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ETHERINGTON v. BANKERS LIFE & CAS. CO.

August 27, 1990

GORDON ETHERINGTON, DUANE CHAPMAN, WILLIAM GENTLE, F. KILBURN VISK, SALVATORE J. SERIO, and FLOYD A. CALDINI, on Behalf of Themselves and All Persons Similarly Situated, Plaintiffs,
v.
BANKERS LIFE & CASUALTY COMPANY, Defendant


Milton I. Shadur, United States District Judge.


The opinion of the court was delivered by: SHADUR

MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 Six former employees of Bankers Life & Casualty Company ("Bankers") bring this action on behalf of themselves and approximately 680 other individuals who retired from Bankers' Home Office before January 5, 1987 and were adversely affected by changes in Bankers' plan for employee and retiree health insurance, Group Policy 778 (the "Plan"). Plaintiffs bring this action under Employee Retirement Income Security Act of 1974 ("ERISA") § 1132(a)(1)(B) *fn1" -- they claim that Bankers violated ERISA by not honoring promises it had allegedly made to plaintiffs as to (1) the rates that they would be charged for health insurance during their retirement (in Count 1) and (2) the health insurance benefits and limits that would apply to them while in retirement (in Count 2).

 Bankers has moved for summary judgment under Fed. R. Civ. P. ("Rule") 56 on the ground that the Plan's unambiguous language reserved to Bankers the right to make the changes complained of by plaintiffs. Plaintiffs have countered with their own Rule 56 motion, urging that Bankers did not reserve that right to itself, so that the application of other basic contract principles to the undisputed facts requires judgment in plaintiffs' favor. For the reasons stated in this memorandum opinion and order, Bankers' motion is granted and plaintiffs' motion is denied.

 Facts2

 Since at least 1973 the Plan has prescribed the health insurance benefits of (1) Bankers' Home Office employees and their dependents and (2) retired persons who had been Home Office employees and the dependents of those retirees. In each of 1973, 1978 and 1984 the Plan was restated, with any intermediate changes being set forth in various Endorsements. *fn3" Under each restated Plan, Bankers is both "Insurance Company" and "Policyholder." Each restated Plan required Policyholder to make premium payments to Insurance Company in exchange for Insurance Company's paying out on appropriate claims made by "Individuals" -- defined as Bankers' employees and retirees who participate in the Plan. *fn4" All three versions of the Plan specifically provided that contributions from Individuals were required. *fn5"

 "Individuals" who qualify for group insurance are defined by the 1973 Plan (Ex. 18, "Insuring Provisions -- Individuals"):

 
"Individual" shall mean anyone who is an active, full-time employee working a minimum of thirty (30) hours per week or is retired after fifteen years or more of continuous employment with the Policyholder and is not gainfully employed elsewhere.

 "Retired" was defined this way in the 1973 Plan:

 
The term "retired" means fulfilling the requirements for early, disability or normal retirement, as defined under the Company's Funded Contributory Retirement Plan, irrespective of whether the Individual is participating in that plan.

 This provision of the 1978 Plan deals with the continuation of retiree insurance (Ex. 21, "Insuring Provision -- Individuals"):

 
To qualify for continuation as a retired employee as specified above, the Individual (a) must have been insured hereunder immediately prior to cessation of active work, and (b) the Individual's number of years of continuous employment plus years of age on the date insurance would otherwise terminate must equal at least 75. *fn6"

 There is a similar provision in the 1984 Plan (Ex. 28, "Insuring Provisions -- Individuals"):

 
To qualify for continuation as a retired employee as specified above, the Individual (a) must have been insured hereunder immediately prior to cessation of active work, and (b) if the Individual's employment date or rehire date is prior to November 1, 1983 his/her number of years of continuous employment plus years of age on the date insurance would otherwise terminate must equal at least 75. . . .

 Though each version of the Plan itself contained no specific information as to what amounts Individuals were required to contribute towards premiums, some plan summaries and booklets distributed to employees between 1973 and 1984 specified the share of premiums to be borne by group plan participants during the effective period of the Plan. Until February 1984 a retired employee paid the same share of premium as specified in the booklet that had been in effect at the time of his or her retirement, and he or she correspondingly received benefits at the levels in effect at his or her retirement date. Thus multiple premium and benefit levels were in effect for retirees, depending on the respective dates of their retirement.

 In February 1984 Bankers changed that policy as to retirees. It began to require all retirees (regardless of their dates of retirement) to make premium contributions and receive benefits at levels identical to those then in effect for active employees. For some retirees (those who retired between 1975 and 1978) that represented a percentage increase in the share of premium they paid, while for others (those who retired between 1978 and 1984) that was the first premium payment ever required of them for individual coverage. In 1987 Bankers again modified the retiree premium policy and began to require contributions from retirees in excess of those required of active employees.

 February 1984 witnessed not only a change in the premium contribution policy for retirees but also changes in the benefits provided to Individuals under the plan. At that time the "basic major medical component" was being replaced with a "comprehensive medical component," which had deductibles and a co-insurance provision not part of the earlier program. Similarly 1987 witnessed the institution of a dental deductible and 1989 ushered in new increases in the medical deductible and changes in some reimbursement rules. All those changes resulted in reductions in the level of benefits to most retirees.

 In accordance with the stipulation of the parties, this Court certified two classes of plaintiffs (subject to further order of this Court) for purposes of objecting to Bankers' actions in its ongoing modification of the Plan. For Count 1 the certified class comprises:

 
All retired Home Office employees of Defendant, or the personal representatives of such employees, who retired prior to January 5, 1987, who were eligible for group insurance benefits under defendant's "Rule of 75," who were adversely affected by changes initiated by the Company on or about February 1, 1984, and subsequently, to require retiree premium contributions to Group Insurance Plan No. 778.

 For Count 2 the certified class comprises:

 
All retired Home Office employees of Defendant, or the personal representatives of such employees, who retired prior to January 1, 1987, who were eligible for group insurance benefits under defendant's "Rule of 75," who were, and have been, adversely affected by changes initiated by defendant in levels of medical benefits in Group Insurance Plan No. 778. *fn7"

 Premium Obligations

 Plaintiffs contend that the Plan itself is silent on employee/retiree premium share contributions and that ordinary contract principles must therefore apply to determine the parties' respective rights and obligations in that regard. On that predicate P. Mem. 11 argues that by Bankers' statements in various Group Insurance Benefit

 Booklets ("Benefit Booklets"), other written communications and oral representations:

 
Specifically, Bankers promised its employees group health insurance upon retirement under the Rule of 75 at specified contribution rates. The employees accepted that promise by continued employment. If Bankers amended the promise during the employee's active tenure and the employee continued to work, the employee accepted the amendment. The last promise made and accepted prior to an individual's retirement fixed the rights and obligations of Bankers and the employee after that employee retired. Bankers breached its duties under the Employee Retirement Income and Security Act (ERISA) when it required different share of premium payments from individuals after they retired.

 Although never stated in precisely this way, plaintiffs' theory is that their rights under the Plan (in terms of both required premiums and benefits) vested for each qualified employee on the date of his or her retirement. P. Mem. 11 contends (emphasis in original omitted and other emphasis added):

 
It should be emphasized that this is not a case that in any way challenges Bankers' right to change premium contribution or benefits for employees still working for it or for persons who did not elect to retire after they received notice of Bankers' first reservation of rights to change premium and benefit levels in December 1986. Rather it is a case brought because retirees, in consideration for their many years of service and loyalty, had their rights fixed as of their retirement. Their rights are not affected by any subsequent changes in active employee rights.

 But that very emphasis on plaintiffs' part underscores the essential poverty of their argument. As they would have it, an active employee's decision to continue work implicates no acceptance of a contractual offer of fixed premium levels during that continued employment. Yet they say that same decision somehow creates an acceptance that is forever binding on the employer if the employee should retire before a new premium level is set, even though the employer remains free to make premium changes as to everyone who stays employed. But clearly no principled distinction exists between the "acceptances" of the two ...


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