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ABBRUSCATO v. EMPIRE BLUE CROSS

United States District Court, S.D. New York


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 insert a reservation of right to reduce or modify those benefits in the manuals. Id. at 41. He also stated in his deposition that he believed that the promise of life insurance was irrevocable because the "thought of it being anything else never came up" and that the irrevocability of life insurance was a reasonable assumption for an employee to make. Id. at 61. Werner also expressed his belief that the employees had a right to believe what they had read and consequently had a right to the lifetime life insurance benefit when they retired. Id. at 50-51.

  It is clear from Mr. Werner's testimony that Empire never had the intent to communicate its right to change or reduce life insurance benefits because Empire never even considered the issue pre-1987. Empire intended the retiree life insurance benefits to be a promise to employees of "lifetime" life insurance benefits upon retirement. Plaintiff Eugene Harrison, who began working for the company in 1957, expressed this understanding in his deposition testimony by stating, "There were verbal statements — possibly not in an official capacity, but in conversations through the years — that this would be our benefits upon retirement. . . . And that we would have those benefits for life." E. Harrison Dep. Tr. 49-50 (emphasis added).

  A series of exit letters helps confirm that lifetime life insurance was guaranteed in the pre-1987 SPDs. I consider these letters to be persuasive extrinsic evidence concerning Empire's intent to promise the retiree life insurance benefit for a "lifetime." These exit letters summarizing a retiree's benefits were distributed by Empire in the normal course to its employees from 1989 to 1994 — even after Empire's 1987 express reservation of rights. A Pl. Ex. 7; Pl. Exs. 21-38. These exit letters stated:

The life insurance you have under our group program with New York Life Insurance Company will also be continued . . . This amount will be reduced by 10% on the date of your retirement, [date filled in], and a like amount for the next four anniversaries (date filled in), until it reaches [amount filled in], where it will remain constant for life. Id. (emphasis added).
  Additionally, these letters were confirmed and reviewed in exit interviews between Empire and retiring employees. A number of the Plaintiffs testified that several different employees from Empire's Human Resources Department orally confirmed the promise made in the SPDs and the exit letters that the retiree life insurance benefit was for the employee's lifetime. Byrnes, B Tr. 524; Glickerman, B Tr. 214; E. Harrison, B Tr. 382; G. Harrison, B Tr. 412, 424; Lambek, B Tr. 593; Propp, B Tr. 354; Rosenberg, B Tr. 440; Truhon, B Tr. 628; Zammit, B Tr. 513. This is supported by the testimony of Charles Guder, who was employed at Empire 1966 to 1998, which I credit. Mr. Guder served as director manager of the employment department from 1977 to 1985, the director of benefits and compensation from 1985 to 1994, and the director for the Medicare division from 1994 to 1998. Guder, B Tr. 6-7. In his testimony, which strongly corroborates the testimony of Edwin Werner, he states that he and other company officials communicated to retirees in exit interviews that the life insurance benefit would continue for the rest of their lives. Guder, B Tr. 34-36. While oral representations made by Empire management cannot amend a written contract, they can and do provide evidence of Empire's intent. See Vallone v. CNA Financial Corporation, 375 F.3d 623, 633 (7th Cir. 2004) ("[W]holly oral promises cannot be used to require the employer to provide irrevocable benefits . . . If there is some ambiguity in the language of the written agreement . . . only then may we consider evidence . . . such as oral representations.").

  For its part, Empire relies on the testimony of Susan Lennox, who managed Human Resources at Empire from 1985 to 1989. She was tasked with assembling a team to prepare the 1987 handbook — the first SPD with a reservation of rights which stated that Empire "reserves its right to amend each of the [employee benefit] plans at any time." Def. Ex. 1 at D000508. She testified that the company never intended to promise an unchanging lifetime life insurance benefit. She based her conclusions on conversation with "subject experts" in the company who were not named and did not testify. I do not credit her conclusions because of the hearsay nature of her testimony. Ms. Lennox also opined that when Empire described the retiree life insurance benefit as providing coverage at least in the amount of one's annual salary for the rest of the retiree's life, Empire was merely providing a description of the benefit at that moment. I do not credit this opinion. Ms. Lennox joined Empire in 1985, approximately 36 years after the company first began to provide retiree life insurance benefits and is simply not competent to testify to Empire's intent before 1985.*fn7

  Empire also argues that its prior course of conduct demonstrates that it did not promise lifetime life insurance benefits to normal retirees, despite the language contained in the SPDs. However, course of conduct is but one factor in determining the intent of the parties and this change in the lifetime insurance benefit does not change my conclusion that Empire promised a lifetime benefit. See Alexander v. Primerica Holdings, Inc., 967 F.2d 90, 93 (3d Cir. 1992) ("We reject the defendants' argument that the company's past practice of changing benefits somehow renders the amendment clause unambiguous. A benefit increase does not necessarily contradict the retirees' position.").

  Specifically, Empire points to the fact that during the course of Plaintiffs' employment, Empire changed the benefits to which employees were entitled from time to time. For example, between 1974 and 1978, Empire changed the method by which it calculated the amounts of its employees' life insurance benefit — a change that resulted in a decrease in benefits for some employees.*fn8 Guder, B Tr. 128-32. Each of the manuals explicitly states that the retiree life insurance benefit is intended to be twice one's annual salary, decreasing by 10% over a period of four years until it is equal to one's annual salary. Def. Ex. 4 at E/1; Def. Ex. 5 at E/1, F/9. Because this change in benefits caused by this alteration in how benefits are calculated is de minimis — considering that the "twice one's salary" standard remains unaltered — it is not persuasive evidence of Empire's intent.

  Several other employee benefits also changed during the course of the Plaintiffs' employment, including medical coverage, the accrual of sick leave, elimination of the "R" day program,*fn9 and elimination of the marriage week program.*fn10 At trial, several Plaintiffs testified that they recalled the changes and reductions to their benefits.*fn11 However, Empire's prior course of conduct in regard to these benefits is not persuasive evidence of Empire's intent with respect to retiree life insurance. None of these benefits were intended to continue beyond retirement since they did not contain "lifetime" language. Empire's conduct in regard to reducing or modifying these other welfare benefits has no bearing on whether Empire promised "lifetime" or vested life insurance benefits to retirees.

  The "lifetime" language in the pre-1987 SPDs read in the context of Mr. Werner's testimony and the other extrinsic evidence convince the Court by a preponderance of the evidence that a lifetime life insurance benefit was promised by Empire to retirees retiring after age 55 who had been employed by Empire for at least twenty years. The first reservation of the right to modify life insurance benefits did not occur until 1987 and therefore once "the plaintiffs began performance, pursuant to the pre-1987 SPDs, Empire was not free to revoke." Devlin, 274 F.3d at 85.

  Empire Did Not Reserve the Right to Modify Life Insurance Benefits Before 1987

  The 1987 employee manual, titled "Your Handbook," stated that Empire "reserves its right to amend each of the [employee benefit] Plans at any time." Def. Ex. 1 at D000508. That this is an express reservation of rights is beyond dispute. Abbruscato, 274 F.3d at 98 ("Empire expressly reserved the right to amend or terminate the benefit program [in the 1987 manual] . . . we agree with this conclusion."). I also find however, from the language in this and other SPDs and the extrinsic evidence that this was the first time that Empire reserved its right to modify or terminate the retiree life insurance benefit.

  In support of the finding that this 1987 SPD was the first time that Empire communicated a reservation of rights to modify life insurance benefits is a letter from Joyce Tichy, Assistant Vice President and Associate Counsel of Empire, to former plaintiff Richard Kunkel dated November 4, 1998. In that letter, Tichy states that the decision to modify benefits for only those employees retiring in or after 1989 was made "in light of the fact that Empire's reservation of rights language did not appear in its benefit plan descriptions in earlier periods." A Pl. Ex. 6 at D000763.

  Empire now argues that its pre-ERISA 1967 manual entitled "Employee Insurance Benefits" also communicated a right to change or eliminate the life insurance benefit to employees through an express reservation of rights. I disagree. The text of the manual that the defendant asserts as a reservation of rights is contained in a brief introduction to the manual. The language that Empire emphasizes states:

Because the details of your insurance benefits are so important and subject to change from time to time, it has been decided to issue this section of the new handbook at once. . . . Please study it carefully and acquaint yourself with all of the benefit provisions in their present form and the procedures to follow when the occasion to use them arises. These must change from time to time to keep them consistent with modern practice and occasionally to meet some new requirement or regulation." Def. Ex. 6 at D002565 (defendant's cited language italicized).
  This language cannot be construed as an express reservation of rights by Empire to reduce or modify retiree life insurance. First, reviewing the documents as a whole, the text merely serves as a broad introductory summary of the Handbook. See Alexander, 967 F.2d at 93 ("We also note that ERISA plans, like contracts, are to be construed as a whole and content colors the meaning of words") (internal citations omitted). Indeed, the language cited by Empire is easily understood to be merely descriptive of possible changes to insurance benefits that may occur due to considerations of "modern practice" or promulgation of a "new requirement or regulation." The language does not affirmatively reserve any specific right nor is the possible reduction or termination of life insurance benefits ever expressly mentioned.

  It is also clear that these vague statements about changes in benefits should not be construed as an express reservation of rights because another section of this handbook pertaining to the Retirement Plan, which concerns retiree pensions, does contain an express reservation of rights. This section states, "AHS-UMS expect to continue the Plan indefinitely, but necessarily reserve the right to change, modify or discontinue the Plan should future conditions in the judgment of AHS-UMS warrant such action." Def. Ex. 6 at D002593. The use of this language indicates that when Empire wanted to reserve a right to modify a benefit plan, it expressly reserved that right.

  The introduction that Empire asserts as a reservation of rights to change benefits does not contain this language. The actual section of the 1967 handbook pertaining to life insurance, known as the "Group Insurance Plan," also does not contain any "reservation of rights" language. Id. at D0002594-D002597. Additionally, it is clear that the aforementioned reservation of rights language pertaining to the Retirement Plan does not apply to life insurance benefits. The Retirement Plan section of the 1967 Handbook states "[L]ife insurance protection is no longer provided through the retirement plan . . . but only through the Group Life Insurance Program summarized on pages 28 through 31." Id. at D002590. A close review of the 1967 handbook makes it clear that it did not contain a reservation of rights to reduce or modify life insurance benefits. Nor do I credit the testimony of other members of Empire's management, who contrary to Mr. Werner, testified that Empire always intended to reserve its right to change employee life insurance benefits and never intended to promise an unchanging retiree life insurance benefit. Jan Bohren, who was the creator of the 1987 Handbook, was employed at Empire from 1984 to 1991 as Corporate Vice President of Human Resources. A Tr. 46. He stated that when he arrived in 1984, he developed the view that Empire had the right to make changes to benefits programs and had reserved that right. A Tr. 51. He stated that this policy had been made clear in statements that he read when he did a review of all the company literature. A Tr. 50-51. When asked to support these opinions on cross-examination with documentary evidence, after being given a short recess to review the "previous manuals," Mr. Bohren pointed to the section of the 1967 manual that was indeed, an express reservation of rights. However, it was not the section pertaining to life insurance benefits but instead the section concerning the retirement plan discussed supra. It was only on re-direct examination, with help from Empire's counsel, that Mr. Bohren was able to point to the section of the 1967 manual that Empire now argues is the relevant section. Id. at 68-69. Additionally, it was only after being shown an October 15, 1981 Employee Bulletin, that he stated that the language in that employee bulletin supported his opinion as to Empire's intent.*fn12 As with Susan Lennox, Mr. Bohren was not at Empire at the time the pre-1987 SPDs were prepared and issued. So I do not credit his testimony as to the intent of Empire during that time period.

  I also do not credit the testimony of Dr. Michael Stocker, Empire's Chief Executive Officer since 1994, that it was common knowledge in the company that the reservation of rights to modify life insurance benefits had always existed. By 1994, when Dr. Stocker joined the company, Empire had clearly announced its reservation of rights policy seven years earlier in the 1987 handbook. While I am sure that it was common knowledge that the policy existed since at least 1987, I find no support for Dr. Stocker's statement that it had always existed.

  A letter from Dr. Stocker to members of the Board of Directors dated May 22, 1998 actually supports the finding that there was no reservation of rights to change life insurance benefits prior to the 1987 Handbook. In this letter, he states, "When we have not specifically reserved the right to change benefits we have not done so. Therefore, we have not recommended that benefits for employees retired prior to 1989 be changed. . . . We have also decreased the Retiree Life Insurance benefits for retirees after 1989 to a flat $7,500." Def. Ex. 44 at D001706.

  Finally, Empire relies on life insurance plan certificates, which were distributed to employees, to prove that it never intended for the retiree life insurance benefit to vest. These certificates were referred to in the pre-1987 SPDs which stated: "The benefits described herein represents (sic) a summary and are subject to the terms of the certificates issued." Def. Ex. 2 at F/10, Def. Ex. 3 at F/11, Def. Ex. 4 at F/10, Def. Ex. 5 at F/9. Empire makes much of these certificates claiming that all of them contain an express reservation of rights by Empire to discontinue or modify the life insurance benefit at any time. After a careful review of the certificates, I find that they are confusing and at best ambiguous, and do not expressly reserve Empire's right to amend or terminate the retiree life insurance benefit. Moreover, to the extent that they can be read to conflict with the SPDs' promise of lifetime retiree life insurance benefits, they do not control. "Promises made in SPDs are binding on the employer regardless of conflicting language in a master agreement." Helwig v. Kelsey-Hayes Company, 93 F.3d 243, 249 (6th Cir. 1996).

  The earliest certificates from 1949, 1954, and 1963 state, "The Life Insurance shall automatically cease on the date of termination of the Employee's employment" or "upon the discontinuance of the Group Policy." Def. Ex. 26 at 4, Def. Ex. 27 at 4, Def. Ex. 28 at 4. These same certificates also contain a schedule of life insurance benefits for employees who die while employed by Empire. The schedule states, "The amount of life insurance for retired employees shall be the amount for which such Employee was insured under the Group Policy on the day immediately preceding the date of his retirement reduced by 10% of such amount on such date of retirement and by a like amount on each of the next four succeeding anniversaries of the date of the Employee's retirement." Def. Ex. 26 at 001271, Def. Ex. 27 at 001276, Def. Ex. 28 at 001288. The statement that life insurance benefits terminate on the date of termination of the employee's employment in one section of the certificate is contradicted by the provision of retiree benefits in the same document. A later insurance certificate also offers strong support for the interpretation that the insurance certificates are the contract terms between Empire and the insurer rather than between Empire and its employees. In 1979, Empire notified its employees that they selected a new carrier, New York Life Insurance Company, to administer the group life insurance coverage "with no change in your protection." Def. Ex. 36. The retiree life insurance benefit is described in this certificate similarly to the way it was described in past certificates. Def. Ex. 34 at 2. However, the certificate states, "The entire contract between New York Life and the Employer shall consist of this policy . . ." Id. at 5. The "Termination of the Policy" section is entirely directed to the Employer, Empire, rather than Empire's employees. This section states in part that, "The Employer may terminate this policy by giving written notice to New York Life." Id. at 6.

  Although an employee could be expected to understand that if Empire discontinued the group policy, that the life insurance company would no longer have an obligation to insure him, it is far from clear that he would understand that this gave Empire a right not to continue to provide the promised retiree life insurance benefits either with that insurance company or another. Accordingly, I find that the life insurance certificates on their face do not purport to define the contractual relationship between Empire and its employees. Rather, the certificates are primarily evidence of the contract between Empire and the life insurance carriers and it would be reasonable for the ordinary employee to read them that way. See e.g., Def. Ex. 36; Glickerman, B Tr. 222-24.

  Moreover, even were I to find that the certificates contained an express reservation of Empire's right to modify retiree life insurance benefits (which it does not), the certificates would not control. "Where, as here, the terms of a plan and those of a plan summary conflict, it is the plan summary that controls." Heidgerd v. Olin Corporation, 906 F.2d 903, 908 (2d Cir. 1990); See Moriarity v. United Tech. Corp. Represented Employees Retirement Plan, 158 F.3d 157, 160 (2d Cir. 1998) ("[W]hen the SPD conflicts with the terms of the plan, the SPD controls . . . the determination of Plaintiff's rights under the Plan.").

  The reasoning for this holding was articulated in Heidgerd:

[T]he summary will be an employee's primary source of information regarding employment benefits, and employees are entitled to rely on the descriptions contained in the summary. To allow the Plan to contain different terms that supersede the terms of the Booklet would defeat the purpose of providing the employees with summaries. 906 F.2d at 907-08.
This reasoning also extends to situations such as this case where the SPD specifically references plan documents or master insurance agreements. "[C]ontrolling weight [will not be given] to the provisions in the summary plans . . . that reference the master insurance agreements and give them priority." Helwig v. Kelsey-Hayes Company, 857 F.Supp. 1168, 1175 n. 4 (E.D. Mich. 1994), aff'd, 93 F.3d 243 (6th Cir. 1996). See Hansen v. Continental Insurance Company, 940 F.2d 971, 982 (5th Cir. 1991) ("[T]his Court holds, as a necessary corollary to its holding that the statements in the summary plan description are binding, that drafters of a summary plan description may not disclaim its binding nature.").*fn13

  I find that the insurance certificates do not contain an express reservation of rights and do not qualify the "lifetime" retiree life insurance benefits promised by the pre-1987 SPDs. I also find that pre-1987 SPDs are the controlling documents in regard to lifetime retiree life insurance rather than the insurance certificates.

  Empire's Expert Witness Testimony is Not Relevant to the Court's Determination

  In reaching the conclusion that Plaintiffs have a contractual right to pre-1998 life insurance levels, I credited but gave no weight to the testimony of three experts regarding the industry understanding of vested welfare benefits during the relevant time period.*fn14 In essence, these experts testified that it was reasonable for Empire not to have explicitly reserved its right to change or reduce life insurance benefits during the 1970s and early 1980s because, at that time, it was generally understood that welfare benefits would not vest absent such a reservation.*fn15 The inquiry here, however, is whether Empire contractually obligated itself to pay lifetime retiree insurance benefits pre-1987. It is not whether life insurance benefits were considered vested benefits in the industry or whether it was considered reasonable after the passage of ERISA in 1974 not to insert a reservation of rights clause into SPDs. Of course, had anyone from Empire's management testified that he or she relied upon this industry understanding when preparing the pre-1987 SPDs, the expert testimony would have helped to corroborate it. There was no such testimony from management.

  This expert testimony is also not relevant to determining whether Empire contractually promised its employees an unchanging life insurance benefit, because it has no bearing on what Empire's employees knew or should have known about their contractual entitlement to life insurance. See Ward v. Nat'l Geographic Soc'y, 208 F. Supp. 2d 429, 438 (S.D.N.Y. 2002) ("Generally, evidence of industry custom is probative only if both parties to the pertinent contractual dealings knew or had reason to know of it.").

  b. Contractual Vesting for VSOP and VIP Plaintiffs

  Thirteen plaintiffs retired under the Voluntary Separation Opportunity Program ("VSOP"), an early retirement program offered by Empire in 1992. Those plaintiffs are: Sterling Cathey, John Muldoon, Joseph Murphy, Harry Nicholsen, Ellen Propp, John Wandzilak, Irma Alicea, Joseph Cerrone Jr., Arthur English, Joseph Fleming, Anthony Heckel, Rose Marie O'Connor, and Gerald Sussingham (the "VSOP Plaintiffs").

  Six plaintiffs retired under the Voluntary Incentive Program ("VIP"), an early retirement program offered by Empire in 1993. Those plaintiffs are: Jules Lambek, Ronald Zammit, Michael Elkins, Marie Morris, Albert Ricuito, and Sheila Sansosti (the "VIP Plaintiffs").

  Both the VSOP and the VIP offered employees accepting retirement a cash payment. The VSOP offered a lump sum payment of up to 52 weeks of salary. The VIP offered salary continuation for up to 39 weeks of salary. These programs also offered early retirees a period of extended dental coverage, career continuation services, and certain accelerated benefits for those eligible for the VSOP and VIP but not yet eligible for retirement. Def. Ex. 7, Def. Ex. 14.

  In particular, the description for the VIP program expressly stated that employees "will be eligible for retiree life insurance benefits if you normally qualify or if you would qualify by adding five years" to the employee's age and service. Def. Ex. 14 at D000393; Read, A Tr. 231, 234. Both the VSOP and VIP programs described benefits as they existed at the time. Each program description referred to "your company-provided life insurance" and "your current benefits." Def. Ex. 7 at D000364; Def. Ex. 14 at D000402. Walter Read, the former corporate vice-president of human resources from 1991 to 1993 and a consultant to Empire until 1997, confirmed that the retiree life insurance benefits offered under the VIP program were identical to the pre-existing retiree life insurance benefits and that the VSO program "made no change to retiree benefits." Read, A Tr. 231.

  The Second Circuit concluded that the VSOP and VIP documents were ambiguous as to whether "lifetime" benefits were promised and whether these documents contained reservations of rights and remanded for determination of these issues. Abbruscato, 274 F.3d at 98. As an initial matter, because it is conceded that the life insurance benefits under the VSOP and VIP are the same benefits that normal retirees would receive upon retirement, I find that the VSOP and VIP documents promised a "lifetime" retiree life insurance benefit.

  Additionally, a review of both the VSOP and VIP documents and the extrinsic evidence also supports this finding and the finding that the purported "reservation of rights" clauses in each document refer only to a right to modify the VSOP and VIP programs rather than the lifetime life insurance benefits. I examine these two clauses in turn.

  The "Administration" section of the VSOP document provides that:

The Corporation reserves the right to amend and/or terminate the VSO Program at any time for any purpose. The Corporation also reserves the right to announce new and different plans and programs as business needs require. Def. Ex. 7 at D000359.
The "Administration" section of the VIP document states:
Empire reserves the right to amend and/or withdraw the VIP at any time for any purpose with respect to any employee, up to the date on which that employee's Resignation and General Release and Covenant Not to Sue becomes effective. Empire also reserves the right to announce new and different plans and programs as business needs require. Def. Ex. 14 at D000396 (emphasis added).
The extrinsic evidence supports a finding that the reservation of rights language in these sections pertains only to the respective VSOP and VIP programs.

  The exit letters provided to the VSOP and VIP retirees by Empire did not contain or refer to any reservation of rights although they did contain language stating that the life insurance benefit would "remain constant for life." A Pl. Ex. 7. I also credit trial and deposition testimony by VSOP and VIP Plaintiffs stating that they were told that the life insurance benefits were "lifetime" benefits. Lambek, B Tr. 593; Murphy, B Tr. 308-09; Propp, B Tr. 354; Zammit, B Tr. 513. In this testimony, no mention was made of any reservation of rights to discontinue the life insurance benefit being discussed at the exit interviews. Id. In Mr. Guder's testimony about exit interviews for both normal retirees and retirees under the VSOP and VIP programs, he did not state that he discussed any reservation of rights to modify life insurance benefits (or the VSOP and VIP programs) with retirees. Guder, B Tr. 35-38. The absence of any reference to a reservation of rights to modify retiree life insurance benefits in either the VSOP and VIP exit letters or the exit interviews supports the conclusion that the "reservation of rights" language in the VSOP and VIP documents were not applicable to retiree life insurance benefits.*fn16 This finding is further supported by the fact that there was no express statement in the VSOP or VIP documents that stated that Empire could reduce or take away the life insurance benefit. Def. Ex. 7; Def. Ex. 14; Read, B Tr. 900-01. Also, there was no specific reservation of rights language in the respective sections on Life Insurance. Def. Ex. 7 at D000356, Def. Ex. 14 at D000394.

  However, both the VSOP and VIP materials used reservation of rights language to describe the Health Insurance benefit. Id. Specifically, these materials stated, "Empire reserves the right to make adjustments to the [existence or] terms of coverage at any time." Id. The insertion of this express language in the Health Insurance benefits section indicates that the reservation of rights in the "Administration" section of the documents was not intended to be a reservation of rights concerning the specific insurance benefits under either the VIP or VSOP. Otherwise, the reservation of rights language in that section would be purposeless and repetitive. The absence of this language in the Life Insurance section, which immediately follows the Health Insurance section, also supports my finding that Empire intended a "lifetime" life insurance benefit that would vest upon retirement that would not be subject to any reservation of rights. Based upon the language of the VSOP and VIP documents and the extrinsic evidence, I find that there was no reservation of rights contained in either the VSOP or VIP materials that could have effectively prevented lifetime life insurance benefits from vesting and I also find that Empire promised a lifetime retiree life insurance benefit.

  2. Statutory Penalties

  Some of the Plaintiffs claim that they are entitled to statutory penalties under ERISA Section 502(c)(1)(B), 29 U.S.C. § 1132(c)(1)(B), based on Defendant's failure to provide requested plan information as required by ERISA Section 104,*fn17 29 U.S.C. § 1024. Section 502(c)(1)(B) provides that:

any administrator . . . who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant . . . within 30 days after such request may in the court's discretion be personally liable to such participant . . . in the amount of up to $100 a day from the date of such failure or refusal. 29 U.S.C. § 1132(c)(1)(B).
Plaintiffs contend that Empire is liable for penalties because, when Empire provided Plaintiffs with a copy of the 1987 SPD, it provided them with documentation that Empire knew or should have known did not apply to these individuals and did not govern their benefits.

  Although it is now clear that pre-1987 SPDs also applied to these Plaintiffs, the ultimate assessment of penalties is a discretionary matter for the district court.

 

In assessing a claim for penalties, courts have considered various factors, including `bad faith or intentional conduct on the part of the administrator, the length of the delay, the number of requests made and documents withheld, and the existence of any prejudice to the participant or beneficiary.' Pagovich v. Moskowitz, 865 F. Supp. 130, 137 (S.D.N.Y. 1994) (citing cases). On remand, the district court should evaluate this claim in light of these factors. Devlin, 274 F.3d at 90.
  I find that Empire did not act in bad faith in supplying the 1987 SPD in response to Plaintiffs' requests for documentation and that Empire provided the 1987 SPD within the 30-day time limit. Plaintiffs have not provided any evidence to suggest that Empire acted in bad faith or that Plaintiffs were prejudiced by the receipt of the 1987 SPD in response to their inquiries. Accordingly, I find for Empire on this claim.

  3. Other Claims The Plaintiffs brought promissory estoppel claims against Empire under ERISA § 502(a)(1)(B). Promissory estoppel occurs when there is a promise "which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance." RESTAT. 2D OF CONTRACTS § 90(1). Promissory estoppel is considered to be an alternative to a contract claim. Because I have found that the Plaintiffs are able to demonstrate a contractual entitlement to their pre-1998 life insurance benefit, I do not reach the claims of promissory estoppel.

  Plaintiffs also claimed that Empire's communications concerning their life insurance benefits breached fiduciary duties outlined in ERISA §§ 404(a)(1)(A) and (B). Plaintiffs' breach of fiduciary duty claims can be summarized as follows: (a) Empire misrepresented the benefits that employees were to receive under the Plan ("Misrepresentation Claim"); and (b) Empire used its discretionary authority under the Plan to reduce vested benefits ("Reduction Claim").

  As to (a), I have found that Empire intended to promise lifetime retiree life insurance as described in the pre-1987 SPDs and find that Empire did not misrepresent the benefits to its employees. With respect to (b), since I have found that the Plaintiffs were contractually entitled to their pre-1998 life insurance benefit and have ordered relief reinstating life insurance benefits to those levels for the Plaintiffs, I do not reach this issue.

  CONCLUSION

  Accordingly, for the reasons set above, I find for the Plaintiffs on the breach of contract claim under ERISA § 502(a)(1)(B) and order Defendant Empire to reinstate life insurance benefits to pre-1998 levels for each of the Plaintiffs. I find for the Defendant on the claim for penalties under ERISA § 502(c)(1)(B). I do not address the merits of either the promissory estoppel claims under ERISA § 502(a)(1)(B) or the claims for breach of fiduciary duty.

  SO ORDERED:


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