General Elec. Co. v. Martin

• Decision Date: 12 May 1978
• Citation: 574 S.W.2d 313
• Parties: GENERAL ELECTRIC COMPANY, Appellant, v. Hazel B. MARTIN, Appellee.
• Court: Kentucky Court of Appeals

Page 313

574 S.W.2d 313

GENERAL ELECTRIC COMPANY, Appellant, v. Hazel B. MARTIN, Appellee.

Court of Appeals of Kentucky.

May 12, 1978.

As Modified On Denial of Rehearing Aug. 11, 1978.

Discretionary Review Denied Dec. 19, 1978.

Ralph W. Wible, Sandidge, Holbrook & Craig, P. S. C., Owensboro, for appellant.

Charles S. Wible, Lovett, Wible, & Lamar, Owensboro, for appellee.

Before COOPER, GANT and PARK, JJ.

PARK, Judge.

This appeal involves the right of the plaintiff-appellee, Hazel B. Martin, to disability benefits under a pension plan maintained by the defendant-appellant, General Electric Company. Mrs. Martin's claim for disability benefits was denied by the pension board which administers the pension plan. After a full trial in circuit court, a jury returned a verdict that Mrs. Martin was disabled within the meaning of the pension plan and that the decision of the pension board denying her claim had been arbitrary, in bad faith or fraudulent. The circuit court entered a judgment that Mrs. Martin was entitled to a disability pension including past due benefits of $22,910.79.

Throughout these proceedings, General Electric has taken the position that the decision of the pension board was final and conclusive in the absence of clear proof that the denial of Mrs. Martin's claim by the pension board was "arbitrary, in bad faith or fraudulent." General Electric contends that the circuit court should have limited the evidence at trial to the record before the pension board and that the circuit court should have directed a verdict for General Electric.

FACTUAL BACKGROUND

General Electric has for many years maintained a pension plan providing various benefits for its eligible employees. Under section VII of the plan, a participating employee with fifteen years of service was entitled to a disability pension if the employee became permanently incapacitated for further work. Section VII further provided that:

The decision of the Pension Board as to the existence of disability shall, when supported by the certification of a physician selected by the Pension Board, be final and conclusive.

Section XX provided that the pension plan would be administered by a pension board. All of the members of the pension board were appointed annually by and held office at the pleasure of the Board of Directors of General Electric Company. Under subsection (5)(c) of section XX, the pension board had the power and duty to "make and enforce rules for the efficient administration of the Plan and to decide such questions as may arise in connection with the Plan." Subsection (6) of section XX stated:

The decision or action of the Pension Board in respect of any question arising out of or in connection with the administration, interpretation, and application of the Plan and the rules and regulations thereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

General Electric contends that Mrs. Martin's claim for a disability pension is barred under these terms of the plan by the adverse decision of the pension board.

Mrs. Martin is a fifty-seven year old woman with a third grade education. Her only employment has been as an assembly line worker at General Electric's Owensboro Plant. Mrs. Martin first went to work for General Electric on February 12, 1948, and for more than twenty-two years she was employed assembling components for electronic receiving tubes used primarily in radio and television sets. She last worked for General Electric on July 24, 1970, when she claims she became incapacitated for further work. On January 22, 1949, Mrs. Martin signed a form application for participation in the General Electric Pension Plan. Under Mrs. Martin's last day of work with General Electric was July 24, 1970. On August 29, 1970, Mrs. Martin submitted a report from her treating physician, Dr. D. C. Bennett, to the company physician, Dr. Charles Hornaday. Dr. Bennett's report was made on a form furnished to Mrs. Martin by General Electric Company. Dr. Hornaday rejected Dr. Bennett's opinion that Mrs. Martin was disabled. On September 19, 1970, Mrs. Martin submitted the report of a second treating physician, Dr. Duncan Johnson. Dr. Hornaday again rejected Mrs. Martin's claim of disability.

the terms of this printed application form, Mrs. Martin consented to be "bound by all the terms of the Plan." The General Electric Pension Plan provides for employee contributions according to a graduated scale, and the printed application form signed by Mrs. Martin also authorized General Electric to deduct from her compensation the contributions she was required to make to the plan. For most of the years involved, Mrs. Martin's compensation fell below the threshold level at which employee contributions were required. Her total contributions amounted to the relatively modest sum of $426.32.

On August 16, 1971, Mrs. Martin submitted a third report from a treating physician, again from Dr. Johnson. On August 18, 1971, Dr. Hornaday for the first time performed a physical examination of Mrs. Martin. He again rejected her claim that she was disabled. Mrs. Martin submitted a fourth treating physician's report on August 27, 1974. This final application for a disability pension was rejected solely on the grounds that her rights as an employee had long since expired.

General Electric never informed Mrs. Martin of her right to appeal Dr. Hornaday's decision to the pension board. There is nothing in the record suggesting that there were any regular procedures governing appeals to the pension board at the time Mrs. Martin submitted her claim. At oral argument, General Electric conceded that the pension board had adopted no procedural rules governing appeals. Mrs. Martin was not aware of her right of appeal to the pension board until after she had filed an action against General Electric Company in the Daviess Circuit Court on February 7, 1975. Her first notice of her rights before the pension board was a motion to dismiss her action filed by General Electric Company on the ground that she had failed to exhaust her administrative remedies.

An agreed order was entered in the circuit court holding the action in abeyance pending action by the pension board. By this time, Dr. Hornaday was deceased. In addition to Dr. Hornaday's rather sparse records concerning Mrs. Martin, the pension board considered the reports submitted by Mrs. Martin from two other physicians. The pension board denied Mrs. Martin's claim at a meeting of the board held in Connecticut.

GENERAL VALIDITY OF PENSION BOARD DECISIONS

The courts have upheld the general validity of provisions in private pension plans making the decision of administrative boards final and conclusive on all questions of eligibility under the plan. Nevertheless, the courts have also recognized that the decisions of such pension boards are not conclusive in a narrow range of circumstances. These exceptions to the rule favoring the finality of decisions of pension boards have been stated in various ways. Most commonly, the decision of the pension board is said to be conclusive unless it is "arbitrary, fraudulent, or in bad faith." Wyper v. Providence Washington Insurance Co., 533 F.2d 57, 63 (2d Cir. 1976); See also Matthews v. Swift & Co., 465 F.2d 814, 820-21 (5th Cir. 1972); Norman v. Southern Bell Telephone and Telegraph Co., Ky., 322 S.W.2d 95 (1959); Pennsylvania Co. v. Reager's Adm'r, 152 Ky. 824, 154 S.W. 412 at 417, 52 L.R.A. (N.S.) 841 (1913); Gitelson v. Du Pont, 17 N.Y.2d 46, 268 N.Y.S.2d 11, 215 N.E.2d 336 (1966). ¹ The difficulty lies During oral argument, counsel for General Electric suggested that courts could delineate the circumstances in which a decision of the pension board would not be conclusive by reference to the cases defining the scope of judicial review of decisions of administrative agencies. For example, in American Beauty Homes Corp. v. Louisville and Jefferson Co. Planning and Zoning Commission, Ky., 379 S.W.2d 450, 456 (1964), the court held that there were three grounds for judicial review of administrative agencies: (1) the agency was acting outside its statutory powers; (2) the agency failed to afford procedural due process; (3) the decision of the agency was not supported by substantial evidence. We believe that this approach to the problem has much merit. Nevertheless, we must bear in mind that this case involves the action of a private pension plan board, not a statutory administrative agency.

not in stating the rule, but in applying it to the facts. Unfortunately, the words "arbitrary, in bad faith or fraudulent" are not particularly helpful. ²

The pension plan was a part of the contract between General Electric and Mrs. Martin. She signed a printed application for participation in the plan authorizing the company to withhold her contributions to the plan. Under such circumstances, the pension plan cannot be considered a "gratuity" by the employer providing General Electric's employees no enforceable rights. Hadden v. Consolidated Edison Co., 34 N.Y.2d 88, 356 N.Y.S.2d 249, 312 N.E.2d 445, 449 (1974); Compare Russell v. Princeton Laboratories, 50 N.J. 30, 231 A.2d 800, 803 (1967), With Stewart v. Wisconsin Steel Company, 183 Ky. 730, 210 S.W. 479, 482 (1919).

If the pension plan is viewed as a contract between employer and employee, it does not follow that public policy is violated by a provision that the pension board should decide all questions of eligibility under the pension plan. Such provisions have the salutary purpose of providing a speedy decision without the great expense of litigation. Pennsylvania Company v. Reager's Adm'r, supra, 154 S.W. at 417. Nevertheless, the pension plan is not the result of bargaining between sophisticated and knowledgeable businessmen concerning a financial transaction of considerable magnitude. See Fite & Warmath Construction Co. v. MYS Corp., Ky., 559 S.W.2d 729, 735 (1977). We are dealing with...