Labor Department Settles Lawsuit with Food Product Operators for Failing to Pay Health Plan Claim

Archived News Release — Caution: Information may be out of date.

Chicago, Illinois - The U.S. Department of Labor obtained a consent order today in its lawsuit against officers of Decatur, Illinois-based Kelly Food Products, Inc. for failing to pay $81,382 in health claims from monies forwarded for that purpose by the plan's stop-loss insurer.

Defendants Donald Schumacher, former chief executive officer of the company, and his wife, Susan Bolin, also a former officer and director, renounced any claims they may have against the plan. Schumacher was ordered to pay $46,382.57 in addition to the $35,000 he already paid to a local hospital that provided health care to persons covered by the Kelly Food Products plan.

According to the lawsuit, filed June 3, 1999, a check from the plan's stop-loss insurance provider covering medical treatment costs for a plan beneficiary was deposited to the account of Kelly Food Products instead of the company's self-funded health plan. A check submitted to the local hospital was returned twice for insufficient funds, leaving the claim unpaid, the suit alleged.

The court appointed Professional Benefit Administrators, Inc. of Hinsdale, Illinois, as the independent fiduciary to hold the funds in escrow. They will be paid out on a prorated basis from this settlement and from funds available from the Kelly Food Products bankruptcy estate. Payouts to participants, beneficiaries or health care providers will be based on the amounts due them as determined by the health plan's third-party administrators during 1996.

Schumacher also agreed to pay $3,000 in fees to the independent fiduciary and $9,276.51 as a penalty for fiduciary violations under the Employee Retirement Income Security Act (ERISA).

The order also bars Schumacher permanently from serving as a fiduciary or service provider and from using any family member or other person to act directly or indirectly as a fiduciary to any employee benefit plan subject to ERISA. If he elects to maintain a health plan for any company he controls, the court order stipulates Schumacher must use a full indemnity health insurance company: must forward employer and employee contributions on or before the time required by law, and must notify participants and beneficiaries of any changes in their insurance coverage within 30 days of such changes.

The company, which manufactured potato chips and other snack foods, ceased operating October 11, 1996 and was put into bankruptcy on October 21, 1996. Kelly sponsored a self-funded health plan, established in 1987 for the company's employees. The company retained stop-loss insurance for paying individual claims in excess of $30,000 per participant per contract year.

The consent judgment resulted from an investigation conducted by the Kansas City Regional Office of the department's Pension and Welfare Benefits Administration into alleged violations of the ERISA. It was filed in federal district court in the Central District of Illinois in Urbana.

(Herman v. Donald Schumacher, et al.
Civil Action No. CV-99-2120)

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