The Alaska Contractor - Summer 2008

CONTRACTORS & THE LAW
Union benefit trust risks
A March 2008 decision by the Alaska Supreme Court has
demonstrated that routine communications between contractors
and union benefit trusts over normal business matters
can create unexpected liabilities to both the contractor
and the trust fund.
Since the late 1980s, a long-established Anchorage construction
contractor had been making contributions to the
bricklayer’s trust fund to cover health insurance benefits not
only for the contractor’s union employees, but also for its
nonunion employees.
In 1991, the bricklayer’s trust merged with a similar
trust for the benefit of three local carpenters’ unions to
form the Southern Alaska Carpenters Health and Security
Trust Fund.
Following the merger, the
contractor continued to make
contributions for health insurance
coverage for both union and nonunion
employees. The trust fund
continued to accept all of these
contributions without comment.
In May 1997, the contractor
hired a young project engineer, a
nonunion position. The contractor
agreed to provide health care insurance
for the engineer through
the trust, just as the contractor
had done with its other nonunion
employees. Because the new
health insurance would not take
effect until 90 days after the date of hiring, the engineer purchased
COBRA insurance for that period. The engineer was
particularly concerned about insurance coverage because
his wife was pregnant.
During the summer, the engineer checked with the
contractor’s bookkeeper to confirm when coverage
would start. The bookkeeper in turn checked with the
trust administrator. The trust’s administrator assured the
contractor’s bookkeeper that coverage would begin on
September 1. This was relayed by the bookkeeper to the
engineer. The engineer, being an engineer, again asked
for confirmation on a number of occasions. Each time the
bookkeeper would reconfirm with the trust administrator
that coverage would begin September 1, and passed
that on to the engineer. Then in late August, when the
engineer again asked for confirmation, the Trust told the
bookkeeper this time that coverage would not begin until
By ROBERT J. DICKSON
October 1. In September, the contractor began making,
and the Trust began accepting, contributions to the Trust
for the engineer’s account.
When the Trust received the contractor’s reports, it decided
to audit the contractor’s books and records; and internally
ordered a freeze on any claims submitted by the
engineer. The Trust, however, failed to mention any of this to
the contractor or to the engineer.
Even the engineer’s wife spoke with the contractor’s
bookkeeper to confirm that insurance coverage would begin
October 1. The Trust assured the wife directly that not only
would the coverage start on October 1, but also that it would
cover her pregnancy.
This assurance was made after
the Trust had internally frozen
any insurance claims from the
engineer. With this assurance, the
engineer and his wife cancelled
First, contractors should their COBRA coverage effective
require that assurances
October1. On October 4, the wife
gave birth to a son who was born
about insurance coverage
with Down’s Syndrome and other
from union trust funds be challenges. The cost of the delivery
and subsequent hospital care ap-
in writing.
proximated $60,000.
The following February the
Trust sent a letter to the engineer
and his wife indicating that there
was “a problem with coverage.”
Then in May, seven months after
the birth, the Trust formally disclaimed any coverage. The
Trust relied on federal law, which prohibited a trust fund
from covering nonunion employees unless there was “a
special agreement” between the trust and the employer. The
contractor had no such “special agreement” with the merged
trust, even though he had been making contributions for
nonunion employees since the late 1980s. To add a twist to
the knife, the Trust apologized for the delay in making its
determination, blaming the delay on the contractor’s failure
to cooperate with the audit.
The engineer and his wife filed suit against the Trust and
the contractor, his then-former employer. After a trial, the
court awarded damages not only for the uncovered medical
costs, but also for $30,000 in emotional distress damages.
The court held that the Trust was liable for negligent misrepresentation,
and was 75 percent at fault. The court also held
the contractor 25 percent at fault for its role in passing the