Edwards v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 08 September 1988
• Docket Number: Nos. 86-5982,87-5023,s. 86-5982
• Citation: 851 F.2d 134
• Parties: Hugh EDWARDS, Plaintiff-Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; State Farm Insurance Companies Retirement Plan for the United States Employees; State Farm Mutual Automobile Insurance Company, as Plan Administrator and Fiduciary for the State Farm Insurance Companies Retirement Plan for United States Employees; and the Continental Illinois National Bank and Trust Company of Chicago, Trustee of the State Farm Insurance Companies Retirement Plan for the United States Employees, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 134

851 F.2d 134

Hugh EDWARDS, Plaintiff-Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; State Farm

Insurance Companies Retirement Plan for the United States

Employees; State Farm Mutual Automobile Insurance Company,

as Plan Administrator and Fiduciary for the State Farm

Insurance Companies Retirement Plan for United States

Employees; and the Continental Illinois National Bank and

Trust Company of Chicago, Trustee of the State Farm

Insurance Companies Retirement Plan for the United States

Employees, Defendants-Appellants.

Nos. 86-5982, 87-5023.

United States Court of Appeals, Sixth Circuit.

Argued Nov. 3, 1987.

Decided June 29, 1988.

Rehearing and Rehearing En Banc Denied Sept. 8, 1988.

Stephen J. Butler (argued), Smith and Schnacke, Cincinnati, Ohio, J.L. Sallee, Jr., Scott B. Crooks, William J. Rudloff, Harlin, Parker and Rudloff, Bowling Green, Ky., for defendants-appellants.

Gregory Y. Dunn (argued), Robert Hensley, Horse Cave, Ky., for plaintiff-appellee.

Before MERRITT, KRUPANSKY and RYAN, Circuit Judges.

KRUPANSKY, Circuit Judge.

The facts are not materially in dispute. This action arose from defendant-appellant State Farm Insurance Companies Retirement Plan (Plan) for United States Employees' ("State Farm's") denial of disability benefits to plaintiff-appellee Hugh Edwards, a former State Farm employee who had worked 15 years for State Farm as a claims representative. State Farm's retirement plan granted benefits to those who had satisfied a service requirement phrased as follows:

The sum of the member's attained age and the length of his credited service must be at least 55 years prior to his date of disablement.

Article IV, Section 4.1(B).

On July 30, 1981, Edwards went on sick leave for 200 days until May 12, 1982. At the end of that time, he filed for disability benefits under the Plan. It was uncontroverted at trial that only if the 200 days sick leave was credited to his length of employment service would the length of service requirement of Section 4.1(B) be satisfied.

On November 10, 1981, three months into his sick leave, Jim Hill (Hill), personnel manager, wrote Edwards advising him that he either had already qualified or would qualify for disability income before September 1, 1982. The notice was in accord with a summary of the retirement plan which read in pertinent part that:

Time while on sick leave counts as service for plan membership and vesting and also counts as credited service used to determine your retirement income.

The provision appeared immediately above a section entitled "Disability Benefits". It is of significance to note at this juncture that Edwards had only been provided with a brief summary of State Farm's employee retirement plan (Summary) in lieu of a copy of the Plan in its entirety.

After Edwards had exhausted his paid sick leave, he was placed on unpaid sick leave from May 13, 1982 until February 28, 1983. During that time, he received annual reports styled "Annual statements--U.S. Employee Retirement Plan" which credited him for 365 "days on plan" during 1981 while he was on sick leave a substantial part of the year.

On October 12, 1981, Edwards applied for Social Security Disability Benefits. On February 16, 1983, the Retirement Committee and the Plan Administrator informed him that he was ineligible for disability benefits under the Plan. The Committee had decided that his "length of service" accrued only during the period prior to the date of his disablement. Although the date of disablement was not defined in the Summary furnished Edwards by State Farm, the term was defined in the complete text of the Plan in the following language:

The words 'date of disablement' shall mean the first workday of any period of time during which the active or Canadian member does not report to work for the company because of total disability by reason of Section 1.36 of the Plan.

Ignoring the Summary furnished to Edwards and relying exclusively upon the above language of the Plan, the Committee concluded that Edwards was totally disabled on July 30, 1981 and, therefore, his length of service accrued to that date. Accordingly, the Committee denied the claim solely upon its interpretation of Sect. 4.1(b) of the Plan without addressing the remaining arguments that had been advanced by Edwards in support of his claim.

Edwards thereupon filed a complaint in district court and the court concluded that the Committee's decision was arbitrary and capricious, by applying the appropriate standard of review. E.g. Varhola v. Doe, 820 F.2d 809, 813 (6th Cir.1987). The district court also concluded that a committee decision which validates a misleading course of action must be considered inherently arbitrary and capricious. See Rhoton v. Central States, Southeast and Southwest Areas Pension Fund, 717 F.2d 988 (6th Cir.1983) (administrators of pension plan acted arbitrarily and capriciously in denying benefits where summary plan provision and letter from fund generated reliance on the part of claimant).

In the instant case, since appellee had elected to summarize its Plan in lieu of providing its employees, including Edwards, with the entire text of the Plan, this court is constrained to consider the impact of the Summary presentation upon Edwards and similarly situated lay beneficiaries. The explicit phraseology of the Summary circulated by State Farm was obviously misleading where it stated that "time while on sick leave counts as service for plan membership." The Committee should have realized that the explicit language of the Summary could or would have caused Edwards and similarly situated unsophisticated lay employees to rely upon State Farm's inadvertant misrepresentation to their detriment. In the instant case the material misrepresentations were aggravated by Hill's reassuring letters to Edwards verifying the summarized definition of "service time" as well as the assurances conveyed by the 1982-1983 reports of his credited service time in the "Annual Statements--U.S. Employee Retirement Plan" provided to him.

Section 29 U.S.C.A. Sec. 1022 (West 1985), mandates that a summary description must be "written in a manner calculated to be understood by the average plan participant and ... sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." Sec. 1022(a)(1). "It is grossly unfair to hold an employee accountable for acts which disqualify him from benefits if he had no knowledge of these acts or if these conditions were stated in a misleading or incomprehensible manner in the plan booklets." H.R.Rep. No. 93-533, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Admin. News 4639, 4646. ¹

This Circuit has decided that statements in a summary plan are binding and if such statements conflict with those in the plan itself, the summary shall govern. See Rhoton v. Central States, Southeast & Southwest, 717 F.2d at 989-991. In that case the court relied upon a summary provision to demonstrate that the trustees' interpretation (founded upon the full plan) was "arbitrary and capricious." In Rhoton as in the case at bar, despite language in the text of the full plan which conflicted with the language of the summary plan, "the language of the summary mandate[d]" a decision in favor of the claimant. Id. at 991. In this case, the summary language is more compelling than that in Rhoton. "It is of no effect to publish and distribute a plan summary booklet designed to simplify and explain a voluminous and complex document and then proclaim that any inconsistencies will be governed by the plan. Unfairness will flow to the employee for reasonably relying on the summary booklet." McKnight v. Southern Life and Health Ins. Co., 758 F.2d 1566, 1570 (11th Cir.1985). See also Govoni v. Bricklayers, Masons & Plasterers, 732 F.2d 250, 252 (1st Cir.1984) (reliance or prejudice from faulty plan summary is ground for relief); Bower v. Bunker Hill Co., 725 F.2d 1221, 1224-25 (9th Cir.1984) (misleading summary plan description, combined with misleading management representations, preclude summary judgment in favor of employer); Hoefel v. Atlas Tack Corp., 581 F.2d 1, 3 (1st Cir.1978) (enforcing summary of retirement plan) cert. denied, 440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed.2d 462 (1979); Genter v. Acme Scale and Supply Co., 776 F.2d 1180, 1185 (3d Cir.1985) (the summary plan description must not mislead, misinform or fail to inform participant and beneficiaries of the plan); Hurd v. Hutnik, 419 F.Supp. 630, 656-57 (D.N.J. 1976) (despite disclaimer, summary plan statement governs).

Even assuming, arguendo, the correctness of the Committee's interpretation of the Plan as "plausible and reasonable," the Committee, like the trustees in Rhoton, 717 F.2d at 992, failed to place Edwards "on notice at any time that the Plan should be so construed." Id. Thus, the reliance that Edwards placed upon State Farm's circulated text of the Summary was reasonable and in keeping with this Circuit's decision in Rhoton. The instant case is factually more convincing than Rhoton since Edwards relied not only on the Summary provisions but also upon Hill's reassuring letter to him and the 1982-1983 annual reports concerning his accrued, credited employment service.

Moreover, Edwards relied upon Hill's letter, the 1982-1982 report of his accrued credited employment service, and the Summary to his detriment and abandoned available alternative actions such as staying on the job for a longer period so as to qualify for benefits. It is undisputed that had Edwards returned to work for even a single day after the expiration of his sick leave time, all of the sick leave time before his return would have been counted for purposes of calculating his credited employment service. Minimally, had Edwards been apprised of the Committee's interpretation of the Plan, he could have made "alternative financial plans", to guard...