The suit, filed by the Employers-Shopmens Local 516, Coral Construction Company Restated Employee Profit Sharing Plan & Trust, and the Western States Health and Welfare Trust Fund of the OPEIU, alleges fraud, bad faith, breach of contract, misrepresentation, negligence and deceptive contract, according to the National Underwriter News Service.
Named as defendants in the case are Travelers Casualty and Surety Company of American, Fidelity and Deposit Company of Maryland, Hartford Fire Insurance Company, Marsh Advantage America and Willis of Oregon. The plaintiffs in the case claim that when two financial consultants caused them to lose money in a Ponzi scheme, their insurers said that the thefts were not covered under the definition of “covered employees”. They are seeking $4 million in damages, which includes interest and legal fees.
The Ponzi scheme referenced in the suit involves Capital Consultants LLC (CCL), run by Jeffrey Grayson and his son Bradley, who engineered a $450 million scheme, according to the report (see DoL: Union Plan Trustees “Imprudent” With CCL Investments ). CCL managed funds for pension funds, as well as benefits plans, foundations, and high net-worth individuals, according to National Underwriter. Both men have been charged with multiple crimes; however, the senior Grayson suffered a stroke before his case was concluded.
The pension funds claim that they were seeking crime insurance that would meet requirements of Section 412 of the Employee Retirement Income Security Act (ERISA), and, despite requests making this clear, were offered insurance that was purportedly only partially in compliance with the national pension law.
According to one of the carriers – The Hartford – the Graysons were not covered by the criminal insurance because they were paid a fee for services rendered, and thus didn’t qualify as employees. The policies define “employees” as those compensated “directly by salary, wages or commissions” whom the policyholder has “the right to direct and control,” according to National Underwriter. However, it does not cover any “agent, broker factor, commission, merchant cosignee and independent contractor or representative ….or director or trustee…” The Grayons were considered by the insurers to be agents.
The title of the policy – the Welfare Pension Plan ERISA Compliance – allegedly made the plaintiffs think that the plans were in full compliance with ERISA, according to National Underwriter. If they had known that it was not in complete compliance, the pension funds claim that they would have sought different or further criminal coverage.