FAMILY LAW ARTICLES
by Mary Anne Decaria

INSURANCE FRAUD

Richard and Hazel Biondi divorced in 1993. Under the decree of divorce, Richard was to keep Hazel insured on his union’s health insurance plan by paying Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums on her behalf for two years. Instead of paying COBRA premiums, however, Richard did not tell the insurer about his divorce and kept Hazel on his original policy as his dependent. Five years later, the trustees for the health insurance fund found out and sued Richard and Hazel for fraud under ERISA and state law, seeking damages in the amount of claims paid on Hazel’s behalf after the divorce.

The U.S. District Court dismissed the trustees’ ERISA claims, finding that the statute did not provide for that type of relief. However, the court did rule in favor of the trustees under state law, finding that Richard had fraudulently misrepresented and concealed his marital status.

The Seventh Circuit Court of Appeals affirmed the district court’s decision, rejecting Richard’s argument that both state and federal fraud actions were preempted by ERISA. In response, the appeals court stated: “[F]ar from thwarting ERISA’s stated statutory objectives, the Trustees’ common law fraud claim is an attempt to protect the financial integrity of the Fund, which is certainly in the Plan participants’ and beneficiaries’ best interests, as well as being consistent with the Trustees’ fiduciary obligations under ERISA.” Trustees of the AFTRA Health Fund v. Biondi, 7th Cir., No. 00-3598, September 6, 2002, at ___. Richard had the obligation under the insurance plan to keep the fund informed of his marital status. “[W]e hold that a plan participant’s decision to commit fraud in the context of an employee benefit plan does not immunize him from tort liability under state law.” Id. at ___.

As part of the lawsuit, Richard filed a counterclaim against his divorce attorneys, claiming that they committed malpractice by not telling his employer of the divorce and by not making sure that Richard paid his COBRA premiums. Richard lost this argument, also. The appeals court affirmed the finding of the district court that even if Richard could establish negligence on the part of his attorneys, he could not hold them responsible for damages he incurred as a result of his own fraudulent conduct.