ILNews

Court: Company not negligent in trust demise

Jennifer Nelson
January 1, 2008
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The 7th Circuit Court of Appeals upheld a magistrate judge's ruling in favor of a Michigan company on claims that it was negligent in managing an Indiana trust that eventually collapsed.

Magistrate Judge John Paul Godich, of the U.S. District Court Southern District of Indiana's Indianapolis Division, granted summary judgment in favor of Benefit Actuaries on Indiana Funeral Directors Insurance Trust's claims that Benefit violated its fiduciary duty under ERISA, and negligently failed to provide competent advice while managing the trust.

The trust appealed the ruling, Indiana Funeral Directors Insurance Trust, an Indiana trust v. Benefit Actuaries, Incorporated, No. 07-2351, arguing Magistrate Judge Godich erred in granting summary judgment on its claim that Benefit assumed the duty to comply with Michigan law; that Benefit didn't breach its duty to provide competent services as a third-party administrator, insurance broker, and advisor; and the judge erred in finding Benefit didn't breach its duty by failing to advise the trustees about risks or raising stop-loss deductibles and its poor financial situation.

The trust was created in 1972 and administered as a multiple insurance employer welfare arrangement (MEWA) to provide health benefits to funeral home employees. The trustees hired Benefit to serve as the third-party administrator, insurance broker, and advisor.

In the mid-1990s, the trust began to lose money because more claims were filed than the trust had money to cover from its self-funded health plan. The trust maintained stop-loss coverage, which would reimburse the trust for a specific amount it paid a participant over the deductible.

When financial troubles were evident, Benefit suggested the trust switch to a fully insured plan through an insurance provider, but the trust refused because it would raise the premiums substantially.

In 1997, the trust fired Benefit and later switched to a fully insured plan once it was evident the trust could no longer afford to cover the claims.

Magistrate Judge Godich found in favor of Benefit on the trust's claims and granted the Michigan company summary judgment.

The judge was correct in granting summary judgment on the trust's claim that Benefit assumed the duty to comply with Michigan law because there was nothing in the contract between the two companies that said Benefit would follow Michigan law while administering the Indiana trust, wrote Circuit Judge Terrence Evans. Nor does the trust submit evidence to show Benefit assumed the duty to provide competent actuarial advice.

Benefit didn't breach its duty to provide competent services; the magistrate judge based his decision on the testimony of Benefit's president that until 1997, the trust wasn't on the brink of ruin. Also, there is proof the trustees continuously disregarded Benefit's advice in terms of obtaining more stop-loss coverage or switching to a fully insured plan, wrote Judge Evans.
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  1. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  2. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  3. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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  5. Some in the Hoosier legal elite consider this prayer recommended by the AG seditious, not to mention the Saint who pledged loyalty to God over King and went to the axe for so doing: "Thomas More, counselor of law and statesman of integrity, merry martyr and most human of saints: Pray that, for the glory of God and in the pursuit of His justice, I may be trustworthy with confidences, keen in study, accurate in analysis, correct in conclusion, able in argument, loyal to clients, honest with all, courteous to adversaries, ever attentive to conscience. Sit with me at my desk and listen with me to my clients' tales. Read with me in my library and stand always beside me so that today I shall not, to win a point, lose my soul. Pray that my family may find in me what yours found in you: friendship and courage, cheerfulness and charity, diligence in duties, counsel in adversity, patience in pain—their good servant, and God's first. Amen."

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