Monday, April 24, 2017

Court Finds No Lifetime Guarantee of Health Insurance for Retirees in CBA

Protracted settlement negotiations really paid off for the employer in this case questioning whether retirees were entitled to continue the same level of health insurance benefits throughout their retirement.

A group of Michigan retired auto workers sued their former employer and predecessor companies for reducing and ultimately eliminating company sponsored retiree health insurance. The retirees, all union members, claimed that at the time of their retirement their collective bargaining agreement contained a provision which granted retiree health insurance for life. The cba provision stated “[C]overages an employee has under this Article at the time of retirement or termination of employment at age 65 or older ... shall be continued thereafter provided that suitable arrangements can be made with the Carrier(s).” When the defendant employer reduced the retiree health insurance benefit and ultimately discontinued it, the plaintiff retirees filed suit claiming that their benefits pursuant to the cba vested at the time of their retirement.

The plaintiffs filed their suit in 2003 and 2004. When the court initially heard the cases, it relied on the rule of law at the time that extrinsic evidence could be used to determine whether such contract provisions were intended to grant lifetime benefits. Such extrinsic evidence were often found as a course of conduct in granting lifetime benefits to retirees over a number of  years, or reference to a change in primary coverage when a retiree reached age 65 as this was interpreted to mean that the parties intended for the provision to exceed the life of the cba itself since some retirees would not attain that age until well beyond expiration of the cba.

Needless to say, the federal district court for the eastern division of Michigan ruled in plaintiffs’ favor in 2006, finding that retiree health insurance rights vested upon retirement and the company violated the agreement by changing those benefits. The ruling was consistent with prevailing case law.

Defendants filed a notice of appeal but Instead of proceeding straight away on that appeal, which would have resulted in a decision within about two years following, the parties entered into settlement discussions. The court agreed to postpone the case while those settlement talks occurred.

The problem for the plaintiffs is that the settlement negotiations carried on for the next eight years. Fast forward to the present day and the parties come back before the court for a decision on the appeal, but in the meantime the entire legal landscape on contractual vesting of retiree health insurance has dramatically changed. In fact, it’s done almost a 180 degree turn.

While the plaintiffs were patiently attempting settlement negotiations, the U.S. Supreme Court issued its decision in M&G Polymers USA, LLC v. Tackett, essentially finding that a presumption of vesting and allowance of extrinsic evidence to prove such no longer existed and a provision on retiree health insurance had to be interpreted in the same manner as any other contractual provision.

In applying that holding, along with other post-M&G Polymer rulings, the 6th circuit court of appeals held that the cba language upon which plaintiffs relied did not specifically guarantee lifetime retiree health insurance benefits despite the language which spoke of future coverage. The court held that “the use of the future tense without more—without words committing to retain the benefit for life—does not guarantee lifetime benefits.” Instead the court found that the language which guaranteed the contractual benefits of the cba until the expiration of the agreement controlled. Victory was snatched from the plaintiffs.

This 6th circuit case is a reminder to employers to ensure that union contract language, or any other policy or ordinance language does not inadvertently grant lifetime benefits by including provisions such as “retirees shall be entitled to continue their health insurance for them and their dependents at the XXX rate of premium contribution for the period of their retirement.”  Better language in order to avoid a claim of vested benefits is “the employer offers health insurance to retirees at the XXX rate of premium contribution subject to renegotiation at the expiration of this agreement” or “subject to change from time to time.”