Opinion ID: 2997119
Heading Depth: 2
Heading Rank: 1

Heading: ERISA Violation for Failure to Pay Benefits

Text: (Count II)
Administrator’s decisions First, we must determine the appropriate standard for 3 (...continued) & Procedure (3d ed. 1998) § 2006 (“A discovery order can always be reviewed on appeal from a final judgment in the case, even though it is difficult at that stage to show that the party has been prejudiced by the order . . . , and the harmless-error doctrine, together with the broad discretion the discovery rules vest in the trial court, will bar reversal save under very unusual circumstances.”) (footnotes omitted). CNA, like the plaintiffs, fails to demonstrate how it was prejudiced by the district court’s decision to expand discovery on the fiduciary duty claim. 12 No. 03-2090 reviewing the decisions of the Plan Administrator. Ordinarily, “[a] denial of benefits will be reviewed de novo ‘unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.’ ” Militello v. Cent. States, Southeast & Southwest Areas Pension Fund, 360 F.3d 681, 685 (7th Cir. 2004) (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)). If the plan’s language “indicates with the requisite if minimum clarity that a discretionary determination is envisaged,” Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000), “then a denial of benefits will be reviewed under an arbitrary and capricious standard.” Militello, 360 F.3d at 685 (citing Hess v. Hartford Life & Accident Ins. Co., 274 F.3d 456, 461 (7th Cir. 2001)). The district court neatly sidestepped the question whether the provisions of the 1990 Plan or the provisions of the 1996 Plan were in effect at the time the benefits were denied. It did so by finding that the language in the 1990 Plan “indicate[s] with sufficient clarity that the Plan Administrator has the discretionary authority to interpret the Plan” and that, if anything, the 1996 Plan (which was adopted between the time the plaintiffs complained about the termination of the HCA benefit and the time the Plan Administrator responded to those complaints) “confers discretionary authority on the Plan Administrator even more clearly.” (12/28/00 Order at 5 & n.5.) Thus, under either Plan, the arbitrary and capricious standard applies. We agree that it is unnecessary to determine which of the two Plans controls, because in addition to the district court’s correct determination that the 1990 Plan conferred sufficient discretion on the Plan Administrator and that the 1996 Plan expanded it, the fact is that it doesn’t matter which Plan controls or which standard of review is applicable. For the ultimate issue is whether the benefits were vested. If the benefits were vested, the denial of benefits No. 03-2090 13 would be wrongful even under an arbitrary and capricious standard; and if the benefits weren’t vested, the denial of benefits would be lawful even under a de novo standard. We now proceed to the merits.
As they argued in the district court, the plaintiffs maintain that under the VSRP, which they believe was separate and distinct from the general retirement plan, they received a vested “lifetime” HCA benefit, and the Plan Administrator therefore violated ERISA when he terminated their HCA benefit. The district court rejected this argument by noting that employers are free to amend or terminate welfare benefits, which do not vest absent a showing of clear intent to vest in written plan documents. The VSRP was a modification of the general retirement plan (and the 1992 Retirement Guide was specifically incorporated into the VSRP). Hence, the reservation of rights clauses in the general retirement plan documents became part of the VSRP. The district court further found that the Brief Description Newsletter, which described the VSRP’s enhanced benefits, did not create an ambiguity because the plaintiffs’ interpretation of language in the Newsletter as vesting the HCA benefit (i.e., guaranteeing that the HCA benefit amount would never be reduced) was not reasonable. We start from the premise that “[e]mployers . . . are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans.” Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995). For this reason, if ERISA welfare benefits “vest at all, they do so under the terms of a particular contract.” Pabst Brewing Co. v. Corrao, 161 F.3d 434, 439 (7th Cir. 1998). The Supreme Court, followed by several courts of appeals, has indicated that a modification that purports to vest welfare benefits must be contained in the plan documents and must be 14 No. 03-2090 stated in clear and express language. See Inter-Modal Rail Employees Ass’n v. Atchison, Topeka & Santa Fe Ry. Co., 520 U.S. 510, 515 (1997); Frahm v. Equitable Life Assurance Soc’y, 137 F.3d 955, 958 (7th Cir. 1998) (citing Sprague v. General Motors Corp., 133 F.3d 388, 400 (6th Cir. 1988) (en banc) as sensibly extending the requirement of a writing to all long-term commitments); Gable v. Sweetheart Cup Co., Inc., 35 F.3d 851, 855-56 (4th Cir. 1994); Wise v. El Paso Natural Gas Co., 986 F.2d 929, 937 (5th Cir. 1993). Given our presumption against the vesting of welfare benefits, silence indicates that welfare benefits are not vested. See Rossetto v. Pabst Brewing Co., 217 F.3d 539, 544 (7th Cir. 2000) (“Our presumption against vesting, it is important to emphasize, kicks in only if all the court has to go on is silence.”). Moreover, although ERISA itself “[left] open . . . the possibility that a written plan may be combined with an oral promise, such as an undertaking to give a worker twice the benefits so established,” wholly oral promises cannot be used to require the employer to provide irrevocable benefits. Frahm, 137 F.3d at 958. If there is some ambiguity in the language of the written agreement that is not disambiguated elsewhere in the document, only then may we consider evidence of the parties’ intent that is “extrinsic” to the written documents, such as oral representations. See Rossetto, 217 F.3d at 547; Bidlack, 993 F.2d at 609.
The plaintiffs claim that all of the VSRP’s enhanced benefits were vested, including the HCA, and that the HCA cannot be “carved out” of the VSRP package of vested retirement benefits. This contention is easily disposed of since the HCA benefit differs qualitatively from the VSRP’s other enhanced benefits: it is a welfare benefit, as the No. 03-2090 15 plaintiffs concede (Appellants’ Br. at 22-23), not a pension benefit. Thus, absent language expressly indicating that the HCA benefit is vested, it would not vest upon retirement.4 The plaintiffs argue that the VSRP documents indicate that the HCA is a “lifetime” benefit, and that this had been confirmed in oral representations made to them. Specifically, they assert that the personalized calculation worksheet, which states that eligible employees will receive an HCA allowance of $465 per month to age 65 and $180 per month thereafter, indicates that this benefit is “for life.” (R. 109-2, ex. 10.) The payment election form, which prescribes the same HCA allowance amounts as appear on the personalized calculation worksheet and which allows eligible employees to choose to have their surviving spouses receive the HCA benefit after their death, is also offered for the implication that the benefits were for life (and even beyond). (R. 109-2, ex. 11.) That the HCA benefit was a “lifetime” benefit—both for regular retirees and for retirees who accepted the VSRP package—is actually conceded by CNA. (Appellees’ Br. at 27; 1992 Retirement Guide at 6.) The problem for the plaintiffs is that “lifetime” may be construed as “good for life unless revoked or modified.” This construction is particularly plausible if the contract documents include a reservation of rights clause (which, as will be shown, is the case here). See UAW v. Rockford Powertrain, Inc., 350 F.3d 698, 704 (7th Cir. 2003) (“We must resolve the tension between the lifetime benefits clause, and the plan termination and 4 As we discuss in more detail below, the characterization of a benefit as “lifetime” can, absent a reservation of rights clause, indicate that the benefit is vested. However, the packaging of a welfare benefit with pension benefits does not on its own alter our presumption against vesting in the absence of express language to the contrary. 16 No. 03-2090 reservation of rights clauses, by giving meaning to all of them. Reading the document in its entirety, the clauses explain that although the plan in its current iteration entitles retirees to health coverage for the duration of their lives and the lives of their eligible surviving spouses, the terms of the plan—including the plan’s continued existence—are subject to change at the will of [the employer]. The health insurance section of the plan description unambiguously does not provide the plaintiffs with vested lifetime health insurance benefits.”) (internal citations omitted); Diehl v. Twin Disc, 102 F.3d 301, 307 (7th Cir. 1996) (“[W]hen potentially conflicting provisions coexist . . . within a single contract formed of several documents, the rule that contractual provisions be read as parts of an integrated whole will lead a court to seek an interpretation that reconciles those provisions.”); see also In re Unisys Corp. Retiree Med. Benefit “ERISA” Litig., 58 F.3d 896, 904 (3d Cir. 1995) (“An employer who promises lifetime medical benefits, while at the same time reserving the right to amend the plan under which those benefits were provided, has informed plan participants of the time period during which they will be eligible to receive benefits provided the plan continues to exist.”); Chiles v. Ceridian Corp., 95 F.3d 1505, 1512 n.2 (10th Cir. 1996) (“[T]he weight of case authority supports the Unisys approach, that a reservation of rights clause allows the employer to retroactively change the medical benefits of retired participants, even in the face of clear language promising company-paid lifetime benefits.”). As laypersons, the plaintiffs’ confusion on this issue is understandable; it is also very unfortunate, if it was a basis for their accepting the VSRP package. But in the perhaps beady eyes of the law, the “lifetime” nature of a welfare benefit does not operate to vest that benefit if the employer reserved the right to amend or terminate the benefit, given “what it takes to overcome the presumption that welfare benefits do not vest, combined with [our] reluctance to interpret a contract as being at war with itself.” Diehl, 102 F.3d at 307. No. 03-2090 17 It is true that some of our decisions have indicated that the use of “lifetime” to denote the duration of benefits may create an ambiguity and is not tantamount to silence (with its presumption against vesting). See id. at 306 (finding that separate agreement containing entitlement to lifetime benefits modified reservation of rights clause incorporated from another agreement and entitled retirees to welfare benefits for their lifetime); Bidlack, 993 F.2d at 608 (“But the agreements are not silent on the issue; they are merely vague. They say that once retired employees reach the age of 65 the company will pick up the full tab for their health insurance and that when they die their spouses will continue to receive supplemental health benefits, again at the company’s cost. This could be thought a promise to retired employees that they and their spouses will be covered for the rest of their lives.”). However, none of those decisions involve situations where a reservation of rights clause is an integral part of the contract that provides the “lifetime” benefits. In Diehl, we found that the contract providing “lifetime” benefits “was an independent contract, supported by separate consideration and capable of modifying or supplanting prior contractual arrangements,” such as the one that contained the reservation of rights clause. Diehl, 102 F.3d at 306-07. Here, the nature of the HCA as a “lifetime” benefit is not one of the enhancements created by the VSRP because the HCA is also a “lifetime” benefit for regular retirees according to the general retirement plan documents. Thus, unlike Diehl, the “lifetime” nature of the HCA benefit could not abrogate the reservation of rights clause included in the 1992 Retirement Guide and other general retirement plan documents because both were offered by the same contract. Moreover, the reservation of rights clause in Diehl provided an “unsure foundation of the putative right to discontinue” benefits. Id. at 308. The use of “lifetime” with respect to the VSRP’s HCA benefit simply does not operate to vest that benefit for the early retirees. In Bidlack, the only reservation of rights clause applicable 18 No. 03-2090 to the plan at issue was in a contract between the employer and an insurance company for the purchase by the former of health insurance sold by the latter. Bidlack, 993 F.2d at 606. We specifically found that clause inapplicable to the contract between the employees and the employer as to duration of benefits, the main issue in that case. Id. Thus, Bidlack did not involve the situation here where “lifetime” benefits were granted by the employer while the right to terminate or modify them was reserved. We have held that, when “lifetime” benefits are granted by the same contract that reserves the right to change or terminate benefits, the “lifetime” benefits are not vested. See Rockford Powertrain, 350 F.3d at 704. The plaintiffs additionally argue that the Brief Description Newsletter’s heading, “No reductions in the Retiree Health Care Allowance” indicated that the HCA benefit levels could not be altered. (Brief Description Newsletter at 2.) However, the paragraph accompanying that heading shows that no such promise was made. The paragraph reads: The maximum Retiree Health Care Allowance is earned at age 62 after 25 years of service as an active em- ployee. If you retire under the Voluntary Special Retirement Program, you will be credited with the maximum Retiree Health Care Allowance, even if you have less than 25 years of service or are under age 62.”5 5 We note, as an aside, that although “earned” might seem to connote “vested,” the two are distinguishable (though related) concepts. In the context of claims to benefits related to a break in service, the Second Circuit has noted that “[a]ccrued” benefits refer to those normal retirement benefits that an employee has earned at any given time during the course of employment. 29 U.S.C. § 1002(23)(A); see generally (continued...) No. 03-2090 19 Id. With respect to the plaintiffs’ contention here, we agree with the district court that the “plaintiffs’ interpretation of the provision is not the most sensible one.” (12/28/00 Order at 8-9.) In context, the heading in the Brief Description Newsletter refers to and rejects the reduced benefit amounts that would otherwise apply if an employee who does not meet the age and service requirements retires under the general retirement plan.6 Thus, the VSRP’s enhancement to the regular retirement plan’s HCA benefit was to ensure that the early retirees qualified for the maximum HCA amounts; it was not, and could not reasonably have been construed as, a promise to vest the HCA benefit at that maximum level for the remainder of the early 5 (...continued) Esden v. Bank of Boston, 229 F.3d 154, 162-63 (2d Cir. 2000). “Vested” benefits, on the other hand, refer to those normal retirement benefits to which an employee has a “nonforfeitable” claim; in other words, those accrued benefits he is entitled to keep. 29 U.S.C. § 1002(19). McDonald v. Pension Plan of the NYSA-ILA Pension Trust Fund, 320 F.3d 151, 156 (2d Cir. 2003). Moreover, we have held that “ ‘[a]ccrued benefit’ . . . has been interpreted to include retirement benefits and to exclude ‘ancillary benefits not directly related to retirement benefits’ like insurance or disability benefits.” Heinz v. Cent. Laborers’ Pension Fund, 303 F.3d 802, 804-05 (7th Cir. 2002), aff ’d, 2004 U.S. LEXIS 4028 (U.S. June 7, 2004). Thus, while the use of “earned” as applied to the maximum HCA benefit level might indicate poor drafting, it does not here indicate an intent to vest. 6 The plaintiffs may have recognized this in their Statement of Undisputed Material Facts In Opposition to the Defendant’s Second Motion for Summary Judgment. (See R. 117 at 5, ¶ 19 (“The VSRP retirees were entitled to receive the maximum Retiree Health Care Allowance even if they had less than 25 years of service or were under the age of 62. This benefit was not offered under the general retirement plan.”).) 20 No. 03-2090 retirees’ lives. The plaintiffs’ insistence to the contrary is unsupportable.
The plaintiffs next argue that, as a separate and distinct program, the benefits in the VSRP were not subject to the reservations of rights clauses in the various general retirement plan documents, and that the documents specifically mentioning the VSRP did not contain reservation of rights clauses. However, regardless of how the plaintiffs believe the VSRP was marketed to the early retirees, their initial premise that the VSRP was separate and distinct from the general retirement plan is incorrect. This is evident from a review of the Brief Description Newsletter, which repeatedly refers to the general retirement plan in discussing the VSRP’s enhanced benefits, making clear that the general retirement plan is the baseline program to which the VSRP’s enhancements would be made.7 The plaintiffs 7 We note four references in the three page document. (Brief Description Newsletter, R. 109-2, ex. 12.) On page 1, it states, “the Retirement Plan’s benefit formula for accruing your retirement allowance usually is a percentage of your average final pay over the last five years, multiplied by your years of service, but reduced if you want to retire before age 62. Under the [VSRP], the following enhancements will apply.” On page 2, it states that “[u]nder the Retirement Plan, your allowance is normally reduced . . . . But if you elect to retire through the [VSRP], these reduction factors will not apply.” Later on the same page, it states, “[i]n addition to these changes, we have already announced an expansion of the Retirement Plan’s definition of pay.” And on page 3: “In addition to the enhanced retirement benefits that are described above . . . .” Moreover, the VSRP would fail to qualify as an ERISA retirement program if it were comprised solely of the documents that specifically mentioned the VSRP and did not take (continued...) No. 03-2090 21 themselves admit that the VSRP was a modification of the regular retirement plan. (Appellants’ Br. at 32.) We also note that if the plaintiffs were correct that the VSRP was comprised only of those documents that specifically mentioned the VSRP, it would lack such fundamental prerequisites as administrative procedures and descriptions of the very benefits being offered. Moreover, the Covering Memo specifically incorporated the 1992 Retirement Guide and its reservation of rights clause. The Covering Memo stated that “[r]etirement means a major change in lifestyle for most people, and you’ll need to weigh the pros and cons carefully. The enclosed materials are intended to help you arrive at the right decision for you.” (Covering Memo at 1.) One of the enclosed documents was the 1992 Retirement Guide, which eligible employees were told “provides information about the benefits available to you during retirement and highlights the decisions you need to make regarding those benefits.” Id. Continental thus unambiguously stated in writing that the 1992 Retirement Guide, which included a reservation of rights clause, was part of the VSRP program and contained information about retirement benefits under the VSRP, including Continental’s reserved right to alter or terminate those benefits. The reservation of rights clause appears in a box near the bottom of the last page of the 15-page document: “The coverages described in this Guide may be amended, revoked or suspended at the Company’s discretion at any time, even after your retirement. No management representative has the authority to change, alter or 7 (...continued) as its baseline the general retirement plan’s terms, procedures and benefit descriptions. See 29 U.S.C. §§ 1102(a)(1), 1024(a)(1) (requiring employee benefit plans to be governed by written plan documents filed with the Secretary of Labor). 22 No. 03-2090 amend these coverages.”8 (1992 Retirement Guide at 15.) Although the plaintiffs argue that this reservation of rights clause on its face applies to “the coverages described in this Guide” and that the VSRP was not mentioned in the 1992 Retirement Guide, we noted earlier that the “lifetime” nature of the HCA benefit was set out in the 1992 Retirement Guide and that the HCA benefit’s “lifetime” nature was not one of the VSRP’s enhancements. Although the 1992 Retirement Guide (with its applicable reservation of rights clause) was part of the VSRP, along with, as will be shown, the 1990 Plan and the annual SPDs available at the time the VSRP was offered, it is worth addressing CNA’s argument that the lack of any reservations of rights clauses in the documents that mention the VSRP amounts to silence (with its presumption against vesting). If the benefits were not “lifetime” benefits, CNA would be correct. But, as we noted in Rossetto v. Pabst Brewing Co., “[i]f there is language in the agreement to suggest a grant of lifetime benefits, and the suggestion is not negated by the agreement read as a whole, the plaintiff is entitled to a trial.” Rossetto, 217 F.3d at 547; see also Abbruscato v. Empire Blue Cross & Blue Shield, 274 F.3d 90, 98 (2d Cir. 2001) (vacating district court’s grant of summary judgement in plan’s favor because “lifetime” life insurance benefits in early retirement plans “are ambiguous 8 Even if the general retirement plan documents were inapplicable to the VSRP, the omission of a reservation of rights clause from the documents mentioning the VSRP would not necessarily operate to waive CNA’s right to terminate or modify the HCA, which is an ERISA welfare benefit. See, e.g., Gable v. Sweetheart Cup Co., 35 F.3d 851, 855 (4th Cir. 1994) (citing Wise v. El Paso Natural Gas Co., 986 F.2d 929, 938 (5th Cir. 1993) (holding that “silence” as to an employer’s right to modify the plan does not “impliedly cede the right to later amend or discontinue coverage”)). No. 03-2090 23 and susceptible to interpretation as a promise of vested benefits” where neither of the early retirement plans “contain unambiguous reservation of rights clauses”); Devlin v. Empire Blue Cross & Blue Shield, 274 F.3d 76, 85 (2d Cir. 2001) (where no reservation of rights clause was present, “[s]uch ‘lifetime’ language, we believe, is sufficient to create a triable issue of fact as to whether Empire promised to vest retiree life insurance benefits at the stated level.”). Thus, if the plaintiffs had been correct that the reservation of rights clauses in the general retirement plan documents did not apply to the VSRP, the grant of “lifetime” benefits would have created an ambiguity allowing them a trial and allowing us to examine extrinsic evidence of the parties’ intent. However, since we determined that this was not the case, there is no ambiguity requiring an examination of extrinsic evidence. See Rockford Powertrain, 350 F.3d at 704 (“The health insurance section of the plan description unambiguously does not provide the plaintiffs with vested lifetime health insurance benefits. Therefore, we need not resort to extrinsic evidence to interpret the contractual obligation between the parties.”). Finally, the plaintiffs argue that language in the 1990 Plan authorized the vesting of their retirement benefits in such a way that the reservation of rights clause in the 1990 Plan, which they concede was “the controlling document in existence at the time that the putative class elected to accept the VSRP plan” (Appellants’ Br. at 23), allowed the benefits to be changed or terminated only prior to their retirement.9 For this proposition, the plaintiffs seize upon 9 The 1990 Plan incorporates by reference the Plan’s annual SPDs and “any changes announced in writing to Employees or to Retired Employees before the beginning of the calendar year, for the year in which the services are rendered.” (1990 Plan § 4.2, at 15.) The 1990 Plan is the umbrella ERISA plan under which the (continued...) 24 No. 03-2090 the following language: “However, no such amendment or termination shall diminish or eliminate any claim for a benefit under the Plan to which a participant shall have become entitled prior to such amendment or termination, as applicable.” (1990 Plan § 8.1, at 30.) But this argument presumes the very things the plaintiffs are trying to prove: that upon their retirement, the early retirees became entitled to their retirement benefits, which could not be diminished or eliminated by later amendments. As we have already explained, welfare benefits, unlike pension benefits, do not vest upon retirement. And the reservation of rights clauses contained in the 1992 Retirement Guide and other general retirement plan documents, which were applicable to the VSRP, allow amendment or modification of retirement benefits even after retirement. Thus, there was no entitlement to the HCA benefit on a going-forward basis. See Hackett v. Xerox Corp., 315 F.3d 771, 774 (7th Cir. 2003) (analyzing language in a benefits plan similar to the language here and holding that “[r]ights to benefits do not accrue prospectively”). The language at issue here prevented CNA from amending its retirement plan to require retirees to pay back HCA allowances already paid out, or retroactively terminating coverage for a claim to medical benefits to avoid paying such a claim. The reservations of rights clauses, on the other hand, allow CNA to prospectively alter or amend its welfare benefits offered to retirees, even after retirement, and that is what it did. 9 (...continued) general retirement plan as well as the VSRP were both created. As the controlling document at the time the plaintiffs elected to accept the VSRP plan, we find that its reservation of rights clause also applies to the VSRP. In addition, since the SPDs are incorporated by reference into the 1990 Plan, any reservation of rights clauses in the SPDs available to the early retirees at the time the VSRP was offered are also applicable to the VSRP. No. 03-2090 25