Musto v. American General Corp.
| Decision Date | 23 August 1985 |
| Docket Number | No. 3-85-0546.,3-85-0546. |
| Citation | 615 F. Supp. 1483 |
| Parties | Robert L. MUSTO, et al. v. AMERICAN GENERAL CORPORATION, et al. |
| Court | U.S. District Court — Middle District of Tennessee |
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Robert L. Ballow, R. Eddie Wayland, Douglas R. Pierce, Mark Floyd, Nashville, Tenn., for plaintiffs.
William C. Humphreys, Jr., Atlanta, Ga., Thomas H. Peebles, III, Nashville, Tenn., for defendants.
This case considers whether an employer (or its successor in interest) can unilaterally terminate or materially alter retirement benefits after employees have provided years of service and have left active employment with the company. The named plaintiffs, on behalf of themselves and all others similarly situated, filed this action under the Employee Retirement Income Security Act of 1974, ERISA, 29 U.S.C. §§ 1001-1461, and the applicable federal common law, as well as under Tennessee common law. Plaintiffs seek: benefits under the terms of employee benefit plans established by defendants or their predecessors in interest, a declaration of plaintiffs' rights to such benefits, preliminary and permanent injunctions prohibiting the denial of the benefits, and compensatory damages and punitive damages. A hearing was held on July 29, 1985, through August 1, 1985, to review plaintiffs' motions for class action certification and preliminary injunction. Subject to the conditions set forth in this opinion, the Court certifies the case to proceed as a class action pursuant to Fed.R.Civ.P. 23(b)(2) and, also, issues a preliminary injunction.
In 1939 The National Life and Accident Insurance Company National Life established an annuity and life insurance program for its employees and future retirees. In 1945 National Life established a health insurance plan for its employees and future retirees. In 1968 NLT Corporation NLT was formed to be a holding company for National Life and other affiliated subsidiaries. NLT assumed plan sponsorship for the employee benefit plans established by National Life. All subsidiaries of NLT were thereafter covered by the NLT plans. The named plaintiffs are all retirees of National Life, NLT or its subsidiaries who receive or were eligible to receive pension and welfare benefits as a result of their service to their former employer.
The employee benefit plans provided by National Life and NLT were collectively known as the Security Program. The Security Program offered retirees a pension, paidup life insurance and lifetime medical insurance. (Exhibits 18, 19, 20). National Life and NLT used its Security Program as a recruiting device to solicit new agents and also as a bargaining point in attempting to convince its own agents to continue on with the corporation. At this point in the proceeding, it does not appear that all prospective or actual employees were told that retirement benefits were irrevocable or permanently fully "paid up" by the employer, requiring no post-employment premiums. Some individual retirees, however, may have received such representations. (Exhibit 25 — Memo to Cecil Sparkman from Doris Durard, Assistant Secretary, Security Program Division of National Life, responding to specific request for status of retirement benefits: "No contributions required for group life or medical after retirement.").
Over the years, the National Life/NLT Security Program underwent changes, including changes necessitated by the enactment of ERISA. The changes resulted in overall improvements in retirement benefits under the program over the years. (Exhibit 50 and D. Durard Testimony). Among the features of the program were life and medical insurance coverage which continued after retirement and, up until January 1, 1984, required no payment of premiums of the retiree.
National Life maintained its home office in Nashville, Tennessee. However, it maintained and staffed district offices in cities and towns across the country. The district managers and other supervisory personnel were, in addition to being responsible for the selling and servicing of insurance policies, continually required to recruit sales agents for the company. They were also required to counsel employees about the Security Program benefits and provide information regarding the Security Program.
NLT and National Life utilized the Security Program as a major inducement to attract employees. The promise of continued benefits at no cost to the individual after retirement was a material part of the presentation to prospective employees. Promotion of the Security Program was made both in written publications and through oral representations by company agents. Potential employees were advised by brochures, filmstrips, and audio recordings, as well as by the representations of recruiters, that the Security Program was one of the most liberal benefit packages in the country. ).
NLT and National Life also utilized the Security Program as an inducement to persuade employees to remain with the company rather than going to work for competitors or other employers. The testimony of witnesses who held district manager and other higher management positions indicates that whenever a good employee was considering leaving the Company, he or she would be reminded of the excellent retirement benefits available from National Life or NLT. Management would emphasize the fact that medical and life insurance would continue at no cost after retirement. The Security Program was responsible, at least in part, for retaining a productive and reliable work force for NLT and National Life.
At least once yearly all NLT and National Life employees received a personal statement setting forth the benefits each individual employee was entitled to receive under the Security Program. These personal statements of benefits addressed both present benefits and future benefits after retirement. Further, these statements emphasized that the employees would not be required to contribute for continued life and medical insurance coverage after retirement. (Exhibit 11). Pursuant to Company instructions, managers reviewed the annual statements with all their subordinates emphasizing the present and future benefits provided by the Company. (R. Musto and G. Laurence Testimony).
In district meetings held generally on a monthly basis, sales agents of the district were reminded of the Security Program and its retirement benefits with the promise of continued life and medical insurance coverage at no further cost. Also, at least three or four times a year all field employees were shown a special audio-visual presentation on the Security Program. This presentation emphasized the major features of the program, including retirement benefits and continued medical and life insurance at no cost.
National Life and NLT maintained a chain of command to assure the uniform administration of and dissemination of information concerning the Security Program. Corporate protocol required employees to go to their district manager if they had a question concerning benefits. (K. Sanders Testimony). Home office correspondence to field employees concerning their benefits was sent to and distributed by the district manager. (Exhibit 25). Whenever an improvement was made to the Security Program for retirees, district managers were informed so that they could in turn show employees that NLT was taking care of its retirees. (Exhibit 7).
In addition to recruiting materials, film strips and other materials, NLT and National Life furnished employees summary booklets every several years that set forth the Security Program provisions, including the provision of continued benefits at no cost after retirement. (Exhibits 5, 18, 19 and 20). NLT and National Life also regularly printed official company publications for its employees which, on at least two occasions, provided detailed information about the Security Program, including the fact that retirement benefits were furnished at no cost to the retiree. (Exhibits 8 and 9).
Finally, in numerous other communications to employees, National Life and NLT emphasized the benefits available after retirement under the Security Program. For example, general notices were sent to employees which referred employees to the summary booklet provisions concerning continued life and medical coverage at no cost after retirement. (Exhibit 6). Responses to employee inquiries regarding anticipated retirement benefits reaffirmed this no cost feature. (Exhibit 25). In addition, applicants for disability retirement were issued a statement promising medical and life insurance benefits at no cost after retirement. (Exhibit 30).
In short, National Life and NLT aggressively promoted the protection it would give its employees and retirees. The promise of continued benefits at no cost after retirement was continually reaffirmed in various ways.
The problem in this case arises because at the same time NLT and National Life were promising retirement benefits at no cost to its employees, the corporations were including in certain important documents termination/modification clauses that reserved to the companies the right to amend or rescind the promised benefits. Among the documents introduced at the hearing, the Court identifies three types of documents which contain the termination/modification clauses:
First, a right to change or terminate medical and life insurance appeared in the official master plan documents or policies. (Exhibit 48). These documents, however, were not distributed to employees, nor were they readily available.
Second, individual certificates of insurance for life and medical insurance...
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