Pierce v. Security Trust Life Ins. Co.

• Decision Date: 03 September 1992
• Docket Number: CA-89-661-N,No. 90-1101,90-1101
• Citation: 979 F.2d 23
• Parties: 15 Employee Benefits Cas. 1873 Earl E. PIERCE, et al., Plaintiffs-Appellees, v. SECURITY TRUST LIFE INS. CO., Defendant-Appellant. ().
• Court: U.S. Court of Appeals — Fourth Circuit

Page 23

979 F.2d 23

15 Employee Benefits Cas. 1873

Earl E. PIERCE, et al., Plaintiffs-Appellees, v. SECURITY TRUST LIFE INS. CO., Defendant-Appellant.

No. 90-1101 (CA-89-661-N).

United States Court of Appeals Fourth Circuit.

Argued March 7, 1991.

Decided July 2, 1992.

As Amended July 22 and Sept. 3, 1992.

Conrad Moss Shumadine, Willcox & Savage, P.C., Norfolk, Va., (Randy D. Singer, Annemarie D. Clary, Kevin L. Keller, Norfolk, Va., Donald I.N. McKenzie, Joseph A. Sowell, III, Waller, Lansden, Dortch & Davis, Nashville, Tenn., on brief), for defendant-appellant.

Joseph Lawrence Lyle, Jr., Kaufman & Canoles, Virginia Beach, Va., for plaintiffs-appellees.

OPINION

PER CURIAM:

This case presents issues arising from an ERISA action brought by twelve retired employees of the defendant Security Trust Life Insurance Company ("Security") to contest an amendment which Security made to the employees' ERISA plan. In 1988, after the plaintiffs had retired, Security amended the ERISA plan to require the retiree employees to contribute, beginning as of January 1, 1989, a portion of the cost of their medical and hospital benefits plan. Security made this amendment pursuant to the power granted the employer under the plan to terminate, modify or change the terms of the ERISA plan. Plaintiffs paid the required contributions under protest, and later instituted this action in the United States District Court for the Eastern District of Virginia for a declaration of the invalidity of the amendment and for recovery of any contributions made by them under protest and by reason of such amendment. As there were no factual disputes, both sides moved for summary judgment, and the district court received written and oral arguments. By Order dated August 10, 1990, the district court found unlawful Security's amendment requiring the retired participants to contribute a part of the cost of their hospital and medical benefits. The court also ordered Security to reimburse plaintiffs for their contributions made subsequent to January 1, 1989, and to reinstate the prior non-contributing nature of the coverage. Security now appeals. We reverse.

I.

In 1975, after Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461 (1988), officials of Security executed pursuant to the ERISA statute two benefit plan documents naming Security as fiduciary with authority to control and manage the operation and administration of the Plan, including the authority to amend or terminate the Plan. The Plan itself provided that the employer could modify, change or terminate the benefits unilaterally. Prior to this action, the benefits plan had been amended approximately twenty times, including the amendment in 1978 whereby Security enlarged the coverage by providing free medical coverage to its retirees. It was this amendment which provided the basis for the plaintiffs' action. Security's Chairman stated of this amendment, "Though we know you understand that your Company cannot offset the erosion of inflation on your retirement income, this benefit is added to help and to show again our appreciation for your past service to [Security]."

Security never distributed the Group Plan to plaintiffs, but, in compliance with ERISA requirements, Security prepared and distributed in 1980 to all retirees and employees a Summary Plan Description ("SPD"), which set out for Security's employees and retirees their rights and benefits. The SPD did not advise the retirees or existing employees that the Plan's welfare ("Hospital and Medical") benefits were subject to modification, change or termination unilaterally by the employer. However, the SPD declared, "This booklet describes the essential features on your group medical plan as they apply to you, but it should not be understood to be a complete or detailed statement of your rights under the plan. If you have any questions about the plan, you should contact the Personnel Department."

In 1978 and for some years thereafter, Security distributed to the plaintiffs and other Plan participants annual booklets entitled "A Personalized Statement of [defendant's] Career Benefits Prepared Especially For: [the named employee]." These booklets included, under the heading "Sickness and Disability Income Benefits" a statement of such retiree's benefits under the Plan's health and hospital policy. On a page after that describing the health plan and under a separate heading of "Retirement Benefits," these booklets contained a projection of the named retiree's estimated monthly retirement benefits, which declared the benefits described in the section to be "100% vested." Moreover, these booklets stated, "Careful attention was given to the preparation of this summary. The benefits actually payable, however, are controlled by the terms and conditions of the various plan instruments on file in the Home Office. Booklets explaining the plan provisions have been furnished to you."

In 1984, Security provided employees, including retired employees, with a new SPD entitled "Your Group Insurance Plan." Unlike the 1980 SPD, this 1984 SPD advised employees that their Plan could be changed or terminated by the employer unilaterally. The language of the SPD relating the employer's power to modify the Plan included this statement: "Plan Termination Security hopes and expects to continue the Plan indefinitely. Every effort has been made to arrange the Plan so that it will meet future conditions. However, to protect [defendant] against unforeseen conditions, [defendant] reserves the right to change or terminate the Plan at any time."

After the Plan acquired a new insurance policy covering hospital and medical benefits in 1986, Security again distributed a booklet entitled, "[Defendant's] Medical Expense Insurance Plan," which provided in a boxed, bold, italicized note in the "Loss of Benefits" section:

An amendment or termination may affect not only the coverages of active employees (and their covered dependents) but also former employees who retired, died or otherwise terminated employment (and their covered dependents) and of any covered persons who began a program of treatment or became hospitalized prior to the amendment or termination.

Because medical insurance costs drastically increased between 1978 and 1988, Security decided in the latter year to amend the Plan to make it partially contributing, and to require retirees under this amendment to pay approximately 25% of the cost of the Plan--i.e., either $30 or $95 per month, depending on whether the Plan was for individual or family coverage. ¹ The plaintiffs objected to such changes and sued to void them. Upon motions for summary judgment by both parties, the district court entered its order granting judgment in favor the plaintiffs. Security has appealed.

II.

The district court began its opinion granting summary judgment in favor of the plaintiffs by declaring that Security had in 1978 amended its medical plan to provide "free medical coverage" to its retirees, and had also issued at least five annual benefit summaries stating the terms and provisions of its ERISA benefits plan, which statements, according to the district court, "could be interpreted as stating that free retirement benefits [including non-contributory medical benefits] were '100% vested.' " The court further found that certain employees in Security's personnel department had told retirees that their "medical coverage [was] 'for life.' " According to the court's findings, Security did not mention in any communication to the retirees "its right to amend or terminate the plan" until the issuance of its "summary plan description ... sometime between 1984 and 1986." The court found that the employer's failure to provide notice of its right to amend the Plan until the 1984 SPD was a violation of ERISA which could not be remedied by a disclaimer. The court also found that Security did not take any action to amend the terms governing the medical benefits so as to require a contribution by the retirees until April 15, 1988.

On the basis of these findings, the district court concluded that Security had failed to comply with ERISA's statement and disclosure requirements ... [and] Security [had] compounded its malfeasance by providing employees with misleading annual benefit summaries which indicated that the retiree's benefits appearing on the page, including non-contributory medical benefits w[ere] '100% vested' ... [and] topped these actions off by telling employees who had questions about their plan to 'contact the Personnel Department,' Defendant's Exhibit 13, and then telling those who did that retirement benefits were provided by the company at no cost for the life of the retirees.

The district court opinion seems to assume, in conformity with existing authorities, that, even if there was a violation of the disclosure provision of ERISA by the employer, in order for a plan participant to recover damages for a violation of the employer of its duty of disclosure, the participant "must show some significant reliance upon, or possible prejudice flowing from, the faulty plan description." Govoni v. Bricklayers, Masons and Plasterers Local No. 5 Pension Fund, 732 F.2d 250, 252 (1st Cir.1984). The district court appears to have avoided the necessity of finding reliance and prejudice by declaring that "in instances where the company wholly fails to inform its employees that their benefits are subject to change at the employer's whim, reliance and prejudice are to be presumed." The district court proceeded to conclude that "Security may choose to include the plaintiffs in future plan amendments increasing the level of medical coverage; it may choose not to as well. The company may not, however, condition the plaintiff's receipt of future medical coverage on contributions towards the cost of the plan." (Emphasis in original). The court ordered the company "to reimburse the plaintiffs for...