General American Life Insurance Company v. Lee Castonguay, Jerry Fitzpatrick, Charles Kilmer Alex G. Sieben

The Northern California Motor Car Dealers Association Trust, an ERISA trust, is obligated by its contract with General American Insurance Company to reimburse General over four million dollars. Unfortunately, it looks like the trust will come up three million .dollars short. We are faced with two questions: First, can General sue not only for breach of contract but also for fraud, based on misrepresentations the trust’s agent allegedly made when he was negotiating an extension of the contract? And, second, are the trustees personally liable for the trust’s obligations?

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The trust provides health and other benefits to participating car dealers and théir employees. In March 1987, it bought an insurance policy from General, under which General was to pay part of the claims made by the trust’s plan members. The trust was to pay the remainder, but if it couldn’t, General would protect the plan members by paying on their behalf and then seeking reimbursement from the trust. This meant, of course, that if the trust were to become insolvent General might have to pay but not get paid back.

Aware of this risk, General took steps to protect itself. It drafted the agreement to let either…