Gordon v. ILWU-PMA Ben. Funds

• Decision Date: 03 April 1980
• Docket Number: No. 77-2614,ILWU-PMA,77-2614
• Citation: 616 F.2d 433
• Parties: 104 L.R.R.M. (BNA) 3008, 88 Lab.Cas. P 11,985 Rose GORDON, as Administratrix of the Estate of Angelina Miller, Plaintiff-Appellee, v.BENEFIT FUNDS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 433

616 F.2d 433

104 L.R.R.M. (BNA) 3008, 88 Lab.Cas. P 11,985

Rose GORDON, as Administratrix of the Estate of Angelina Miller, Plaintiff-Appellee, v. ILWU-PMA BENEFIT FUNDS, Defendant-Appellant.

No. 77-2614.

United States Court of Appeals Ninth Circuit.

April 3, 1980.

Craig E. Epperson, Lillick, McHose & Charles, San Francisco, Cal., for defendant-appellant.

Theodore W. Phillips, Phillips, Cohn & Greenberg, San Francisco, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California.

Before BROWNING, Chief Judge, TANG, Circuit Judge, and HOFFMAN, ^* District Judge.

WALTER E. HOFFMAN, District Judge:

This is an appeal by the Trustees of the International Longshoremen's and Warehousemen's Union Pacific Maritime Association Welfare Plan ("the Plan") from a judgment requiring the Plan to pay extended death benefits to the estate of Angelina Miller. The district court held that $8000 was due Mrs. Miller at the time of her death as a benefit stemming from the prior death of her husband, Ira G. Miller.

The trustees had denied the estate's claim on the grounds that Mrs. Miller failed to complete the documentation necessary to establish her eligibility before her death, and that payment to the estate of a dependent was contrary to the intended purpose of the Plan (to provide benefits to living dependents). The district court found that the trustees acted arbitrarily and capriciously in denying payment to the estate because they failed to disclose specifically to participants that extended benefits would be denied if a beneficiary did not personally complete the necessary forms.

On appeal, the trustees contend that the district court erroneously applied principles developed by state courts in interpreting commercial insurance contracts. We agree, and, in accordance with our decision in Rehmar v. Smith, 555 F.2d 1362 (9th Cir. 1976), reverse the judgment of the district court.

FACTS

The undisputed, material facts were set forth in the order of the district court. The ILWU-PMA Welfare Plan, a benefit plan for union members and their dependents, was created pursuant to the Labor-Management Relations Act, 29 U.S.C. § 186(c)(5). Currently, the Plan is subject to the provisions of the Employees Retirement Income Securities Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et seq.

Ira G. Miller, a registered watchman under the ILWU-PMA collective bargaining agreement, died on August 23, 1974. As a participant in the Plan, he was entitled to certain death benefits. The administrators of the Plan determined that his widow, Angelina, might be qualified to receive $8000 as an extended death benefit under Program III of the Plan. On August 30, 1974, they mailed to her an affidavit form which she was to complete, sign and return if she were in fact qualified. She died September 7, 1974, before executing and returning the form.

After further correspondence and consultation with Mrs. Miller's daughter and with the administratrix of Mrs. Miller's estate, the Welfare Plan administrators decided that no survivor of Ira G. Miller met the qualifications for receiving the extended death benefit. The decision stated that Mrs. Miller had failed to submit necessary documentation of her claim prior to her death, and that it was the intention of the ILWU and the PMA, in agreeing to create a death benefits program, to pay this benefit only to surviving, qualified dependents, and not to estates. Mrs. Miller had not established her qualifications, nor was she surviving. This decision was ratified by the trustees on or about August 16, 1976.

Undisputed evidence establishes that the administrators correctly stated the intention of the bargaining parties. The employers and union representatives purposely agreed to a program of benefits which would partially offset the loss of income experienced by a surviving spouse and dependent children. To provide as large a benefit as possible, the class of eligible beneficiaries was to be kept small. There was no intent to provide a windfall to persons other than surviving beneficiaries or to the heirs of any estate.

However, the bargaining parties left the implementation of this portion of the bargaining agreement to the trustees of the Welfare Plan, directing that the precise eligibility and qualifying requirements be set forth by the trustees in rules for the administration of the death benefits program in accordance with the intentions of the parties. These rules were published in a brochure made available to longshoremen covered by the Welfare Plan, and incorporated without change as provisions of the group insurance policy issued by Republic National Life Insurance Company.

In relevant part, Program III rules 5 and 6 provided:

5. At date of death the deceased longshoreman must have had a dependent or dependents qualified to receive the benefit. . . .

6. The benefit will be paid to the qualified dependent or dependents as provided hereafter A. The woman who (a) survives the longshoreman, (b) was legally and formally married for at least one year immediately preceding his death, and (c) who shared a common domicile with the longshoreman for at least the one year immediately preceding his death. . . .

The trustees do not dispute that these rules and policy provisions, taken alone, give the impression that qualifications for benefits would be determined as of the date of the longshoreman's death. However, they rely on an additional administrative rule which provides in pertinent part:

This benefit is paid only on establishment of the facts required to show both eligibility of longshoremen and the qualification of the particular claimant. These facts must be shown by execution of the claim and acknowledgment thereof in affidavit form in accordance with the form set forth . . . .

The designated affidavit form specifies on its face that it may be completed only by the surviving person claiming to be qualified.

Neither the affidavit form nor this latter administrative rule was disclosed to longshoremen or their dependents in the brochure describing the benefit plan, although there is no evidence suggesting that disclosure would have been withheld had a request been made. This combination of rules and forms has been uniformly interpreted and applied by the trustees to deny payment of a Program III extended death benefit to persons situated as is the administratrix.

The complaint in this case was filed on January 10, 1977. It was submitted to the district court on cross-motion for summary judgment on a record consisting of affidavits and documents. On May 16, 1977, the court granted summary judgment in favor of the estate.

In its seven page order the court acknowledged that the trustees possess broad discretion in setting eligibility rules for union pension benefits and that their decision is reversible only if it was arbitrary, capricious, made in bad faith, not supported by substantial evidence, or erroneous on a question of law. Applying this standard, the court found that the trustees had acted arbitrarily and capriciously in denying the claim because they failed to make a full and fair disclosure of the terms of coverage, and because reliance may have been placed on what would be understood from a reasonable reading of the disclosed rules.

The estate subsequently moved to amend the judgment to provide for interest and attorney's fees. On June 24, 1977, the court amended its judgment to provide the estate with prejudgment and post-judgment interest.

The trustees contend that the court erred by applying principles of commercial insurance law. They argue that federal common law controls the issues in this case and that state commercial insurance law is not part of the federal common law applicable to welfare plans existing in collective bargaining contracts. They add that the denial of Program III benefits to the estate was neither arbitrary nor capricious but rather based on a reasonable interpretation of Program III rules. The trustees also contend that the court erred in awarding prejudgment interest to the estate.

APPLICABILITY OF ERISA

The district court claimed jurisdiction under Section 301(a) of the Labor-Management Relations Act, 29 U.S.C. § 185(a), ¹ and Section 502(f) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(f). ² Without referring to any of the provisions of ERISA, the court found that the trustees had interpreted their eligibility rules unreasonably and that, therefore, their denial of the estate's claim was arbitrary and capricious.

The court was correct in finding that jurisdiction existed under the Labor-Management Relations Act. Rehmar v. Smith, 555 F.2d 1362, 1366-67 (9th Cir. 1976). Under that Act, it was proper for the court to apply the "arbitrary and capricious" standard of judicial review to the trustees' decision. Id. at 1371. Recognizing that a finding that the trustees had acted arbitrarily and capriciously would be sufficient to reverse the trustees' decision under the Labor-Management Relations Act, the court apparently felt it unnecessary to consider the applicability of ERISA. On appeal however, we must decide whether any of the substantive provisions of ERISA were applicable and, if so, whether they were violated by the trustees.

ERISA, 29 U.S.C. §§ 1001 et seq., was enacted by Congress as a program to protect beneficiaries of pension and welfare plans. See Martin v. Bankers Trust Co., 565 F.2d 1276, 1278 (4th Cir. 1977). It established rules for reporting and disclosure, participation, vesting, funding, and fiduciary responsibilities under the plans. Id.

The majority of ERISA's substantive provisions, including those dealing with reporting and disclosure, 29 U.S.C. §§ 1021-1031, and fiduciary responsibilities, 29 U.S.C. §§ 1101-1114, did not become effective until January 1, 1975. See 29 U.S.C. §§ 1031, 1114, 1144; Cowan v. Keystone Emp. Profit Sharing Fund, ...