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Diehl v. Twin Disc

December 12, 1996




Appeal from the United States District Court for the Northern District of Illinois, Western Division.

No. 94-C-50031

Before CUMMINGS, ESCHBACH, and FLAUM, Circuit Judges.

FLAUM, Circuit Judge.

Philip G. Reinhard, Judge.



In this appeal, we are called upon to decide whether Twin Disc promised certain insurance benefits for the duration of its retired employees' lives and, if so, to examine the nature of these benefits. When the company unilaterally changed the retired employees' coverage in 1993, the plaintiffs initiated this class action suit, which alleges that Twin Disc broke its promise. The district court believed that Twin Disc had reserved the right to change or discontinue the benefits at issue, and therefore granted summary judgment in favor of the company. We now vacate the district court's judgment and remand for further proceedings.


In January 1986, Twin Disc announced that it would cease manufacturing operations at its Rockford, Illinois plant and lay off almost all of the plant's bargaining unit employees. Negotiations promptly ensued between the company and Local 765 of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the "Union"), the union with which Twin Disc had bargained for more than thirty years. These negotiations produced the Shutdown Agreement at issue here, Paragraph 9 of which concerns retirees' insurance benefits:

9. (a) All persons retired prior to the date of termination of the [Retirement] Plan . . . shall, notwithstanding any provision of the Insurance Agreement between the Company and the Union, as extended (hereinafter the "Insurance Agreement") be entitled for the lifetime of the pensioner (including the surviving spouse until death or remarriage) to the life insurance and hospitalization, medical and surgical expense benefit coverages as provided under the Extension of Coverages and Integration of Benefits provisions of Sections 5 and 6 of the Insurance Agreement.

Other arguably relevant provisions of the Shutdown Agreement are the integration clause representing that the "Shutdown Agreement constitutes the complete agreement between the parties on the subject of the cessation of operations" and the termination clause providing that the Shutdown Agreement "shall terminate . . . in no event later than the end of the twelfth calendar month following the calendar month in which the last bargaining unit employee engaged in production is terminated." The termination provision, according to Twin Disc, took effect in 1990, one year after the last bargaining unit employee was discharged.

The 1983 Insurance Agreement to which the Shutdown Agreement refers was the latest in a series of such agreements dating back to 1961. Roughly every three years after 1961, Twin Disc and the Union had renegotiated collective bargaining agreements consisting of four separate agreements: a Basic Agreement, an Insurance Agreement, a Pension Agreement, and a Supplemental Unemployment Benefit Agreement. The insurance agreements, in turn, generally provided in Section 1 that benefits would be determined with reference to the "insurance program . . . as set forth in the insurance section of the company's Employee's Manual," and that this program of benefits was subject to the amendments set forth in Section 2 of the insurance agreement. *fn1 Twin Disc emphasizes that the benefits of past retirees were always subject to renegotiation during collective bargaining sessions, and that, in fact, the Company and the Union decided in 1977 and 1980 to modify benefits received by previously retired employees. Both parties agree, however, that under the regime established by the successive insurance agreements and the Shutdown Agreement, retirees were covered under one of three different health insurance plans depending upon the individual retiree's date of retirement. It thus appears that although the benefits of previously retired employees were subject to renegotiation every three years, the Union and the Company maintained a certain continuity of coverage. As a result of this course of dealings, one could determine a particular retirees' benefits in any given year only by examining both the applicable insurance "booklet" and the modifications imposed by the insurance agreement then in effect. Through 1986, therefore, any changes to the insurance benefits of previously retired employees were implemented as a result of bilateral negotiations that occurred approximately every three years between Twin Disc and the Union.

As the above-quoted Paragraph 9 of the Shutdown Agreement indicates, Sections 5 and 6 of the 1983 Insurance Agreement must be consulted in order to ascertain the coverage to which retirees are entitled. We will discuss these sections in more detail, but suffice it to say for the moment that Section 6 permits Twin Disc to modify coverage to avoid duplication of Medicare benefits and that Section 5 provides that employees who have retired between certain dates shall be entitled to the coverage provided under the "program." The "program," as we have seen, is the description of benefits provided in the insurance section of the employees' manual, which apparently took the form of an "insurance booklet" that could be inserted to update the manual. The diligent reader who has followed our document-to-document scavenger hunt in search of clarity will be distressed to learn that the 1983 insurance booklet, like earlier versions of the same document, includes the following clause: "Your Employer hopes to continue the Plan indefinitely but, as with all group plans, the Plan may be changed or discontinued." The issue is further complicated by the plaintiffs' claim that this 1983 insurance booklet "pertained only to the active employees and not to those who had retired under an earlier insurance agreement."

After 1986 but before the actions at issue here, Twin Disc made certain unilateral changes in the retired employees' insurance coverage. These changes, according to the company, indicate that the plaintiffs were aware of, and initially accepted, the company's power to modify their insurance benefits. In October 1989, Twin Disc mailed a letter to retirees that "suggested ways to minimize the number of claim submissions" in order to reduce processing fees, as Charles Gibson, Twin Disc's vice president in charge of employee relations, later explained to Union representative William Penn, who wrote to Gibson to protest the changes. In addition, Twin Disc's October letter informed retirees of a toll-free number through which they would be required to pre-certify inpatient hospital care. Later, in April 1991, Twin Disc sent to employees, retirees and surviving spouses, a new insurance booklet. The letter accompanying the booklet explained, "There may have been few if any changes in your coverages. However, it's been our experience that some have lost or misplaced their original booklets and periodic replacements are appreciated." Though Twin Disc points to these two mailings as ...

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