Compliance

Retirees’ Claim for Lifetime Health Benefits Denied

Using a relevant Supreme Court decision, a federal district court judge found there was no genuine issue of material fact showing agreements with unions promised inalterable lifetime health benefits.

By Rebecca Moore editors@plansponsor.com | January 04, 2017

A federal district court has granted summary judgment to BorgWarner, Inc. in a case in which retirees and spouses of deceased retirees claimed they had an inalterable right to lifetime health care benefits under collective bargaining agreements (CBAs) and health insurance agreements (HIAs).

U.S. District Judge Paul D. Borman of the U.S. District Court for the Eastern District of Michigan previously denied both parties motions for summary judgment based on the 6th U.S. Circuit Court of Appeals decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc. Borman found the terms of the CBAs and HIAs were ambiguous on the issue of lifetime benefits.

Meanwhile, before the BorgWarner case went to trial, the U.S. Supreme Court rejected principles used by an appellate court to review cases about benefits provided by CBAs. The high court said the 6th U.S. Circuit Court of Appeals decision in M&G Polymers USA v. Tackett rested on principles that are incompatible with ordinary principles of contract law. According to the Supreme Court’s opinion, the 6th Circuit did not use ordinary principles of contract law in Yard-Man, but made its own inferences. First, the appellate court inferred from the existence of termination provisions for other benefits provided for in the CBA that the absence of a termination provision specifically addressing retiree benefits expressed an intent to vest those benefits for life.

The Supreme Court said the appellate court failed to consider the traditional principle that “contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.” According to the Supreme Court opinion, the 6th Circuit also failed to consider the traditional principle that courts should not construe ambiguous writings to create a lifetime promise.

Borman gave each party in the BorgWarner case the chance to file an amended motion for summary judgment, but only BorgWarner did. Using the Supreme Court’s reasoning in M&G Polymers and a subsequent 6th Circuit opinion in Gallo v. Moen, Borman granted summary judgment in favor of BorgWarner.

Borman noted that the agreements were for three-year terms and did not expressly state that the health care benefits vested. He also found that several of the agreements restated and sometimes redefined the health care benefits available going forward, which would be unnecessary if the benefits had vested. Borman also pointed out that the agreements contained a reservation of rights provision granting BorgWarner the right to modify, amend, suspend, or terminate the plan.

The opinion in Sloan v. BorgWarner, Inc. is here.

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