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ABBRUSCATO v. EMPIRE BLUE CROSS

CALGORA ABBRUSCATO, et al., Plaintiffs,
v.
EMPIRE BLUE CROSS AND BLUE SHIELD, Defendant. JOHN F. BYRNES, et al., Plaintiffs, v. EMPIRE BLUE CROSS AND BLUE SHIELD, Defendant.



The opinion of the court was delivered by: BARBARA JONES, District Judge

Opinion

The two above captioned actions were tried to the Court, sitting without a jury, from June 17 to June 19, 2002 and from July 15 to July 19, 2002. Given the extensive overlap of the legal and factual issues in these two actions,*fn1 my findings and conclusions have been consolidated.*fn2 I have considered over twelve hundred pages of trial testimony, more than 150 exhibits, and pre-trial and post-trial briefing submitted by all parties. I have made determinations as to the relevance and materiality of the evidence and assessed the credibility of each witness. Upon the record before me, pursuant to Federal Rule of Civil Procedure 52(a), I find the following facts to have been proven by a preponderance of the evidence and sets forth its conclusions of law.

BACKGROUND

  Empire Blue Cross and Blue Shield (hereinafter "Empire"), an independent member of the Blue Cross and Blue Shield Association, provides health insurance coverage in eastern and south-eastern counties of New York State.*fn3 Plaintiffs, all of whom are former employees of Defendant Empire, filed these actions in response to Empire's decision in July 1998 to reduce life insurance coverage for all employees retired or retiring after January 1, 1989 to $7,500 from the amount of their last year's annual salary. Plaintiffs all retired after January 1989 and prior to 1998.

  In separate opinions dated October 16 and October 23, 2000, I entered summary judgment for Defendant in both actions. In two opinions, both decided on December 6, 2001, the Second Circuit vacated these judgments and remanded the cases for trial.*fn4

  DISCUSSION

  A. Plaintiffs' Claims

  Plaintiffs bring four different types of ERISA claims: (1) contract claims under section 502(a)(1)(B); (2) promissory estoppel claims under section 502(a)(1)(B); (3) claims for breach of fiduciary duty; and (4) claims for statutory penalties.

  1. Contractual Vesting Claim

  Employee benefits provided through ERISA welfare plans are contractual in nature.*fn5 While ERISA does not require employers to establish employee benefits plans nor prescribe what kind of benefits employers must provide if they choose to have such a plan, Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996), employers may nonetheless contractually obligate themselves to provide their employees with certain benefits. Where an employer creates such a contractual obligation, section 502(a)(1)(B) of ERISA permits a plan participant or beneficiary to bring a civil action in order to "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B).

  a. Contractual Vesting for Normal Retirees

  Eighteen plaintiffs retired in the normal course of their employment: John Byrnes, William De Mauro, Jerrold Ehrlich, Beverly Glickerman, Eugene Harrison, Gerald Harrison, John Luczun, Daniel Rosenberg, Daniel Sanders, John Shurtleff, James Snyder, Anthony Truhon, Jack Brook, Ann Musto, Elaine Pereira-Bailey, James Photis, John Pirro, and Henry Reynolds (the "Normal Retirees"). Nine of these plaintiffs began work at Empire between 1942 and 1959. Five began in the 1960's and the newest employee began in 1973 — retiring 20 years later in 1993. The average number of years employed for this group of normal retirees is 32 years. The Plaintiffs argue that Empire promised them a "vested" life insurance benefit in return for their many years of work as Empire employees, and that Empire breached their contract with Plaintiffs when it unilaterally decreased Plaintiffs' life insurance benefits post-retirement. Although a summary plan description ("SPD") distributed to employees in 1987 explicitly reserved Empire's right to amend or terminate the life insurance benefit, and although the 1987 SPD was the governing document at the time of Plaintiffs' retirement, the Second Circuit found that ambiguous language in pre-1987 SPDs and/or exit letters distributed to the Plaintiffs may have created a contractual obligation under which Empire was not permitted to unilaterally decrease Plaintiffs' life insurance benefits. Abbruscato v. Empire Blue Cross and Blue Shield, 274 F.3d 90, 98 (2d Cir. 2001). In light of this ambiguity, the Second Circuit remanded the matter for a finder of fact to evaluate extrinsic evidence and determine whether Empire is contractually obligated to provide lifetime benefits to these retirees. Id.

  Accordingly, I heard testimony and examined documentary evidence on, inter alia, the issue of whether Empire promised to provide these employees continuing life insurance in return for the employees' retirement in the ordinary course. Plaintiffs have the burden of proof on the issue of contractual vesting. Jensen v. SIPCO, Inc., 38 F.3d 945, 949 (8th Cir. 1994). Having evaluated this extrinsic evidence, I find that Empire did promise a "vested" life insurance benefit to the normal retirees, and thus the normal retirees are contractually entitled to pre-1998 life insurance levels.

  SPD Documents Promised a Lifetime Life Insurance Benefit

  The Plaintiffs argued that the pre-1987 SPDs contained a promise of lifetime life insurance benefits at the annual salary level and that these benefits vested in the Plaintiffs when they qualified for retirement by attaining age fifty-five and completing at least twenty years of service as an employee of Empire. The Plaintiffs point to the language of several particular SPDs in their argument. There is no reservation of rights language in any of these SPDs.

  The first SPD distributed to employees that indicated that life insurance benefits would continue for the lifetime of the retiree was the 1974 edition of "You and Your Job." Def. Ex. 5. This 1974 manual states that:
The Group Life insurance of a retiring employee will be reduced 10% on the retirement date and in equal amounts on the next four annual Retirement Anniversary Dates. Life Insurance amounts will be stabilized at this point assuring the retiree free life insurance coverage equivalent to 50% of the pre-retirement level. Id. at F/9 (emphasis added).
This SPD also states that, "Except when you retire, your Group Life Insurance will end on the day you terminate your employment." Id. at E/1 (emphasis added). Both of these sections read together imply that retiree life insurance benefits will be available to retirees at a constant level.

  The 1976 edition of "You and Your Job" also indicated that life insurance benefits would continue for the lifetime of the retiree. Def. Ex. 4. Specifically, the 1976 Manual described the life insurance benefit as being "for the remainder of their lives." Id. at E/1 (emphasis added). This SPD also states, "Except when you retire, your Group Life Insurance will end on the day you terminate your employment." Id. at E/2 (emphasis added).

  The 1978 edition of "You and Your Job" included language that described the life insurance benefit as being "for the remainder of their lives." Def. Ex. 3 at E/1 (emphasis added). It also included the statement "benefits may continue beyond retirement." Id. at F/11 (emphasis added). This SPD also states, "Except when you retire, your Group Life Insurance will end on the day you terminate your employment." Id. at E/2 (emphasis added). The 1982 edition of "You and Your Job" included language that described the life insurance benefit as being "for the remainder of their lives." Def. Ex. 2 at E/1 (emphasis added). It also included the statement "benefits may continue beyond retirement." Id. at F/10 (emphasis added). This SPD also states, "Except when you retire, your Group Life Insurance will end on the day you terminate your employment." Id. at E/1 (emphasis added).

  In this case, the Second Circuit found that the SPD language used by Empire was "capable of reasonably being interpreted as creating a promise to vest lifetime life insurance benefits in those employees eligible for retirement." Devlin v. Empire Blue Cross and Blue Shield, 274 F.3d 76, 85 (2001). Having heard testimony and reviewed other additional extrinsic evidence, I find that this language did create a promise to vest lifetime life insurance benefits if employees retired after age 55 and provided permanent service to Empire for at least twenty years.*fn6 I also find that Empire did not reserve its right to modify or terminate this benefit until 1987. In reaching these findings, I credit the deposition testimony of Edwin Werner, who served as Chief Executive Officer and Chairman of the Board of Empire from 1972 to 1987 and before that, as Vice President of Marketing from 1961 to 1972. Werner's testimony is critical because it provided the only direct and authoritative evidence of Empire's intent from someone in management during the relevant pre-1987 time period. Werner testified that although the retiree life insurance benefit predated his arrival in 1961, it was his understanding that Empire had promised to provide life insurance benefits for the lifetime of the employee. He specifically stated:
"It was my understanding when I came there, and I never had any reason to believe otherwise that the life insurance benefit was for lifetime, with the understanding, which everybody had, that the life insurance benefit decreased post retirement by 10 percent a year until it was 50 percent of what it was the day you retired. I knew that in 1961 and I knew that when I left there in '87 and that never changed. . . . everybody knew." Werner Dep. Tr. 30.
Additionally, Werner added that although he did not have the documents in support, he knew from his position in management that certainly employees who came to work at Empire were told what their benefits were going to be both verbally and in writing. Id. at 31. He stated that Empire never considered reducing life insurance benefits while he was chairman and CEO and candidly admitted that it had never occurred to him to ...

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