Francis J. Devlin, Richard G. Kunkel, Joseph G. Murphy, Daniel Rosenberg, Daniel G. Sanders, James C. Snyder, Anthony J. Truhon, John Wandzilak, Jr., John F. Byrnes, William A. De Mauro, Michael Elkins, Jerrold I. Ehrlich, Beverly Glickerman, Gerald Harrison, John F. Luczun, John F. Muldoon, Harry E. Nicholsen, Ronald D. Zammit, Sterling E. Cathey, Louis L. Levine, Ellen H. Propp, John L. Shurtleff, Jules K. Lambek, and Eugene F. Harrison v. Empire Blue Cross and Blue Shield
Docket: 00-9469
Court: Court of Appeals for the Second Circuit; February 13, 2002; Federal Appellate Court
In the case of Devlin v. Empire Blue Cross and Blue Shield, plaintiffs, consisting of former employees who retired between 1989 and 1993, challenge a significant reduction in life insurance benefits implemented by the defendant, Empire Blue Cross and Blue Shield, in 1998. The plaintiffs seek to enforce the original life insurance terms provided during their employment, claiming violations under ERISA, including wrongful benefit reduction, breach of fiduciary duty, and failure to timely provide information summaries. They also assert a promissory estoppel claim.
The district court, presided over by Judge Barbara S. Jones, dismissed the plaintiffs' claims, ruling that the ERISA plan documents did not guarantee them a vested life insurance benefit at the previous coverage levels. On appeal, the Second Circuit, led by Circuit Judge F.I. Parker, found that the plan documents could reasonably be interpreted to provide a vested benefit and determined that the district court had improperly granted summary judgment to Empire on the claims of promissory estoppel and breach of fiduciary duty. Consequently, the appellate court vacated the district court's decision and remanded the case for further proceedings. The plaintiffs had varied lengths of service with Empire, with some retiring under specific incentive programs. Throughout their employment, life insurance benefits were provided at no cost, as detailed in a summary plan description distributed prior to 1987.
Retired employees who complete twenty years of full-time permanent service and reach at least age 55 are eligible for life insurance coverage equal to twice their annual salary, excluding overtime. Upon retirement, this coverage is reduced by 10% on the retirement date and by an equal amount on each of the subsequent four anniversaries, ultimately resulting in a 50% reduction of pre-retirement benefits after four years. There are no qualifications or conditions indicated for these benefits in the summary plan description (SPD), nor any indication that Empire could later reduce or eliminate them.
In 1987, Empire issued an employee handbook that reiterated these life insurance benefits without any cost to retirees, maintaining the same terms. However, this handbook introduced a reservation of rights allowing Empire to amend or terminate the plans, which was not present in earlier descriptions.
In 1992, Empire launched a voluntary workforce reduction program (VSOP), offering similar life insurance benefits to those in previous plans. While the health insurance benefits included explicit reservation of rights, the life insurance description did not, though the administration section noted Empire's right to amend or terminate the VSOP.
In 1993, another early retirement incentive program (VIP) was introduced, stating that insurance benefits might extend for a retiree's lifetime based on age and years of service, with eligibility potentially extending by adding five years to both age and service.
The VIP provided life insurance benefits similar to previous plans, with a 10% reduction upon retirement and for four subsequent years until reaching the annual salary level. Unlike its healthcare insurance description, the life insurance benefits lacked a reservation of rights. The VIP's Administration section stated that Empire reserves the right to amend or withdraw the VIP before an employee's resignation becomes effective and to introduce new plans as needed. In late 1997, faced with financial difficulties, Empire reviewed its benefits plans and announced new provisions on June 24, 1998, effective January 1, 1999, which included a reduction of life insurance coverage to a flat $7,500 for retirees. Retirees sought clarification on this reduction, and Empire justified it as necessary for financial health, citing their reserved rights to modify benefits.
In late 1998 and early 1999, two retiree groups filed suit in the Southern District of New York, claiming ERISA violations and promissory estoppel, arguing that pre-1987 employee handbooks promised lifetime life insurance benefits equal to their annual salary. The district court, upon reviewing cross-motions for summary judgment, found that the relevant documents (the 1987 handbook, VSOP, or VIP documents) contained clear reservation of rights clauses, meaning plaintiffs' rights had not vested, allowing Empire to reduce benefits. The court also dismissed the breach of fiduciary duty and penalty claims, determining Empire acted in accordance with the plan documents. Summary judgment was granted to Empire on the promissory estoppel claim due to insufficient extraordinary circumstances. The case was subsequently appealed, with plaintiffs arguing that the pre-1987 SPDs promised vested lifetime benefits and that Empire breached its fiduciary duty by providing misleading information.
Summary:
Summary judgment motions are reviewed de novo, with reversal mandated if genuine factual disputes exist that can be resolved in favor of either party. Plaintiffs allege rights under ERISA § 502(a)(1)(B), allowing them to recover benefits due under their plan, enforce rights, or clarify future benefits. However, ERISA does not guarantee substantive employer-provided health benefits; employers can adopt, modify, or terminate welfare plans at their discretion. If a plan document clearly indicates whether retiree benefits are vested, that language must be enforced.
The case evaluates whether Empire promised vested benefits based on ERISA plan documents. Plaintiffs reference pre-1987 Summary Plan Descriptions (SPDs) that lack a reservation of rights clause and suggest these demonstrate Empire's intent to provide lifetime life insurance benefits upon retirement eligibility. The district court ruled that the language in these SPDs did not express an intent to vest benefits before retirement. It determined that without explicit language, benefits would only vest if retirement occurred before 1987, when Empire introduced a new handbook with a reservation clause. The district court's decision referenced the Fifth Circuit's ruling in Wise v. El Paso Natural Gas Co., where similar circumstances led to a conclusion that absence of clear contractual vesting in plan documents negated claims for lifetime benefits.
Pre-1985 silence in summary plan descriptions (SPDs) does not equate to an affirmative contractual commitment, nor does it imply that El Paso relinquished the right to amend or discontinue coverage. While binding statements must be clear and unambiguous, silence does not hold the same weight. The doctrine of contractual vesting is narrow, requiring strong prohibitory or granting language to support a claim; mere silence does not suffice. The district court incorrectly applied the Wise standard, which demands clear and express language, whereas in this Circuit, ambiguous language that can be reasonably interpreted as a promise suffices for a plaintiff to proceed to trial.
The plaintiffs must identify written language that suggests a promise. They reference two sentences from the pre-1987 SPDs indicating that retired employees with 20 years of service and at least age 55 will be insured. This language can be interpreted as a unilateral contract promising lifetime life insurance benefits upon meeting specified conditions. Since the employer did not reserve the right to revoke the offer, it cannot do so once the offeree has begun performance. Therefore, Empire's reliance on its 1987 SPD to reserve the right to modify life insurance benefits is invalid, as the commitment made in the pre-1987 SPDs is binding once performance commenced.
The pre-1987 Summary Plan Documents (SPDs) contain a statement indicating that life insurance benefits will be maintained at the employee's annual salary level for life, which raises a factual issue about whether Empire guaranteed vesting of these benefits for retirees. The court cites precedents, such as Bidlack v. Wheelabrator Corp., to support the notion that lifetime benefit language can create a triable issue, especially in the presence of ambiguous terms. The determination of whether Empire made such a promise should be resolved by a trier of fact, potentially using extrinsic evidence for clarification.
On the topic of promissory estoppel, plaintiffs must establish four elements: a promise, reliance on that promise, injury from the reliance, and an injustice if the promise is not enforced. Additionally, they must demonstrate "extraordinary circumstances" that justify the claim in an ERISA context. The court references the case of Schonholz as an example where such circumstances were met when severance benefits were used to induce retirement. Plaintiffs argue against the district court's requirement for demonstrating that the promise was expected to induce action. The court notes that while they do not need to define "extraordinary circumstances" beyond intentional inducement, the plaintiffs have presented sufficient facts to support their claim and avoid summary judgment, needing to show circumstances that go beyond the ordinary.
Plaintiffs argue that the reduction in life insurance benefits by Empire constitutes an extraordinary injustice. However, the court notes that 'injustice' is only one of the four elements of their claim and cannot alone establish 'extraordinary' circumstances. Reliance, another element of promissory estoppel, similarly does not meet this threshold. Plaintiffs claim they were induced by Empire's promises of lifetime benefits, which influenced their long-term employment; however, the district court found that if courts deemed every job choice based on benefits as extraordinary, the term would lose its meaning.
Despite the district court's ruling, it is suggested that plaintiffs have shown more than mere acceptance of employment, dedicating significant portions of their careers to Empire, which may imply an intentional promise from Empire to attract and retain employees with guaranteed lifetime benefits. If established, such actions could qualify as 'extraordinary circumstances,' supporting the plaintiffs' promissory estoppel claim. Consequently, the court vacates the summary judgment granted to defendants regarding this claim.
Additionally, plaintiffs assert that Empire breached its fiduciary duties under ERISA, specifically under sections 404(a)(1)(A), (B), and (D), which require fiduciaries to act solely in the interest of plan participants and beneficiaries, and with appropriate care and diligence. Their claims are based on Empire's communications about life insurance benefits, particularly retirement letters assuring lifetime coverage and the 1987 Summary Plan Description (SPD) provided in response to inquiries about benefit reductions.
Plaintiffs allege that Empire breached its fiduciary duty under ERISA 404(a)(1)(D) by reducing life insurance coverage to $7,500, claiming this action was not aligned with the life insurance plan documents. The district court dismissed the plaintiffs' claims, asserting that Empire acted according to the plan documents and did not mislead the plaintiffs regarding the benefits. However, this conclusion was challenged, and the case is remanded for further consideration, particularly in light of the contractual vesting claim.
The appellate court disagreed with the district court's finding that Empire was not acting in a fiduciary capacity when it reduced benefits. Under ERISA, a fiduciary is defined as someone exercising discretionary authority over plan management or administration. The court noted that while employers are not fiduciaries when merely designing or amending retirement plans, Empire's actions in reducing benefits may indicate a breach of a contractual promise regarding vested benefits, suggesting it exercised discretionary authority.
Additionally, the court found that Empire's communications regarding benefit reductions could also constitute fiduciary actions. It referenced previous rulings emphasizing that employers who communicate plan details to beneficiaries may be acting as fiduciaries, particularly if such communications could be perceived as coming from both an employer and a plan administrator.
The court also clarified that fiduciaries must act solely in the interests of plan participants and beneficiaries, ensuring compliance with the prudent man standard in their decision-making processes.
A fiduciary is not obligated to proactively disclose changes to a benefit plan prior to adoption but must deal fairly and honestly with beneficiaries. Empire's characterization of its life insurance benefit as constant could indicate a violation of this duty. Even if no promise to vest benefits is found, Empire's communications may still have breached fiduciary duties by implying lifetime benefits without clarifying the possibility of reduction or termination. Misrepresentations or omissions by a plan administrator that could harm beneficiaries constitute a breach of fiduciary duty. The court should allow evaluation of Empire's communications for any affirmative misrepresentations or inaccuracies regarding plan benefits. Furthermore, it is incorrect to assert that a private action for breach of fiduciary duty under ERISA is unavailable if another remedy exists, as claims under ERISA Section 502(a)(3) can provide equitable relief for breaches not otherwise remedied. The Supreme Court has emphasized the importance of ensuring beneficiaries have remedies for fiduciary breaches, reinforcing that claims can be asserted under Section 502(a)(3) when no other ERISA remedy is available.
The Supreme Court's decision in Varity Corp. clarifies that if Congress has provided sufficient relief for a beneficiary's injury, further equitable relief under ERISA may not be necessary. However, a plaintiff can still assert claims under both ERISA § 502(a)(1)(B) for enforcing plan terms and § 502(a)(3) for breach of fiduciary duty. The determination of what constitutes "appropriate equitable relief" lies with the district court and should align with ERISA policy and the unique purpose of employee benefit plans. The court maintains that a breach of fiduciary duty claim remains valid even if another remedy exists, with the district court tasked to provide suitable equitable relief if plaintiffs succeed.
Regarding penalties under ERISA § 502(c)(1)(B) for failing to supply requested plan information, plaintiffs allege that Empire is liable due to providing documentation that was not applicable to their benefits. The district court initially dismissed this claim, noting Empire had timely provided the 1987 Summary Plan Description (SPD). However, with the case being remanded and the pre-1987 SPDs deemed applicable, the penalty claim is also sent back for reconsideration. The assessment of penalties remains at the district court's discretion, which should take into account factors such as the administrator's conduct, length of delay, number of requests, and any prejudice suffered by participants. The court vacates the district court's summary judgment for Empire and allows plaintiffs to present further evidence regarding ambiguities in the pre-1987 SPDs.
Summary: Summary judgment regarding the promissory estoppel, fiduciary duty, and penalty claims has been vacated, and the case is remanded to the district court for further proceedings. This case is linked with another federal lawsuit, Abbruscato v. Empire Blue Cross, which is being decided simultaneously, leading to separate opinions due to distinct appeals. Both parties acknowledge that life insurance benefits qualify as "welfare benefits" under ERISA. The court references Reichelt v. Emhart Corp., emphasizing that ERISA preempts civil actions based on common-law contract principles. Unlike in Reichelt, where a unilateral contract claim was rejected, the plaintiffs here assert a claim under ERISA that seeks to enforce contractual rights under a benefit plan. The court notes that under ERISA, promises of vested benefits must be enforced, and contract law influences the determination of rights under the plan. Although New York law allows for the revocation of unilateral contract offers until performance, ERISA's framework supersedes state law. The plaintiffs provided exit letters to retirees assuring lifetime life insurance benefits, with no mention of reduction or termination, which supports their interpretation of the plan documents and counters the argument that the company reserved the right to amend the plans.
