The opinion of the court was delivered by: ELFVIN
[EDITOR'S NOTE: The page numbers of this document may appear to be out of sequence; however, this pagination accurately reflects the pagination of the original published document.]
MEMORANDUM and ORDER APPROVING SETTLEMENT
In this class action lawsuit arising under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., an evidentiary hearing had been held before this Court July 18 through 26, 1984 and a Final Judgment was entered in plaintiffs' favor September 25, 1984 with respect to the first cause of action contained in their Amended Complaint.
Such judgment, consistent with this Court's September 17th Memorandum and Order that had found and declared that plaintiffs were entitled to enforcement of their rights to non-terminable medical insurance benefits under the terms of defendants' ("Bethlehem") Social Insurance Plan documents in existence prior to April 1, 1984, had directed Bethlehem to return any premiums paid by plaintiffs under the new Comprehensive Medical Program ("CMP") that had been adopted April 1st and to apply the provisions of the priorly existent programs retroactive to April 1st. Thereafter, Bethlehem moved for and was granted by thiss respect to that segment of the Judgment that had required immediate and retroactive application of the provisions of the pre-CMP medical insurance programs.
In conjunction with a December 6, 1984 scheduled pre-argument conference regarding Bethlehem's appeal to the United States Court of Appeals for the Second Circuit, the parties' counsel commenced settlement negotiations. An understanding was reached, reduced to writing and executed by such counsel January 25, 1985. The parties promptly moved before the appellate court to defer oral argument and for a remand of the action to this Court for consideration of the proposed settlement. Their joint motion was granted January 31, 1985.
On March 4, 1985 the parties submitted to this Court an executed Settlement Agreement as well as a joint application for approval of such.After having reviewed the Settlement Agreement and the proposed Bethlehem Permanent Health Program ("BPHP") that would thereunder be instituted for plaintiffs, I tentatively approved the terms of the settlement in an Order filed March 11, 1985 which (a) amended the plaintiff class to include certain additional former Bethlehem employees, (b) extended the class action to encompass the claims contained in all six causes of action in the Amended Complaint, (c) modified the Judgment as partially stayed to permit Bethlehem to collect specified premiums from plaintiffs as of March 1, 1985 and (d) approved the form of the "Notice of Proposed Settlement of Class Action" to be sent to class members and directed that Bethlehem mail such to each plaintiff no later than march 11, 1985. In addition, the Order regarding the proposed settlement established April 15, 1985 as the deadline for the filing with the Clerk of this Court of any objections to the proposed settlement and designated 12:00 p.m., April 29, 1985 as the time for the hearing before this Court with respect to the fairness and appropriateness of the proposed settlement.
The notice sent to each class member explained the background of this action, summarized the terms of the proposed settlement and th BPHP that would be establlished if the settlement were approved, and notified plaintiffs of the "non-opt out" nature of their class membership and of their rights to file written objections to the settlement proposal, to employ their own counsel to present any objections, to review the proposed Settlement Agreement, and to appear and be heard at the April 29th hearing before this Court.
Having considered the terms of the Settlement Agreement, the objections filed thereto, the affidavits that have been filed in support of the proposed settlement, the statements made during the course of the April 29th hearing, and being fully familiar with the facts and procedural history surrounding this action, this Court findss that the proposed settlement is an equitable and satisfactory resolution of this lawsuit. The possibility of one or more appeals has been eliminated and plaintiffs have achieved security regarding their health care and life insurance coverages while agreeing to pay relatively modest premiums for rather comprehensive health care coverage containing limited deductible levels that will be incurred by them. As expected regarding any settlelment of a legal action, both parties chose to make reasonable concessions in order to avoid the risks, anxiety and expenses that would have resulted from further litigation.
Although the plaintiff class in this lawsuit is comprised over 18,000 individuals, fewer than fifty objection letters regarding the proposed settlement were filed with this Court.
Nevertheless I have reviewed each letter and have considered each contention raised in reaching my determination that the proposed settlement represents a fair termination of this litigation.
The majority of the letters are from pensioners asserting that they had been promised certain health care benefits upon their retirement from Bethlehem's employ and that the company should not now be permitted to renege on its word. Other objectors point to the similarities between the propossed BPHP and the CMP program, the adoption of which had precipitated this lawsuit. Some pensions object to specific features in the BPHP -- such as the lifetime limitation on insurance coverage of $500,000 per participant, the precertification requirement pertaining to certain medical services and the yearly deductible and "out-of-pocket" provisions. A few pensioners have objected to the aspect of proposed settlement that would allow Bethlehem to deem the CMP to have been properly in place from April 1, 1984 to the date of the implementation of the BPHP and to treat claims that had accrued during such period as arising under and to be processed under the terms of the CMP.
Having considered these objections in view of all the circumstances surrounding this litigation and the proposed settlement, this Court does not find that the objections individually, or collectively, warrant disapproval of the settlement. The BPHP to be instituted for all class members under the settlement will not be subject to termination or modification by Bethlehem and Bethlehem has agreed as a term of the settlement to waive all premiums for health care coverage provided to the plaintiff class for the period April 1, 1984 through February 28, 1985. Furthermore, the settlement provides that life insurance benefits of class members that were applicable at the date of each pensioner's retirement will remain in effect during the respective pensioner's lifetime.
Although there are numerous mutually comparable provisions to be found in the CMP and BPHP, it must be recognized that, if Bethlemen's position were to be accepted upon its appeal to the United States Court of Appeals for the Second Circuit or subsequently to the United States Supreme Court, Bethlehem would have had plenary authority to diminish the coverage provided under the CMP or to terminate such program in its entirety at its whim. The lifetime limit on benefits coverage of $500,000 per insured is not unreasonable and it is further noted that it is possible that the precertification procedure could have been instituted as an administrative alternation even under the pre-CMP programs.
In summary, this Court finds that the proposed settlement adequately protects the interests of all class members, that the reaction by the class to the settlement has been overwhelmingly favorable, and that the substantive terms of the settlement are fair to plaintiffs in light of the complexity of this litigation, the attendant risks, additional expenses and other disadvantageous circumstances that could result from further liltigation of this matter.
Accordingly, it is hereby ORDERED that the Settlement Agreement filed March 12, 1985 is approved, that pursuant to the terms of said agreement plaintiffs' Amended Complaint together with all claims which were or might fairly have been alleged under the facts therein is dismissed with prejudice without costs to any party as to all members of the expanded class as described in this Court's March 11, 1985 Order, and this Court's Memorandum and Order dated September 17, 1984 and Judgment entered on such data as well as the Amended Judgment entered September 25, 1984 are vacated, that counsel for plaintiffs may apply to this Court for an award of fees and reimbursesment of their disbursements in connection with this litigation including moneys expended by members of the plaintiff class in furtherance of the action, and that this Court shall retain jurisdiction over this action until implementation of the new Bethlehem Permanent Health Program is completed for the purpose of issuuing any additional orders needed to effectuate, clarify or enforce the terms of the Settlement Agreement.
In this action arising under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., alleging inter alia a violation of the terms of an employee welfare benefit plan,1a a hearing for the presentation of evidence pertinent to the construction of certain provisions of such plan's documents upon which plaintiffs' first cause of action is premised and was held July 18th through 26th.2a In an Order filed June 22, 1984 I had denied both parties' motions for partial summary judgment concerning plaintiffs' initial claim inasmuch as it was found that the plan's "amendment or termination" provisions were not so unambiguous as to warrant such drastic procedural remedy. The evidentiary hearing was directed in order to permit the parties to present extrinsic evidence with respect to the interpretation of any plan documents relevant to the disputed authority of defendants to alter or canel the health benefits in issue.
Many of the background facts pertinent to plaintiffs' first cause of action are not disputed. On December 8, 1976 the Board of Directors of Bethlehem Steel Corporation (hereinafter "Bethlehem") adopted the Social Insurance Plan of Bethlehem Steel Corporation and Subsidiary Companies, as Amended Effective as of December 1, 1976 ("the Plan") (Plaintiffs' exhibit 37).3a Such plan is an employee welfare benefit plan as defined under ERISA, 29 U.S.C. § 1002(a),
authorizing the establishment of medical, life insurance and similar benefits programs for eligible employees and pensioners. Pursuant to the Plan and its earlier versions numerous benefits programs had been instituted by Bethlehem over the years for active union and non-represented employees as well as for pensioners.
On or about March 6, 1984 Bethlehem caused to be mailed to members of the plaintiff class a communication notifying them that changes in their medical care coverage under benefits programs established pursuant to the Plan would become effective April 1, 1984. Among the major changes were the institution of premiums to be paid by participants, deductibles prior to the reimbursement for hospital and physicians' services, precertification requirememnts for certain types of inpatient care, and lifetime limitations on company-paid benefits for each participant and dependent (Plaintiffs' exhibit 12).
The sole question before the Court at this juncture is whether under the terms of pensioner health care programs' coverage and to require the payment of contributions by participants in these programs.
Plaintiffs have consistently asserted that, according to the terms of the Plan documents and specifically Section 2 of Article XI thereof, Bethlehem was precluded from terminating or reducing the terms of coverage of any benefits program of a class member once he or she had retired with a sufficient number of years of continuous service or had otherwise become eligible for participation under the specific provisions of a benefits program.
Bethlehem has contended that, pursuant to the amendment and termination provisions contained in Article XI of the Plan it has always retained the right to amend or terminate the Plan or any benefits programs thereunder, provided that a participant was fully reimbursed with respect to a claim incurred or "in the pipeline" prior to the effective date of amendment or termination of coverage.
Twelve witnesses testified during the course of the evidentiary hearing.
Jere Y. Heisler, who had worked for Bethlehem for thirty-six years prior to his July 31, 1983 retirement from the position of Manager of Production Scheduling at the Bethlehem, Pa. plant, testified regarding on April 1980 meeting of the top management prsonnel of the corporation at the Boca Raton Hotel in Florida. Heisler testified that on the final day of such meeting Bethlehem's outgoing Chief Executive Officer Lewis W. Foy had given some general farewell remarks and that each member of the Bethlehem Management Groupwas then presented with a personalized looseleaft book entitled "Your Financial Security." Heisler recalled that Ben Boyleston of the Employe Benefits, Human Resources Office had given a presentation in which he outlined the contents of the book for the group and had explained the benefits that "Management Group" members would receive as active employees and later as retirees. Heisler noted at the hearing that page 3 of the Medical Benefits section contained the statement, "Following your retirement, you and your dependents will continue to receive Blue Cross and Blue Shield coverages at no cost to you." (Plaintiffs' exhibit 4). Heisler testified that the book did not mention any right of Bethlehem to cancel benefits although it was explained therein that specific benefits -- namely, vision, dental care and annual physical examinations would terminate upon retirement.
Heisler further pointed out that page 2 of the life insurance section of the so-called "Boca book" contained the following representation: "After your retirement, the cost of your life insurance will continue to be paid in full by Bethlehem." The book further explained that reductions in the amount of life insurance coverage would occur when the retiree had reached certain ages but that, at the end of these periods, "the amount of your insurance under each policy will be 50% of that in effect immediately prior to your retirement and will then remain unchanged until your death."
Heisler additionally testified that he had considered these benefits when he had opted for early retirement in 1983 and that he had also cancelled his own life insurance coverage due to his understanding that Bethlehem had undertaken to continue his company-paid life insurance indefinitely after his retirement.
Subsequent to his decision to take early retirement, Heisler had received an "exit interview" from Bethlehem employee Joanne Refscher during which his pension, accrued vacation, life insurance and medical benefits had been explained to him.
Heisler testified that he had been advised during the interview that Bethlehem would continue to pay life insurance, that his medical benefits would remain in the same posture and that, should his spouse survive him, she would continue to receive medical benefits.
Heisler additionally testified that in 1980 the Bethlehem Management Group consisted of approximately 250 members, that such individuals had received special benefits as opposed to other non-union employees and that he believed Bethlehem had retained the right to change benefits of active employees.
William E. Diehl, who had worked for Bethlehem for thirty-two years and had retired June 30, 1981 from the position of Manager of Sales for the Reinforcing Bars Fabrication Division of Bethlehem, testified regarding information he had received prior to retiring with respect to benefits.He stated that he had received inter-office correspondence from Tom Mohr, Assistant Vice President for Sales Personnel, which provided information regarding, inter alia, life insurance and Blue Cross/Blue Shield coverage following retirement. This document (Plaintiffs' exhibit 16) stated in part that Diehl's two life insurance policies would continue after retirement with certain yearly reductions when he would reach sixty-five and seventy years of age. The "last reduction" was to occur at age sixty-nine under one policy and at age seventy-four under the other, with the coverage to then remain at 50% of the amount respectively in effect at the date of retirement. The correspondence also indicated that Blue Cross/Blue Shield and Major Medical coverage would be company-paid for Diehl and his eligible dependents but that dental and vision care expense coverage would be discontinued at retirement.
Carroll G. Heck, a Bethlehem employee for thirty-one years who had retired July 31, 1980 from the position of Assitant General Manager of the Lackawanna (N.Y.) Plant, also testified regarding the Boca Raton meeting. He recalled that none of the speakers at the meeting wherein benefits had been discussed had said that Bethlehem could cancel or diminish any of the benefits after the retirement of an employee. Heck also testified regarding a July 8, 1980 letter he had received from David W. Kempken, Manager of the Employee Benefit Programs, which explained the "lump-sum" retirement option. The letter (Plaintiffs' exhibit 43) contained the statement:
"If you receive a lump-sum payment as opposed to a regular monthly Bethlehem pension, you will still be enrolled in both the Program of Hospital and Physicians' Services Benefits for Eligible Pensioners and Surviving Spouses (Blue Cross-Blue Shield) as well as in the Major Medical Expense Insurance Program for Retired Members of the Bethlehem Management Group and Their Eligible Dependents. Both of these Program coverages will be provided by Bethlehem at no cost to you. In addition, your Metropolitan and John Hancock life insurance coverages will be continued in the same manner as if you would be receiving a regular monthly Bethlehem pension."
Heck further testified regarding the circumstances leading to the institution of this action. He said that all of the pensioners with whom he has spoken believe that Bethlehem did not have the right to reduce their benefits. He further averred that he had interpreted the reference in the Boca book to possible future changes of benefits to have permitted reductions in benefits of active employees and only additions to benefits of pensioners.
C. Thomas Mitchell, who had worked for Bethlehem for approximately twenty-three years and has retired July 30, 1983 as Manager of Bethlehem's Field Printing Department testified with respect to an "exit interview" he had received June 30, 1983 after he had decided to retire. Mitchell recalled that at such interview he had asked Jacqueline Coyle, the Bethlehem representative, what would happen to his Blue Cross/Blue Shield coverage upon his reaching sixty-five years of age. Mitchell testified that Coyle had told him that those medical benefits would continue for his life.
Robert E. Cooper, who had worked for Bethlehem for over eighteen years as its Coordinator of Electrical Testing and Training and in its Pension Office from August 1981 until his retirement July 31, 1983, testified regarding the procedures he had utilized in giving exit interviews to non-unionized employees. Cooper stated there had been a packet of forms which had to be explained to and be signed by the employees and that a booklet explaining benefits also had been given to the employee. Cooper testified that he had given at least two hunder of such interviews and that he had always told the employee that he or she would receive coverage for life with certain yearly reductions upon reaching age sixty-five and that dental and vision care coverage would end upon retirement. Cooper stated that he had not received any formal training from Bethlehem as to conducting exit interviews but that he had observed interviews conducted by Emmet Moyer, Coordinator of the Pension Office, and Tom Lohr and Judy North of such office for approximately two weeks when he had first started working in the Pension Office. Cooper recalled that during the course of interviews these interviewers had told retiring workers that they would have free Blue Cross/Blue Shield coverage for the rest of their lives. Cooper also recalled that, when Moyer had advised retirees regarding eligibility for Blue Cross/Blue Shield coverage and the provisions with respect to a retiree's surviving spouse's coverage, it had been explained that such provisions meant that the retiree would receive such for all of his or her life. Cooper further testified that he had never been instructed to advise retirees that downward changes in their benefits could occur after the date of retirement.
George W. Lutz, who had retired July 31, 1983 after twenty-five years as Bethlehem's Supervisor of Salary Administration, also testified regarding the administration of exit interviews. Lutz had worked under William Churn in 1976 and for two years had observed numerous exit interviews conducted by Churn. From 1978 to January 1983 Lutz himself gave exit interviews to non-union employees. He testified that a copy of a booklet entitled "Program of Hospital, Physicians' Services and Major Medical Benefits for Eligible Exempt Salaried Pensioners and Surviving Spouses of Bethlehem Steel Corporation and Subsidiary Companies, effective January 1, 1981" (Plaintiffs' exhibit 5) had been given and explained by him to salaried employees, among other things, that their health benefits would continue to the age of sixty-five with certain changes occurring upon their eligibility for Medicare and that their life insurance coverage would continue following retirement with designated reductions upon their reaching certain ages.
He had never told these retirees of a possible diminishment of life insurance or health benefits and he testified that the documents which had been provided to retirees did not warn of such.
Lutz further testified that a different booklet, entitled "Program of Hospital and Physicians' Services Benefits for Eligible Pensioners, effective August 1, 1975" (Defendants' exhibit 35), had probably been utilized prior to August 1, 1979 until Plaintiffs' exhibit 44, similarly titled yet effective August 1, 1979, had become the pertinent booklet. Lutz recalled that prior to August 1979 retirees had been told that their health coverage would cease at age sixty-five (when they would become eligible for Medicate) and that subsequent to August 1, 1979 retirees had been instructed to enroll for Parts A and B of Medicare upon reaching sixty-five inasmuch as the company-paid benefits were merely supplemental to Medicare benefits after such age. He had examined Plaintiffs' exhibits 5 and 44 and had found no provisions therein with respect to Bethlehem's right to change or terminate the benefits programs described therein.
John Clyde Overdurf, Jr., who retired April 1, 1978 from the position of Assistant Supervisor of Bethlehem's Wire Mill, Williamsport (Pa.) Plant, testified regarding pension and health benefits information imparted to him prior and subsequent to his retirement. Overdurf recalled being told that the company would pay for his and his wife's medical coverage until he reached sixty-five, that his widow would remain covered and that his life insurance coverage would continue to sixty-five when certain yearly reductions would commence until he became seventy-one. He had received a benefits booklet in the mail in the early part of 1981 and, when he had inquired regarding such, had been told by an employee of Bethlehem that coverage under such program was automatic for him and his spouse and that he therefore did not need to take any action at ...