Dixie Life Ins. Co. v. Pacific Mut. Life Ins. Co.

• Decision Date: 11 May 1982
• Docket Number: No. 12814,12814
• Citation: 416 So.2d 139
• Parties: DIXIE LIFE INSURANCE COMPANY v. PACIFIC MUTUAL LIFE INSURANCE COMPANY and Harold J. Jones.
• Court: Court of Appeal of Louisiana — District of US

Page 139

416 So.2d 139

DIXIE LIFE INSURANCE COMPANY v. PACIFIC MUTUAL LIFE INSURANCE COMPANY and Harold J. Jones.

No. 12814.

Court of Appeal of Louisiana Fourth Circuit.

May 11, 1982.

Rehearings Denied July 16, 1982.

Phelps, Dunbar, Marks, Claverie & Sims, Harry A. Rosenberg, John J. Weiler, New Orleans, for plaintiff-appellee.

Chaffe, McCall, Phillips, Toler & Sarpy, Harry McCall, Jr., Norris S. L. Williams, New Orleans, for defendant-appellant.

Before GULOTTA, SCHOTT and GARRISON, JJ.

GULOTTA, Judge.

Pacific Mutual Life Insurance Company (Pacific) and Harold J. Jones, an insurance agent, appeal from a $278,500.00 jury verdict in favor of Dixie Life Insurance Company (Dixie), ¹ for damages resulting from Pacific's error in calculating the cost of a pension plan purchased by Dixie. We reduce the award to the sum of $99,902.00 against Pacific, and dismiss plaintiff's suit against Jones.

Dixie had an existing pension plan with the Home Life Insurance Company, but a proposed Pacific plan dated September 28, 1973, which Jones submitted to Dixie, provided greater employee benefits at less employee costs. ² Coverage by Pacific to Dixie began April 1, 1974.

In August, 1974, Pacific discovered a major error in the proposal whereby Dixie's annual contribution for the first year had been understated as $8,801.00 instead of $17,603.00, because its "unfunded supplemental liability" under the plan had been misstated as $13,522.00 instead of $132,874.00. ³ Although Pacific notified the Jones agency in August, 1974 regarding the mistake, it was not until July 31, 1975 that Dixie was made aware of the error.

On October 29, 1975, Winston C. Profio, Pacific's pension director, outlined in a letter to Charles J. D. Gerrets, III, Dixie's president, three options available to Dixie to resolve the problem: 1) to provide lower benefits similar to the previous insurer's plan with employer and employee premiums in an amount approximating those paid to the prior insurer; 2) to terminate the Pacific insurance coverage with a refund to Dixie of accumulated deposits plus accrued interest; or 3) to accept the higher costs for the Pacific coverage. Accepting the third option under protest, Dixie continued the Pacific coverage. This suit followed.

The $278,500.00 award was in conformity with the testimony of Dixie's actuary, William H. Blount. According to Blount, this amount represents the difference between the accrued and future costs between the Home Life and Pacific Mutual plans. ⁴

Defendants argue in this appeal that the trial judge erred in failing to instruct the jury on plaintiff's duty to mitigate damages. According to defendants, Dixie could have simply amended or terminated the Pacific plan and provided a lower level of benefits instead of maintaining the Pacific plan requiring increased contributions, as Dixie chose to do. In this connection, defendants argue the trial judge should have instructed the jury on the applicable federal pension law, the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. Sec. 1001 et seq., which sets forth restrictions on an employer's right to reduce or terminate employee benefits.

Defendants further contend the award is manifestly erroneous because Dixie failed to show it was prejudiced by defendants' delay in notifying Dixie of the error. According to defendants, the effect of the jury's verdict is to give Dixie all of the benefits of the Pacific Mutual plan at the erroneously stated amount of the September 28, 1973 proposal when Dixie could have reduced the benefits or terminated the Pacific plan.

Lastly, defendants point out that the verdict was "tainted" because, during deliberations, the jury referred to a chart used by plaintiff's actuary.

In answer to the appeal, Dixie seeks an increase to the sum of $301,240.00. According to Dixie, because of the pending suspensive appeal, a request for permission to reduce benefits or terminate the Pacific plan (under ERISA) could not be submitted to be effective before April 1, 1981. Dixie contends, therefore, that an additional year of accrued costs should be included in the total award.

JURY INSTRUCTIONS

Pacific timely made a blanket objection to the trial judge's failure to give the requested charges, but did not assign the grounds for these objections. We are cognizant of plaintiff's argument that defendants have waived their rights to raise an objection in this court concerning the jury instructions by their failure to raise a specific objection in the trial court. ⁵ However, LSA-C.C.P. Art. 2164 mandates that the appellate court shall render any judgment which is "just, legal and proper upon the record on appeal." The "Official Revision Comments" to this codal provision state that the purpose of the article "is to give the appellate court complete freedom to do justice on the record irrespective of whether a particular legal point or theory was made, argued, or passed on by the court below." Reading this article, together with the Louisiana Supreme Court's judgment in Gonzales v. Xerox Corporation, 320 So.2d 163 (La.1975), ⁶ when the entire record is before the court and the question raised is crucial to the resolution of the litigation, we are compelled to consider the issue of the failure of the trial judge to give requested instructions.

Turning now to the merits of defendants' contention, we conclude the trial judge erred in failing to instruct the jury concerning the Employee Retirement Income Security Act (ERISA) and its applicability to Dixie's pension plan.

This federal statute prohibits an employer from unilaterally reducing or terminating "vested" or "non-forfeitable" employee benefits unless the United States Department of Labor gives permission based on a showing of "unreasonable" hardship. See Nachman Corp. vs. Pension Ben. Guaranty Corp., 446 U.S. 359, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980).

29 U.S.C.A. Sec. 1061(b)(2) [ERISA] provides further that "... in the case of a plan in existence on January 1, 1974, the amendment made by this part [of ERISA] shall apply in the case of plan years beginning after December 31, 1975." Further, the Nachman decision makes it clear that ERISA's provisions concerning termination and amendment only apply to "vested" or "non-forfeitable" employee benefits. It is apparent, therefore that ERISA does not prohibit amendment or termination of plan benefits that are not "vested."

In our case, Pacific's plan expressly states that it is effective on April 1, 1973 and "... shall be deemed a continuation of the plan of benefits in effect prior to April 1, 1973 [the Home Life Plan] and not a new plan...." The Home Life Plan, implemented by Dixie on April 1, 1971 and amended by the Pacific Plan, provides for a five-year vesting period. According to the plan, an employee whose employment was terminated before five years of coverage under the plan was only entitled to receive his accrued contributions as of termination in one lump sum payment, whereas an employee terminating or retiring after five years coverage under the plan was entitled to retirement benefits payable after age sixty-five in accordance with the plan's schedule. When we consider the provisions of the plan together with the ERISA statute, we are led to conclude that Dixie had a plan in effect on January 1, 1974, and would have been permitted to reduce benefits if it had acted before April, 1976.

Clearly then, ERISA has applicability in the determination whether Dixie had the right to terminate or reduce employee retirement benefits, and, under the circumstances, we conclude the failure to give the required charges Nos. 1 and 6 ⁷ constituted prejudicial error resulting in a disproportionate jury award in favor of Dixie. We do not imply the jury erred in awarding Dixie a judgment against Pacific; rather, our finding of error concerns the amount of that award.

It is undisputed that the error in misstating Dixie's first annual contribution to maintain benefits under the Pacific plan was a unilateral one by Pacific Mutual and not the responsibility of Dixie. Moreover, it does not appear that the error is one of fact concerning the principal cause that would vitiate the contract under LSA-C.C. Arts. 1812, 1821, 1823 and 1825. Accordingly, it appears there is a valid and binding contract. The more perplexing question, however, is whether Dixie has been damaged by Pacific's refusal to carry out the contract terms and, if so, to what extent.

DAMAGES

In this respect, Dixie claims that Pacific's delay in informing Dixie of the error forced plaintiff to maintain the more expensive Pacific plan for its employees. Also, according to Dixie, if it became necessary to reduce the pension benefits, employer-employee relations would be adversely affected.

In support of this claim, Dixie's president, Charles J. D. Gerrets, III, testified that he had emphasized to Jones that Dixie could afford only "a few dollars a year" to maintain the plan and that if the true annual cost had been presented to him in 1973 he would not have accepted the plan.

According to Gerrets, the alternative of reducing employee benefits was not feasible because it might "wreck" or upset his company by tearing down the good will and security given his employees under the Pacific plan. Gerrets stated that it would have been "peculiar" to increase the morale of his employees and then "tear it down and start all over again". His testimony was corroborated by that of his father, Charles J. D. Gerrets, Jr., Dixie's chairman of the board, who was of the opinion that he would have lost many or most of his employees had he reduced benefits to the Home Life level.

The jury had the benefit of the additional testimony of two Dixie employees. Neal C. Bell, a sixty-five-year-old retiree, testified that he and his fellow employees had agreed that they were "much better off" with the Pacific plan after Jones had handed them summaries of benefits under the new...