A federal court in Reno, Nevada has entered a default judgment requiring the
principals of Carson City-based Employers Mutual LLC and affiliated companies
to pay $7.3 million in losses suffered by health plans operated by the corporation,
according to the Department of Labor, which filed the lawsuit that led to the
ruling.
The DOL says the judgment restores financial losses that resulted from the
self-dealing and mismanagement of principals James Lee Graf, William R. Kokott,
Nicholas E. Angelos, Kari Hanson, and their companies.
Employers Mutual is a national network of 16 affiliated associations that provided
health benefits to more than 22,000 participants and beneficiaries covered by
employer-sponsored health plans.
In December 2001, the department obtained a temporary restraining order freezing
the assets of Employers Mutual, the affiliated associations, and their principals.
It also secrured the appointment of an independent manager the oversee the plans
and pay benefits owed to participants.
Simultaneously, the DOL filed a lawsuit alleging that the defendants violated
the Employee Retirement Income Security Act (ERISA) by diverting a substantial
portion of contributions collected by Employers Mutual to their companies and
personal accounts. From January to October 2001, the defendants spent $6 million
of plan assets purportedly on administrative expenses—including $1.5 million
paid to themselves—while paying only $3 million in health benefits. The
defendants also delayed processing health claims (resulting in million of dollars
in unpaid claims), failed to operate the plans in an actuarially sound manner,
and paid excessive fees for services provided to the plans.
“The Employers Mutual defendants showed a callous disregard for the health
benefit needs of small business employers and their workers. At a time when
employers are finding it hard to obtain health coverage, these defendants schemed
to rob small businesses and workers of health benefits for personal financial
gain. The court’s $7.3 million judgment is the first step toward making
these workers and their families financially whole,” said U.S. Secretary
of Labor Elaine L. Chao.
The DOL says the judgment also permits it to seek additional money to cover
unpaid health claims of workers and their families, estimated at $27 million.
Thomas Dillon, the independent manager appointed by the court, will determine
the exact amount of the unpaid claims owed by the plans.
The San Francisco regional office of the department’s Employee Benefits
Security Administration investigated the case. Employers and workers can reach
the San Francisco Regional Office at 415.975.4600 or through EBSA’s toll
–free number, 1.866.444.3272 (EBSA), for help with problems relating to
private-sector health and pension plans.
