Source: http://il.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19830711_0040546.C07.htm/qx
Timestamp: 2016-10-21 16:52:33
Document Index: 577093405

Matched Legal Cases: ['§ 1001', '§ 311', '§ 1110', '§ 1002', '§ 1002', '§ 1144', '§ 1144', '§ 312', '§ 261', '§ 270']

| Chicago Board Options Exchange Inc. v. Connecticut General Life Insurance Co.
Chicago Board Options Exchange Inc. v. Connecticut General Life Insurance Co.
CHICAGO BOARD OPTIONS EXCHANGE, INC., CONTRACTHOLDER, AND DONALD R. JAMES, CHARLES J. HENRY, AND WILLIAM J. YOUNG, TRUSTEES OF AND PARTICIPANTS IN THE CHICAGO BOARD OPTIONS EXCHANGE, INC. RETIREMENT INCOME PLAN, PLAINTIFFS-APPELLANTS,v.CONNECTICUT GENERAL LIFE INSURANCE COMPANY, A CONNECTICUT CORPORATION, DEFENDANT-APPELLEE
Plaintiffs appeal the dismissal of their three count complaint against defendant Connecticut General Life Insurance Company (Connecticut General). The dispute has its genesis in Connecticut General's unilateral amendment of an annuity contract it entered into with Chicago Board Options Exchange, Inc. (CBOE). The contract was designed to fund retirement benefits provided by CBOE under its Retirement Income Plan. CBOE objected to the amendment and unsuccessfully tried to withdraw from the contract. After Plaintiffs' complaint to the Illinois Department of Insurance proved fruitless they filed this suit. Plaintiffs charged Connecticut General with breach of contract, breach of its fiduciary duty under the Employment Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (ERISA), and violation of the Illinois Uniform Deceptive Trade Practices Act, Ill.Rev.Stat. ch. 121 1/2, § 311 et seq. The district court found that none of the counts stated a cause of action and granted defendant's motion to dismiss pursuant to Rule 12(b)(6), Fed.R.Civ.P. Chicago Board Options Exchange, Inc. v. Connecticut General Life Insurance Co., 553 F. Supp. 125 (N.D.Ill.1982).
11.02 Change of Contract
(a) Any or all of the terms of this contract may be changed from time to time by agreement in writing between the Insurance Company and the Contractholder. However, any such change shall not affect in any way the amount or terms of any Retirement Annuity purchased before the effective date of such change.
(c) The Insurance Company may change the rates in Table A [2] without giving advance notice of the change, providing such change is not made more frequently than once annually. . . .
The district court read these provisions as clearly granting Connecticut General the right to amend unilaterally. While we do not agree with plaintiffs' contention that the contract, on its face, requires CBOE's consent or, at the least, allows CBOE to withdraw during the 90-day notice period, we also do not find the clarity that the district court relied upon in dismissing this count. The question, at this stage of the litigation, is not whether the contract allows Connecticut General to amend unilaterally, but rather whether "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Mescall v. Burrus, 603 F.2d 1266, 1269 (7th Cir.1979) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-102, 2 L. Ed. 2d 80 (1957)). If the contract provisions are so clear that there can be no question as to their meaning, then the district court was correct in construing the contract without the aid of any evidence plaintiffs may have to offer. If, on the other hand, the contract is ambiguous, then plaintiffs should be allowed to introduce extrinsic evidence in support of their construction. In construing an ambiguous contract the court must consider any evidence that sheds light upon the intentions of the parties, including the situation of the parties, the purpose of the contract, and the circumstances surrounding the formation of the contract. Zelinsky v. Associated Aviation Underwriters, 478 F.2d 832, 834 (7th Cir.1973); Ortman v. Stanray Corp., 437 F.2d 231 (7th Cir.1971); Garman v. New York Life Insurance Co., 501 F. Supp. 51 (N.D.Ill.1980); Olipra v. Zambelli, 1 Ill.App.3d 607, 274 N.E.2d 877 (1971).
We will not bend the language of a contract to create an ambiguity when none exists, Chicago Terminal Clearance, Inc. v. St. Paul Marine Insurance Co., 407 F.2d 552, 553 (7th Cir.1969), but neither will we follow a literal interpretation when such would lead to an unreasonable or absurd result. Garman v. New York Life Insurance Co., 501 F. Supp. 51, 53 (N.D.Ill.1980). We believe that an honest ambiguity exists concerning CBOE's rights when confronted with a unilateral amendment. The district court rejected CBOE's proposed interpretations because they failed to account for the 90-day notice provision. We fail to see how Connecticut General's interpretation, which focuses upon only one sentence in section 11.02(c) and grants it the unfettered right to amend, imparts any more meaning to the notice provision. Under Connecticut General's reading, CBOE is powerless to do anything about a proposed amendment during the 90 days. Such a one-sided reading, while not totally unsupported, must be considered as suspect. See Ortman v. Stanray Corp., 437 F.2d 231 (7th Cir.1971) (contract interpretation that gave one party unilateral right to terminate payments viewed as suspect). Under one of CBOE's proposed constructions the 90 days would allow a contractholder to withdraw and find a new funding agent. This interpretation is further supported by the fact that CBOE could have withdrawn had notice of the amendment been given on the first of the month as then the 90-day termination notice and 90-day amendment notice would dovetail. It strikes us that a construction that varies CBOE's rights depending upon the day of the month was not what the parties had in mind, and accordingly that there is a real question as to what purpose the 90-day notice was to serve. In short, we find that the district court erred in not allowing CBOE to introduce evidence in support of its construction of the contract.
CBOE has also argued that the contract can be read as requiring a contractholder's consent to an amendment. While we do not find this argument very persuasive, especially in light of the language of 11.02(c) as contrasted with 11.02(a), we do not believe that the contract is so clear that CBOE should be precluded from introducing evidence in support of this construction. Section 11.03, which lists those persons who need not consent to an amendment, pointedly does not include contractholders in the group. According to the maxim "expressio unius est exclusio alterius," such an omission implies that the parties intended to require a contractholder's consent. E.g., Conway v. Country Casualty Insurance Co., 97 Ill.App.3d 768, 774, 53 Ill.Dec. 175, 180, 423 N.E.2d 559, 564 (1981), modified on appeal, 92 Ill.2d 388, 65 Ill.Dec. 934, 442 N.E.2d 245 (1982). The ambiguity created by the apparent grant to Connecticut General of an absolute right to amend unilaterally while, at the same time, the omission of contractholders from the list of persons who need not consent to an amendment will be best resolved by allowing the parties to introduce whatever evidence is available concerning their intentions.
The parties agree that the annuity contract is a plan asset, but differ as to whether Connecticut General's amendment of the contract is sufficient to charge it with fiduciary obligations. The district court rejected plaintiffs' claims that Connecticut General fit within either (ii) or (iii) of the statutory definition, but recognized that "it might arguably be claimed Connecticut General 'exercises . . . authority or control respecting management or disposition of [the Plan] assets, '" but went on to find that section 10.4 of CBOE's Plan precluded fiduciary status for Connecticut General. Section 10.4 provides that, "the Insurance Company's liability as a Fiduciary is limited to that arising from its management of any assets of the Plan held in its separate account." The only Plan assets held in Connecticut General's Separate Account were contributions to the Variable Accounts, which are not an issue here. The district court reasoned, therefore, that Connecticut General was not a fiduciary with respect to any action taken regarding the Guaranteed Accounts.
The district court thought that the effect of Plan section 10.4 was to limit the discretionary authority over the Guaranteed Accounts vested in Connecticut General, and thus remove any fiduciary status with respect to these accounts. We do not agree. By its own terms section 10.4 limits only Connecticut General's liability, not its discretionary authority. The difference is important because, although the parties may decide how much authority to vest in any person, they may not decide how much liability attaches to the exercise of that authority. ERISA explicitly provides that "any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy." 29 U.S.C. § 1110(a). As the legislative history of this provision makes clear, "exculpatory provisions which relieve a fiduciary from liability for breach of the fiduciary responsibility are to be void and of no effect." H.R.Rep. 1280, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad. News 4639, 5038, 5101. Connecticut General may not evade fiduciary status through such an exculpatory clause if, in fact, fiduciary status accompanies the company's ability to amend the contract.
The district court recognized that Connecticut General's ability to amend the contract, which is a Plan asset, might give it control over disposition of Plan assets. 553 F. Supp. at 130. If this is the case, then Connecticut General is a fiduciary under ERISA. 29 U.S.C. § 1002(21)(A). It is important to remember that if Connecticut General is a fiduciary because of the power to amend, this status only governs actions taken in regard to amending the contract and does not impose fiduciary obligations upon Connecticut General when taking other actions. Id. (person is a fiduciary only "to the extent" that he has authority over Plan assets).
This appears to be a question of first impression, although several cases have stated in dicta that the power to alter such a policy imposes fiduciary obligations upon the insurance company. Eversole v. Metropolitan Life Insurance Co., 500 F. Supp. 1162, 1165 (C.D.Cal.1980) (held that insurance company with power to deny claims was a fiduciary, but also stated that company "may also be a fiduciary by virtue of its management or control over the primary asset of this plan, the policy itself."); cf. Robbins v. First American Bank of Virginia, 514 F. Supp. 1183, 1191 (N.D.Ill.1981) (bank was not a fiduciary because it could not amend loan participation agreement, which was a plan asset, without participant's consent). Despite the novelty of this issue, and the dearth of any definitive guidance, we are confident that Connecticut General's power to amend the contract carried with it the status of ERISA fiduciary.
It is clear that Congress intended the definition of fiduciary under ERISA to be broad, Little & Thrailkill, Fiduciaries Under ERISA: A Narrow Path to Tread, 30 Vand. L.Rev. 1, 4 (1977). For our purposes the relevant question is whether the power to amend the contract constitutes the requisite "control respecting . . . disposition of [plan] assets." 29 U.S.C. § 1002(21)(A). Had CBOE simply given Plan assets to Connecticut General and said, "Invest this as you see fit and we will use the proceeds to pay retirement benefits," Connecticut General would clearly have sufficient control over the disposition of Plan assets and be a fiduciary under ERISA. Peoria Union Stock Yards Co. v. Penn Mutual Life Insurance Co., 698 F.2d 320 (7th Cir.1983). Because Connecticut General guaranteed the rate of return in advance for the Guaranteed Accounts, that is not the case here. Nevertheless, the policy itself is a Plan asset, and Connecticut General's ability to amend it, and thereby alter its value, is not qualitatively different from the ability to choose investments. By locking CBOE into the Guaranteed Accounts for the next 10 years Connecticut General has effectively determined what type of investment the Plan must make. In exercising this control over an asset of the Plan, Connecticut General must act in accordance with its fiduciary obligations. Whether the amendment was a breach of the fiduciary obligations is not a question that can be resolved at this stage of the litigation.
Connecticut General's final argument is that as an insurance company subject to state regulation it is not subject to ERISA. ERISA supersedes "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). ERISA also provides, however, that "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A). Connecticut General argues that Congress' decision not to exempt insurance companies from state regulation should somehow be read as relieving insurance companies from the burdens imposed by ERISA. Nothing in section 1144(b)(2)(A) supports this reading. That ERISA does not relieve insurance companies of the onus of state regulation does not mean that Congress intended ERISA not to apply to insurance companies. Had that been Congress' intent we are sure that ERISA would have directly stated that it was preempted by state insurance laws. Congress clearly intended that insurance companies be subject to dual regulation, at least as long as federal and state regulations do not conflict. Eversole v. Metropolitan Life Insurance Co., 500 F. Supp. at 1170. As state law does not forbid that Connecticut General act as a fiduciary in making amendments to the contract, there is no reason not to subject the company to the fiduciary obligations set forth in ERISA. Accordingly, this count is remanded to the district court for determination of the propriety of the amendment.
In count II of their complaint, plaintiffs alleged that they were induced to enter into the contract by misrepresentations contained in Connecticut General's 1977 marketing proposal for the annuity contract. In this marketing proposal Connecticut General made statements regarding the ease with which funds could be transferred to a new funding agent if Connecticut General's performance proved unsatisfactory. Plaintiffs alleged that these representations were false, as plaintiffs' inability to withdraw funds after the amendment demonstrated. Plaintiffs claimed that these misrepresentations violated the Illinois Uniform Deceptive Trade Practices Act, Ill.Rev.Stat. ch. 121 1/2, § 312(5), entitling them to recover actual damages under the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121 1/2, § 261 et seq.*fn1
The district court found that this claim ran afoul of the three year statute of limitations imposed by the Consumer Fraud Act, Ill.Rev.Stat. ch. 121 1/2, § 270a(e). The court recognized that, "That clock starts ticking when a plaintiff first experiences . . . all the elements of injury stemming from the deceptive acts." 553 F. Supp. at 129. The court found that any injury occurred when the contract, containing the 10% limit on withdrawals, became effective in 1978, more than three years before the complaint was filed. The court also found, alternatively, that even if no injury occurred until the amendment cut off all withdrawals for the next ten years, the amendment could not be the proximate cause of plaintiffs' injury as they could have exercised their right to transfer to a new agent.