was preempted by ERISA, it examined whether Ritzer had exhausted the administrative procedures required by the Act and regulations promulgated thereunder, and it explicitly discussed and applied the standard of review applicable to such cases.
The Fund contends, fifth (in a post-motion letter), that Ritzer, in an application to participate in the Fund's plan that he submitted on behalf of the employer, "acknowledged the Fund's right to terminate and cancel coverage 'retroactive to the effective date [of the agreement] and deny all claims incurred which shall become my company's responsibility thereafter.'"
This contention is misleading and, in any event, lacks merit. The Fund selectively quoted from a sentence that states, in full, "I understand that any material false statement made in this application constitutes the legal basis for termination or cancellation of coverage retroactive to the effective date and denial of all claims incurred which shall become my companies [sic] responsibility thereafter." Because the Fund makes no showing that the application contained material false statements, the Fund cannot rely upon this statement as a basis for the retroactive denial of Ritzer's claim.
The Fund contends, last, that the papers presented do not eliminate the possibility that Ritzer and his employer actually knew of the retroactive aspect of the Fund's "selective participation" rule, that these are material facts in dispute, and that the court erred in granting partial summary judgment to plaintiff. The Fund points out that Ritzer never explicitly denied that he and his employer knew of the Fund's "selective participation" rule but merely denied knowing that his employer was engaged in "selective participation."
This contention requires the court explicitly to explain how it allocates the burden of proof in this dispute.
Insofar as the court granted partial summary judgment to plaintiff on the ground that the Fund could not show that it informed Ritzer's employer of an in terrorem rule designed to induce employers strictly to obey the plan's eligibility rules, this court placed the burden on the Fund to demonstrate how and in what it manner it had informed the employer of this rule. See Memorandum and Order, Oct. 21, 1992 (directing the Fund to submit papers showing "the manner and date in which plaintiff and his employer . . . were informed of each . . . rule and regulation"). The court implicitly reasoned that an ERISA plan is in a far better position to show that it informed employers of a particular rule than an employee or, as here, a former employee.
Presumably a plan which could not show that it had informed an employer of an in terrorem rule could show, instead, that the employer had actual knowledge of the rule through some other source. Cf. Rubin v. Decision Concepts Inc., 566 F. Supp. 1057, 1058 (S.D.N.Y. 1983) (holding against claimant where plan administrator could show it sent memorandum describing material modification to claimant).
In this instance, the Fund failed to show either that it informed the employer of the rule or that the employer had actual knowledge of the rule.
Insofar as the court grants partial summary judgment to plaintiff on the ground that the summary plan description inadequately explained an in terrorem rule, the court may infer that plaintiff understood the rule as explained in the faulty description (even if plaintiff had not read the description). The ERISA plan could rebut the inference by showing that the participant had in fact known of the provision.
The Circuit Courts are divided on the question as to whether a plaintiff must prove that he or she in fact read and relied upon a faulty summary plan description in order to prevent an ERISA plan from enforcing an undisclosed provision. The Eleventh Circuit has placed the burden on the plaintiff to show detrimental reliance. See Branch v. G. Bernd Co., 955 F.2d 1574, 1578-79 (11th Cir. 1992).
The First Circuit has held that the plaintiff must show either significant reliance upon, or the possibility of prejudice flowing from, the faulty summary plan description. See Bachelder v. Communications Satellite Corp., 837 F.2d 519, 522-23 (1st Cir. 1988); Govoni v. Bricklayers, Masons and Plasterers Int'l Union Local No. 5 Pension Fund, 732 F.2d 250, 252 (1st Cir. 1984).
The Sixth Circuit has stated that a plaintiff need not prove detrimental reliance. Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 137 (6th Cir. 1988) ("Congress has promulgated clear directives prohibiting misleading summary descriptions. This court elects not to undermine the legislative command by imposing technical requirements upon the employee.").
And the Second Circuit has not decided the issue, though it has twice raised it. See, e.g., Heidgerd v. Olin Corp., 906 F.2d 903, 909 (2d Cir. 1990); Howard v. Gleason Corp., 901 F.2d 1154, 1161 (2d Cir. 1990). Cf. Lee v. Burkhart, No. 92-7944, 1993 U.S. App. LEXIS 8687, at *21 (2d Cir. April 19, 1993) (assuming plaintiff must prove detrimental reliance where ERISA fiduciary misrepresents plan details in communications to plan participants that are not required by statute).
Consistent with the teachings of the First Circuit, this court concludes that Ritzer must and has shown a high probability of prejudice as a result of the Fund's faulty summary plan description.
Given the in terrorem nature of the "selective participation" rule, the court could reasonably expect that had the Fund adequately explained the rule in its summary plan description Ritzer would have learned about the retroactive aspect of the rule from co-workers, even if he had not read the plan. While many employees may never in fact study summary plan descriptions, they are likely to learn of the provision as explained in the description through conversations with fellow employees and their employer.
Where a disclosed provision threatens to deprive A every worker in a workplace of health benefits, the court may infer that a plan participant learned of the provision from others. Conversely, where a plan fails to disclose such a provision to participants in a workplace (either through the summary plan description or by other means), the court may infer that the employee did not know of its existence.
This case is substantially different from Branch v. G. Bernd Co., in which the Eleventh Circuit held that a plaintiff must show detrimental reliance. There, the summary plan description misstated the time in which a plan participant could elect continuing health benefit coverage after a "qualifying event" (such as the termination of his employment). The misdescribed rule was purely technical and unlikely to be a topic of conversation among workers and employers. The Eleventh Circuit concluded that plaintiff could show no injury, absent proof that he read and relied upon the inaccurate description.
Moreover, had the summary plan description accurately stated the "selective participation" rule, Ritzer's employer would have been more likely to know of and avoid violating the rule. And even if the employer were inclined to cheat, Ritzer or his fellow employees (including the clerk who presumably submitted listings of plan participants to the Fund) would have been in a better position, out of self-interest, to monitor and induce the employer strictly to comply with the rule.
A rule requiring plaintiffs to prove detrimental reliance regardless of the nature of the inaccuracy in the summary plan description not only ignores the means by which information is disseminated and by which employers' conduct is influenced in the typical workplace, but also imposes an insurmountable hardship on many plaintiffs. A person is likely to incur substantial medical expense when dying or, as here, in the year or two before dying. To require the claimant's estate to prove that the now deceased claimant actually read and relied on a faulty summary plan description is virtually to immunize the ERISA plan from liability. Such a rule hardly advances the Congressional purpose of protecting the beneficiaries of ERISA plans by insuring that employees are fully and accurately apprised of their rights under the plan.
Thus, the court infers that Ritzer was injured as a result of the Fund's failure to comply with Congressional command.
The Fund could have rebutted this inference of injury by showing that Ritzer in fact knew of the retroactive aspect of the "selective participation" rule. The Fund had every opportunity to conduct discovery prior to bringing its own motion for summary judgment. At no point in this litigation did the Fund seek to discover whether Ritzer had actual knowledge of the rule. Ritzer has since died.
His estate cannot be made to suffer because the Fund failed, first, to disclose adequately the plan administrator's authority retroactively to deny valid claims by eligible participants, second, to review administratively his denial of a claim as he requested, and third, to discover facts adequate to form a defense to his claim.
Defendant's motion to reargue is denied.
Plaintiff may move for summary judgment on the ground that Ritzer was "a regular employee who worked at least 21 hours per week" in April 1991.
In the event Ritzer's estate is unable to make such a showing, it may wish to address whether Ritzer was adequately informed of his right, pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, 29 U.S.C. § 1161 et seq., to elect continued coverage of his health benefits after the termination of his eligible employment.
Dated: Brooklyn, New York
May 24, 1993
Eugene H. Nickerson, U.S.D.J.
© 1992-2004 VersusLaw Inc.