Judge's Ruling Concludes Final Piece Of Lawsuit Against Multiple Employer Welfare Plan Sued For Unpaid Claims

Archived News Release — Caution: Information may be out of date.

In an opinion handed down in the federal district court in Orlando, a long-running lawsuit of the U.S. Department of Labor against the Orlando-based Reinecke Agency, doing business as Dealers Association Plan (DAP), is essentially concluded.

Judge George C. Young has ruled that the trustees of an Ohio-based health and welfare plan administered by DAP are individually and jointly liable for losses that may remain from the health claims unpaid at the time of the plan’s termination. They are Dale Gessaman, Michael L. Kemper, Paul Holt and James P. Ping, trustees of a plan sponsored by one of DAP’s clients, the Miami Valley (Ohio) Automobile Dealers Association, a used car dealer association.

The case came before Young’s court for a bench trial in October 1997. Last week’s pronouncement is a result of the judge’s deliberations on the matter. Previously the court had ruled that DAP and its president Martin Vaughan, who has since died, were liable for losses to several plans across the U.S. in excess of $1.2 million.

In November 1994, the department sued DAP, which administered 12 multiple employer welfare plans (MEWA) in Georgia, Florida, Ohio, California and the Carolinas, alleging that DAP violated federal pension law and contributed to the failure of some of the health plans it represented.

According to the lawsuit, DAP collected premiums and provided routine claims paying services to a variety of association plans including the final named defendant, the Miami Valley plan, as well as similar plans of the Georgia and Carolinas Independent Automobile Dealers Associations. At one time, DAP implemented and/or administered 12 MEWAs including the Miami Valley plan, which was established in 1984 as a partially self-funded welfare benefit plan.

The Miami Valley plan, which was never terminated formally, ceased paying claims in 1991 and, at last tally, left outstanding unpaid claims of at least $215,000. Its trustees Gessaman, Kemper, Holt and Ping resigned in November 1991. When the plan failed, there were 38 dealers enrolled in the plan and only 67 insured members.

DAP handled routine claims processing for the plans and developed and marketed the plans’ concept. It devised the system for collection of contributions and payment of claims. According to the lawsuit, the premiums established by the defendants were never sufficient to accommodate the expected benefits and other expenses of the plans. In addition, the complaint said:

- No actuarial studies were performed,
- No attempt was made to establish premiums sufficient to pay benefits and other plan expenses,
- No studies were performed when rate increases were recommended as the plans began experiencing financial difficiulties,
- Asset reserves were not maintained, and
- Administrative expenses were excessive, noting that rates paid to DAP from the Georgia and Carolina plans ran as high as 19 percent and Miami Valley's plan paid 20 percent of contributions.

DAP allegedly also collected billing fees and delinquent fees from employers and commissions on the sale of life insurance.

More specifically, the department also alleged the Miami Valley trustees failed to investigate DAP’s or its principals’ credentials, improperly delegated their responsibility to manage the plan’s assets, failed to monitor DAP’s activities or to understand the financial reports they relied on to operate the plan, and, finally, were not bonded.

Judge Young has ordered the department and the remaining defendants to come back in 60 days from the opinion’s being entered with a listing of the unpaid health claims remaining. When he has this information, he will issue an appropriate judgment.

The lawsuit is the result of an investigation by the department's Atlanta regional office of the Pension and Welfare Benefits Administration. The judge’s ruling in this case was entered on Dec. 16 in the federal district court in Orlando.

(Herman v. the Reinecke Agency, d.b.a. Dealers Association Plan, et al)
Civil Action #94-1183-CIV-ORL-19

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

Contact Name: Sharon Morrissey
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