Calif. Health Plan Officials Ordered To Pay $1.4 Million

Archived News Release — Caution: Information may be out of date.

The U. S. Department of Labor yesterday obtained consent judgments requiring officials of Novato, Calif.-based Interstate Services, Inc. and Thorndyke International, Inc. to pay, collectively, $1.4 million in restitution for diverting health benefit assets of the ERISA Advantage program to themselves and others affiliated with the health care scheme.

The judgments also make permanent a Sept. 23, 1998 preliminary injunction appointing an independent fiduciary to recover assets, pay claims, terminate the program and liquidate the corporations.

Under the judgments, John B. Hyde, his daughter Mary King and Kenneth Ruff are responsible for making restitution and all assets in individual bank accounts which were frozen under the preliminary injunction must be transferred to the independent fiduciary. The judgments also permanently enjoin Interstate Services, Inc. and Thorndyke International, Inc. from doing business with any plan governed by the Employee Retirement Income Security Act (ERISA).

The judgments resolve a lawsuit filed Aug. 1998 against Hyde, King, Ruff, Patricia Tyler and her firm Security National Corp.; Hyde’s wife and son Margaret Ann Hyde and John Hyde and others. According to the lawsuit, Hyde and other defendants violated ERISA by:

• commingling assets of individual health trusts in direct contradiction of a commitment to maintain separate trusts to fund promised benefits of enrolled employers;
• diverting an excessive amount of plan funds to cover administrative fees, marketing fees, commissions and other non-benefit expenses;
• failing to follow the program’s funding plan and to create actuarially sound employer contribution rates;
• failing to obtain “stop loss” insurance as represented by the program and purchasing reinsurance from an unlicensed offshore insurance carrier — Colonnade Insurance Co., A.V.V. — a company which is not subject to any state solvency or reserve requirements;
• using persons affiliated with other failed health plans to act as insurance intermediaries even though they had been previously barred from serving plans governed by ERISA; and
• failing to timely pay or deny claims for benefits under the program.

In addition, settling defendants John B. Hyde, Mary Alice King, Margaret Hyde, John S. Hyde and Kenneth L. Ruff were permanently barred by a July 1, 1999 consent order from ever doing business with any type of ERISA-covered plan. Previously entered consent judgments permanently enjoined other defendants in the case, Patricia Tyler, Cordell Hull, Larry Sellars, Herman Robert Brown and Billie Gannaway, and required them to pay a total of $145,880.

The ERISA Advantage Self-Insured Retention/Single Employer Trust Program was a nationwide multiple employer welfare arrangement created by Hyde in 1994. Hyde set up ERISA Advantage despite a 1997 court order barring him from serving a health plan for the International Brotherhood of Trade Union Local 122 Trust. ERISA Advantage was marketed through a network of consultants, insurance agents and related professionals, employee leasing companies, health provider associations, and other organizations.

As of June 1998, the program provided administrative services to over 300 ERISA- covered employer trusts in at least 15 states, including Texas, Oklahoma, Virginia, Florida, Georgia, South Carolina, North Carolina, New Jersey, Alabama, Kentucky, Indiana, Michigan, Mississippi, Louisiana and Wisconsin.

TI and its successor, ISI served as the plan administrator to enrolled health plans and individual trusts of participating employers. Hyde was the majority owner of ISI. Washington, D.C.-based SNC served as trustee.

The judgments, entered on June 20 in federal district court in San Francisco, resulted from an investigation conducted by the department’s San Francisco Regional Office of Pension and Welfare Benefits Administration into alleged violations of ERISA.

(Herman v. Hyde)
Civil Action No. C98-3019

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