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. Frankly, it is tragic that you are even considering going to an expensive, unaccredited "law school." It is extremely difficult to get a job with a degree from a real school. If you are going to make the investment of time, money, and tears into law school, it should not be to a place that won't actually enable you to practice law when you graduate.

  2. As a lawyer who grew up in Fort Wayne (but went to a real law school), it is not that hard to find a mentor in the legal community without your school's assistance. One does not need to pay tens of thousands of dollars to go to an unaccredited legal diploma mill to get a mentor. Having a mentor means precisely nothing if you cannot get a job upon graduation, and considering that the legal job market is utterly terrible, these students from Indiana Tech are going to be adrift after graduation.

  3. 700,000 to 800,000 Americans are arrested for marijuana possession each year in the US. Do we need a new justice center if we decriminalize marijuana by having the City Council enact a $100 fine for marijuana possession and have the money go towards road repair?

  4. I am sorry to hear this.

  5. I tried a case in Judge Barker's court many years ago and I recall it vividly as a highlight of my career. I don't get in federal court very often but found myself back there again last Summer. We had both aged a bit but I must say she was just as I had remembered her. Authoritative, organized and yes, human ...with a good sense of humor. I also appreciated that even though we were dealing with difficult criminal cases, she treated my clients with dignity and understanding. My clients certainly respected her. Thanks for this nice article. Congratulations to Judge Barker for reaching another milestone in a remarkable career.

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