861 F.2d 897 (6th Cir. 1988), 85-5865, Musto v. American General Corp.

Docket Nº:85-5865, 85-6092.
Citation:861 F.2d 897
Party Name:Robert L. MUSTO, et al., Plaintiffs-Appellees, v. AMERICAN GENERAL CORPORATION, et al., Defendants-Appellants.
Case Date:November 15, 1988
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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861 F.2d 897 (6th Cir. 1988)

Robert L. MUSTO, et al., Plaintiffs-Appellees,


AMERICAN GENERAL CORPORATION, et al., Defendants-Appellants.

Nos. 85-5865, 85-6092.

United States Court of Appeals, Sixth Circuit

November 15, 1988

Argued Oct. 17, 1986.

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[Copyrighted Material Omitted]

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Sidney O. Smith, Jr. (argued), William C. Humphreys, Jr., Philip C. Cook, Gregory C. Braden, Alston and Bird, Atlanta, Ga., Thomas H. Peebles, III, Trabue, Sturdivant and DeWitt, Nashville, Tenn., for defendants-appellants.

Douglas R. Pierce, King & Ballow, R. Eddie Wayland (argued), Robert L. Ballow, Nashville, Tenn., Leonard R. Page, Detroit, Mich., for plaintiffs-appellees.

Before NELSON and RYAN, Circuit Judges, and ENSLEN, District Judge. [*]

DAVID A. NELSON, Circuit Judge.

In addition to providing a pension plan under which their retired employees are paid lifetime annuities, the National Life and Accident Insurance Company and its affiliates have, since 1939, maintained group insurance coverage for both active and retired employees. The coverage includes life insurance, accidental death and dismemberment insurance (for active employees only) and, since 1945, medical insurance.

The group insurance has always been amendable at any time, and amendments have not been uncommon. Some of the amendments that were made over the years affected employees who had already retired, and others did not. Sometimes active employees were required to contribute part of the cost of one or more of the coverages they received, and sometimes they were not. In some years retirees who were younger than 65 had to pay part of the cost of their medical insurance, and in other years they did not. At no time between 1945 and 1984, however, was any retired National Life employee required to pay anything for medical insurance after age 65.

The cost of medical insurance was relatively low for several decades, and the level of insurance coverage historically provided by National Life was also low by today's standards. Not until 1971 was the dollar limit on the aggregate medical benefits payable over the entire course of an employee's retirement years raised from $5,000 to $10,000. Since that time, both costs and coverages have changed dramatically. The aggregate limit is now $200,000, for example, and in the first half of the current decade the cost of the medical insurance component of the group coverage increased by some 400 percent.

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National Life and its parent holding company were acquired by defendant American General Corporation in 1982, and effective January 1, 1984, National Life employees were brought under a new medical insurance program comparable to American General's. That program, which was contributory as far as active employees were concerned, required all National Life employees who retired after January 1, 1984, to contribute approximately 20% to 25% of the cost of their medical insurance. Such retirees were given a choice of different coverages, for which different charges were imposed.

The new program was soon changed again; effective July 1, 1984, a revised medical insurance plan, applicable without regard to retirement date, eliminated the choice of coverages and required all participating retirees who had reached age 65 to pay $16.10 per person per month. This was one-half the total cost of providing private medical insurance for people who, because they were 65 or older, qualified for the federal government's Medicare program. The plan provided that on July 1, 1985, the contribution level for early retirees (those under age 65) would increase from $14.87 per month (25% of total cost) to $29.75 (50% of total cost). The required contribution would drop back to $16.10 when the retiree reached the age of 65. The amendments also included an "escape clause" under which an early retiree who was eligible for medical coverage under another employer's plan would not be eligible under defendant's plan.

Contending, in essence, that each retired National Life employee had been given a vested contractual right to veto any change in his medical insurance, including any change respecting contributions toward the cost of the coverage, several retired employees brought a class action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001-1461. Regardless of when they had retired, the plaintiffs sought to freeze their medical insurance coverage at the configuration that applied to them on June 30, 1984.

In addition to challenging the changes in their medical insurance, the plaintiffs sought to block an unrelated change involving pension benefits for spouses.

After conducting a four-day evidentiary hearing, the district court certified the case as a class action and issued a preliminary injunction which, among other things, restrained the defendants from implementing the July 1, 1985 medical insurance premium increase for retirees under age 65. See Musto v. American General Insurance Corp., 615 F.Supp. 1483, 1494 (M.D.Tenn.1985). The defendants sought guidance on how the order was to be carried out, and the district court thereafter issued a supplemental order amending the definition of the class and giving instructions on implementation of the preliminary injunction. The defendants perfected separate appeals from the supplemental order and from the original injunction and class certification. The appeals have been consolidated.

The most significant of the several questions we are called upon to decide is whether the district court abused its discretion in issuing a preliminary injunction against implementation of the 1985 change in the medical insurance program. 1 Having concluded, for reasons explained below, that the plaintiffs failed to sustain their burden of showing the requisite likelihood of success on their claim that the changes in medical insurance coverage were impermissible, we shall reverse the order in which the injunction was granted.


Our starting point for determining the plaintiffs' rights under the group insurance policies is the actual language of the policies. ERISA requires that "[e]very employee benefit plan ... be established

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and maintained pursuant to a written instrument." 29 U.S.C. Sec. 1102(a)(1). A program under which an employer provides medical insurance benefits constitutes such a plan, see 29 U.S.C. Secs. 1002(1)(A) and (3), and the insurance policy, in this case, is the "written instrument" required by law. (National Life's "Retirement Plan," under which the plaintiffs receive their pensions, is a separate plan, established and maintained pursuant to a separate written instrument; ERISA gives employees "vested" (non-terminable) rights in the retirement plan, but not in the group insurance plan. 2 )

The insurance policy that was in effect when most members of the plaintiff class retired is National Life and Accident Policy Number G7166, a "contributory" group insurance policy issued in 1966. The 1966 policy, which replaced one issued in 1955, remained in effect, subject to various amendments, until January 1, 1984.

The 1966 policy provided three different types of insurance coverage for active National Life employees: life, accidental death, and medical. Article 2 of the policy says that insurance of an employee under any of these three coverages "shall cease immediately" upon

"(a) the date of the termination of employment of the Employee, except as provided in Section 5.07,

(b) the date on which the Employee fails to make a required premium contribution for the coverage,

(c) the date of termination of such coverage, or

(d) the date of termination of this Policy."

Article 5 of the policy contains the medical insurance coverage. Section 5.07, captioned "Insurance After Retirement," says that "[a]fter the Retirement of an Employee insured hereunder, Group Comprehensive Medical Expense Insurance shall be continued on such Employee ... and, subject to the provisions set forth below, benefits shall be payable under the same conditions as those applicable in the case of an insured Employee."

Insured employees are required by Article 6 to make periodic contributions to the cost of all three of the coverages provided by the policy. Originally, retired employees who had not reached the age of 65 were required to make premium contributions for medical coverage just as active employees were. That requirement did not extend to retirees aged 65 or older. Under an amendment that became effective on April 1, 1973, the contribution requirement for medical insurance was ended--temporarily, as it turned out--with respect to all employees, active or retired. A few months later a contribution requirement was reintroduced for medical coverage on the dependents of new employees. These policy amendments, like all other policy amendments, were made known to the members of the group by duly published announcements.

Article 7 of the group insurance policy contains several "General Provisions," one of which (Sec. 7.02) obligates the company to "issue for delivery to each insured Employee an individual certificate setting forth the benefits to which such Employee is entitled under this Policy...." These certificates, Sec. 7.02 says, "shall not constitute a part of this Policy."

Section 7.08 of the General Provisions, captioned "Modification or Discontinuance of Policy," contains the following important language:

"This Policy, or any insurance coverage hereunder, may be amended or discontinued at any time by an announcement duly published by the Company. The Company reserves the right to determine new premium contributions from

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time to time and at any time. Termination of this Policy, or any...

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