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Release Date: 12/22/1998
Release Number: USDL
98-222
Contact Name: Sharon Morrissey
Phone Number:
202.219.8921 |
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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. |
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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. |
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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. |
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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. |
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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.
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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. |
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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.
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fees and delinquent fees from employers and commissions on the sale of life
insurance. |
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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. |
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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. |
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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. |
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(Herman v. the Reinecke Agency, d.b.a. Dealers Association Plan,
et al)
Civil Action #94-1183-CIV-ORL-19 |
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U.S. Department of
Labor news releases are accessible on the Internet. The information in this
news release will be made available in alternate format upon request (large
print, Braille, audio tape or disc) from the Central Office for Assistive
Services and Technology. Please specify which news release when placing your
request. Call 202.693.7773 or TTY 202.693.7755. |
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