Sacramento Auto Dealers Association Pays $642,000 to Resolve Health Benefit Claims

Archived News Release — Caution: Information may be out of date.

Contact Name: Gloria Della
Phone Number: 202.219.8921

Sacramento-based Independent Automobile Dealers Association of California (IADAC) and trustees of its health plan agreed to pay an additional $267,000 into a settlement fund to pay the health benefit claims of hundreds of participants and medical providers, according to a settlement agreement with the U. S. Department of Labor. The defendants have already repaid $375,000 into the settlement fund.

The IADAC health plan provides medical and life insurance benefits to employees of some 1,000 automobile dealers located throughout the State of California. There were 1,425 employees covered by the plan as of August 1993. The plan was insolvent at the time of its termination in January 1995, leaving a large number of employees with unpaid health benefit claims totaling more than $1.2 million.

"Health benefits are vital to the financial and physical well-being of millions of Americans," said San Francisco Regional Director Leonard Garofolo. This case is part of the department's overall efforts to ensure that small businesses and their employees are not left without the benefits they have paid for and are counting on."

The settlement resolves two lawsuits by the department filed in August 1995 and November 1995 against IADAC and the former trustees of the plan. The department's lawsuits alleged IADAC and the trustees allegedly violated the Employee Retirement Income Security Act(ERISA) when they:

• failed to secure actuarial services to determine the amount of contributions needed to pay claims;

• failed to establish an adequate financial reserve; and

• paid excessive fees to the plan administrator, the Dealers Association Plan (DAP).

In addition, the lawsuits alleged that in 1989 the trustees knew the plan did not have sufficient reserves to meet claims-paying demands. The trustees retained an insurance consultant to review the plan's operation, but allegedly did not follow the consultant's recommendations to ensure the plan's solvency by setting adequate contribution rates for employers participating in the plan.

After the lawsuits were filed, the court appointed a Special Master to take over the day-to-day operation of the plan, including settlement of the unpaid claims, and a Directed Trustee to hold the plan's assets in trust. The plan's assets were insufficient to cover all the benefit claims that had been submitted for payment. The defendants initially paid $375,000 into the settlement fund to cover some of the shortfall.

The addition of $267,000 to the settlement fund ensures that all employees who paid medical bills that should have been paid by the health plan will be fully reimbursed. The settlement further provides for the offer of negotiated settlements to the unpaid medical service providers.

A separate order protects plan participants from claims of any medical service providers who refuse to accept the Special Master's negotiated settlement. Under the settlement, the participants have been afforded complete settlement of their claims.

The settlement resulted from an investigation by the San Francisco Regional Office of the department's Pension and Welfare Benefits Administration into alleged violations of ERISA. The settlement was entered on April 23 in federal district court in Sacramento.

(Metzler v. Independent Automobile Dealers)
Civil Action No. C-S-95-1483 WBS/JFM
Civil Action No. C-S-95-2187 LKK/JFM

U.S. Department of Labor news releases are accessible on the Department's Newsroom page. The information in this news release will be made available in alternate format (large print, Braille, audio tape or disc) from the COAST office upon request. Please specify which news release when placing your request at 202.693.7828 or TTY 202.693.7755. The Labor Department is committed to providing America's employers and employees with easy access to understandable information on how to comply with its laws and regulations. For more information, please visit the Department's Compliance Assistance page.