Alexander v. Primerica Holdings, Inc., 91-5712

• Decision Date: 25 June 1992
• Docket Number: No. 91-5712,91-5712
• Parties: 15 Employee Benefits Cas. 1881 Judd ALEXANDER; and Richard Edwards, on Behalf of themselves and as representatives of a Class of persons similarly situated, Appellants, v. PRIMERICA HOLDINGS, INC., formerly known as Primerica Corporation; Board of Directors of Primerica Holdings, Inc.; James Dimon; Irwin Ettinger; John Fowler; John Does 1-10 (being individual members of the Primerica Holdings, Inc. Board of Directors); ABC (being the administrator of the American Can Salaried Retirees Group Insurance Plan); and John Doe 15-25 (being the individual members of the Board, group or committee functioning as the administrator of the American Can Salaried Retirees Group Insurance Plan).
• Court: U.S. Court of Appeals — Third Circuit

Page 90

967 F.2d 90

15 Employee Benefits Cas. 1881

Judd ALEXANDER; and Richard Edwards, on Behalf of

themselves and as representatives of a Class of

persons similarly situated, Appellants, v. PRIMERICA HOLDINGS, INC., formerly known as Primerica

Corporation; Board of Directors of Primerica Holdings,

Inc.; James Dimon; Irwin Ettinger; John Fowler; John

Does 1-10 (being individual members of the Primerica

Holdings, Inc. Board of Directors); ABC (being the

administrator of the American Can Salaried Retirees Group

Insurance Plan); and John Doe 15-25 (being the individual

members of the Board, group or committee functioning as the

administrator of the American Can Salaried Retirees Group

Insurance Plan).

No. 91-5712.

United States Court of Appeals,

Third Circuit.

Argued March 5, 1992.

Decided June 25, 1992.

Gerald A. Liloia, Esquire (argued), Robert D. Towey, and Glenn Curving, Riker, Danzig, Scherer, Hyland & Perretti, Morristown, N.J., for appellants.

Saul P. Morgenstern, Jacob S. Pultman, Dewey Ballantine, New York City, and Donald A. Robinson, Robinson, St. John & Wayne, Newark, N.J. (Richard M. Green, Primerica Holdings, Inc., New York City and Sanford M. Litvack (argued) Burbank, Cal., of counsel), for appellees.

Before: STAPLETON and MANSMANN, Circuit Judges and POLLAK, District Judge. ^*

OPINION OF THE COURT

MANSMANN, Circuit Judge.

At issue here is whether a particular clause in an ERISA summary plan description reserved a company's right to reduce employee welfare benefits. The district court opined that it did. Because we conclude that the clause is ambiguous, we will reverse the district court's grant of summary judgment, and we will remand the case for a determination by the district court, as fact finder, as to whether the company promised lifetime fixed-cost benefits to its retirees.

I.

The plaintiffs, Judd Alexander and Richard Edwards, are retired salaried employees of American Can Company. As retirees, they received health and life insurance from the American Can Salaried Retirees Group Insurance Plan. In this class action, they contest a tenfold increase in their monthly premiums, instituted by Primerica Holdings, Inc., a successor in interest to American Can. In essence, the retirees claim that the increase violated the terms of the Plan. Primerica argues that the Plan reserved the right to reduce benefits and, therefore, that the Plan did not promise any vested benefit.

Because a formal plan document does not exist, our knowledge of the Plan arises from three summary plan descriptions. These summary plan descriptions provide that, upon retirement, salaried employees and their spouses will receive the Plan's Basic Medical coverage and that the death of a retiree does not affect a spouse's right to benefits. The Plan's Major Medical Benefits will terminate, however, if a retiree ceases to contribute to the Plan.

The following section of one summary plan description figures prominently in this litigation:

Extent and Limit of Coverage

The Company expects to continue this Plan indefinitely, but necessarily reserves the right to amend, modify, or discontinue the Plan in the future in conformity with applicable legislation. The Plan does not provide for benefit payments in any case or under any condition not identified and provided for in this booklet. The Group Insurance Policy and the certificates thereunder issued by the Insurance Company are consistent with the terms and conditions outlined in this booklet.

If any changes become effective under the Medicare Program by reason of current or future Governmental legislation or regulations, then full consideration will be given to appropriate modification in this Retired Group Insurance Plan.

App. 172. This section appeared with a slight variation in one other summary plan description. Primerica argues that the amendment clause in the section's first sentence reserves an unqualified right to reduce or terminate benefits. To the contrary, the retirees argue that it reserves only a limited right.

In 1989, shortly after it acquired American Can, Primerica raised monthly premiums from $5 to $50 per person. The retirees then filed this class action, claiming that the increase violated the terms of the Plan, that the reduction of vested benefits violated ERISA, that Primerica's violation of ERISA resulted in a breach of its fiduciary duty, and that the Plan's ambiguity in itself violated ERISA.

Primerica, in a motion for summary judgment, argued that the summary plan descriptions notified the employees of the Plan's absolute right to reduce or terminate benefits, and that therefore the Plan did not promise vested benefits. In response, the retirees argued that the summary plan descriptions only notified employees that the Plan would necessarily change if required by law. The district court held that the clause was unambiguous, granted summary judgment for the defendants, and dismissed the complaint. The retirees appealed.

We have jurisdiction over the final order of the district court. 28 U.S.C. § 1291. Our review of an order granting summary judgment is plenary. Country Floors, Inc. v. Partnership of Gepner & Ford, 930 F.2d 1056, 1060 (3d Cir.1991).

II.

The district court held that because the amendment clause unambiguously reserved the right to the Plan to reduce or discontinue benefits, the Plan did not promise lifetime benefits. Whether an ERISA plan is ambiguous is a question of law. Taylor v. Continental Group, 933 F.2d 1227, 1232 (3d Cir.1991). We review the district court's decision accordingly.

A.

The amendment clause, which is at the center of this appeal, reads:

The Company [American Can] expects to continue this plan indefinitely, but necessarily reserves the right to amend, modify, or discontinue the Plan in the future in conformity with applicable legislation.

The defendants suggest that this clause means that American Can might modify the Plan at any time and for any reason. The retirees suggest that the clause means that American Can will only modify the Plan if necessary to conform with applicable legislation. We find that the clause is ambiguous, that is, "subject to reasonable alternative interpretations." Taylor, 933 F.2d at 1232.

For instance, the word necessarily might mean "understandably," as the defendants proposed at oral argument, but the word might also mean "as a necessary result or consequence." See Webster's Third New International Dictionary (unabridged), at 1510 (1981). The phrase in conformity with applicable legislation may either limit the right to modify (as the retirees urge) or notify employees that any change will conform to the law (as the defendants urge). The word legislation may imply "change in the law," which would support the retirees' position, but perhaps it simply means "law," which would support the defendants' position. Similarly, the word indefinitely either means "continuing without limit" or "undetermined."

The variant of the amendment clause does not eliminate the ambiguity. It provides:

American expects to continue this Plan indefinitely, but necessarily reserves the right to amend, modify, or discontinue the Plan in conformity with applicable legislation and also subject to any applicable collective bargaining agreement.

The additional words, subject to ..., do not elucidate the clause's meaning.

Nor is the ambiguity eliminated by the Medicare clause, which assures participants that, if Medicare law changes, "full consideration will be given to appropriate modification" of the Plan. Interpreted one way, the Medicare clause conforms to the retirees' position; it reassures the employees that although American Can would reduce benefits if the law required, the company might also increase them if Medicare law created shortfalls. Interpreted another way, the Medicare clause conforms to the defendants' position; it reassures that American Can will give the retirees' needs "full consideration," even without the obligation to maintain benefits.

We also note that ERISA plans, like contracts, are to be construed as a whole, see Hansen v. Continental Ins. Co., 940 F.2d 971, 981 (5th Cir.1991), and context colors the meaning of words. Empirical research has demonstrated that a summary not unlike this one can lead readers to conclude that benefits are for life. See James F. Stratman, Contract Disclaimers in ERISA Summary Plan Documents: A Deceptive Practice? 10 Indus.Rel.L.J. 350 (1988).

Of the arguments advanced, none persuades us that the amendment clause has only one meaning. For example, the defendants have asserted that American Can could have written: "The Plan may only be amended to conform to applicable changes in legislation." By the same logic, the retirees have argued that American Can could have written: "The Plan may be amended at any time." This argument shows only that the clause, if drafted differently, would have been unambiguous.

The defendants have also attacked the retirees' position because it interprets the clause as stating the obvious--that the company would amend the Plan if the law required it. ERISA requires a plan sponsor to warn participants of possible decreases in their benefits. See 29 U.S.C. § 1022. Thus, although the retirees' suggested meaning states the obvious, section 1022 explains the presence of the clause. Moreover, the defendants' suggested meaning would render the words "in conformity with" as stating the obvious--that any change would be according to law--and section 1022 would equally explain the obviousness of those words.

The defendants have also questioned the implication in the retirees' interpretation that legislation might result in a benefit reduction. But one can imagine legislation that might result in a reduction of benefits. For example, a tax on benefits would reduce them; nationalization of health care might eliminate private insurance altogether in an effort to contain costs.

Finally, the defendants have made much of...