Mondo about his review of the draft policies, and he told her that "everything was fine." Def. SOF ¶ 22. The Trust denies receiving copies of the draft policies. Pl. Resp. ¶ 55.

The chart attached to Rapp' s e-mail requested that a management representative of the Trust sign the group insurance application and the subscription agreements. Def. SOF ¶ 25. Louis M. Pissios, the Trust' s chairman, acting with full authority to bind the Trust, signed the group insurance application and subscription agreements. Def. SOF ¶ 25. The application for group insurance stated that: "Payment of the required premium after delivery of the policy(ies) acts as acceptance of the terms and conditions of the policy(ies)." Def. SOF ¶ 26.

In a September 25, 2003 e-mail, Rapp informed Mondo that she had received the Trust' s premium payment. Def. SOF ¶ 27. Rapp stated that LINA would furnish the final policies to Mondo when she received a second set of the signed subscription agreements and the trust agreement from the Trust. Def. SOF ¶ 27. On November 12, 2003, Rapp sent Mondo final versions of the policies and insurance certificates. Def. SOF ¶ 28. The beneficiary provisions in the final policies were identical to the beneficiary provisions, quoted above, in the draft policies. Def. SOF ¶ 29. The final policies did not designate the Trust as a beneficiary of the coverage. At his deposition, Mondo acknowledged receiving the final version of the policies, and stated that he believes he forwarded the policies to the Trust. Mondo Dep. at 77-78. The Trust denies that it ever received copies of the final insurance policies. Pl. Resp. ¶ 56. The Trust made premium payments to LINA from September 2003 to May 2004, without objecting to the policies' terms. Def. SOF ¶ 30.

On December 2, 2003, the trustees of the Trust held a meeting at which they voted to name the Trust as 50% beneficiary and the Union members as 50% beneficiary on the group life policy. Def. SOF ¶ 32; Ex. 7 to Def. SOF.

On May 21, 2004, Mondo sent LINA an e-mail stating that a Union member, Charles C. Knight, had died. Def. SOF ¶ 33. In a May 27, 2004 e-mail, Mondo demanded that the Trust receive half of Knight' s death benefit, with the Knight' s beneficiary receiving the other half. Def. SOF ¶ 33. Mary Margaret Murphy, the Trust' s Rule 30(b)(6) representative, stated in her deposition that until Knight' s death the Trust thought that the life insurance beneficiary provision provided for the Trust to receive half of any member's death benefit. Pl. Resp. ¶ 34; Murphy Dep. 88.

On June 8, 2004, LINA informed Mondo by e-mail that, under the terms of the life policy, the death benefit had to be paid to the beneficiary chosen by the insured Union member, and that the death benefit could not be paid to the Trust unless the Union member designated the Trust as the beneficiary. Def. SOF ¶ 35. In that e-mail, LINA noted that Illinois law required that proceeds be paid to the beneficiary designated by the insured person. Ex. 2 to Def. SOF at 2166. The e-mail further stated that "if [the employees] sign off on the trust as a beneficiary this is ok." Id.

In Knight' s case, the decedent had not named a beneficiary. Def. SOF ¶ 36. The policy provided that where there is no named beneficiary, the death benefits will be paid to "the first surviving class of the following living relatives: spouse; child or children; mother or father." Knight was a widower. Def. SOF ¶ 36. On August 4, 2004, consistent with the terms of the policy, LINA paid Knight' s sons a total of $100,974.60 (the death benefit with interest). Def. SOF ¶ 36.

By letter dated August 18, 2004, LINA's counsel, Walter Heindl, informed Mondo that due to the dispute between the Trust and LINA regarding the beneficiary provisions, the Trust' s policies would be terminated effective September 30, 2004. Def. SOF ¶ 38. The letter stated, in part, as follows:

I have been made aware that the initial request for proposal (sent through our health care organization) contained the following specification: "The NPWU Insurance Benefit Trust is the owner of the policy and also the beneficiary." However, it does not appear that there were any further discussions concerning this unusual feature until after the group life policy was issued. On the contrary, the proposal delivered by LINA indicated that coverage would be provided under the terms of LINA' s standard group life policy forms, and made no mention of this requested provision. Surely you will appreciate that the requested beneficiary structure is both non-standard and unusual. While we regret that it may not have been explicitly pointed out the ways in which the proposed contract differed from the what had been originally requested, we also believe that NPWU shares responsibility for failing to recognize that the contract which LINA proposed and thereafter issued to it didn' t conform to the unusual structure requested.

In any event, it is obvious that there has not been a meeting of the minds regarding the design of the group life insurance plan, and the group life insurance policy which LINA has issued is quite apparently not what the NPWU Trust desires. Since LINA is legally precluded from issuing the sort of policy which the NPWU Trust evidently seeks, LINA hereby exercises its right to terminate the group policy, effective September 30, 2004. * * * All claims incurred prior to the effective date of termination will be paid according to the terms of the contract as issued.

Def. SOF ¶ 38. LINA billed the Trust for the August and September 2004 premiums, but the Trust refused to pay the premiums, which total $75,295.00. Def. SOF ¶¶ 42-43.

According to Mondo, contrary to Heindl's statement that "LINA is legally precluded from issuing the sort of policy which the NPWU Trust evidently seeks," Tuerk had assured him that having the Trust as the beneficiary of the policy would not be a problem. Pl. Resp. ¶¶ 47, 49; Mondo Dep., pp. 91-96.

Mondo entered into a commission agreement with LINA. Def. Supp. SOF ¶ 1. The commission agreement between LINA and Mondo provided that Mondo had no authority to bind LINA to any risk, to issue or countersign policies, to waive or modify policy terms, to collect premiums (other than an initial binder check), to underwrite or accept applications for insurance, or to adjust or settle claims. Def. Supp. SOF ¶ 1. The agreement provided that Mondo would be "deemed to be acting as the agent of ...


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