Appeals Court Rejects Retiree Coverage for Worker's Life Argument

March 21, 2006 ( - An Indiana auto parts manufacturer was under no obligation to continue retiree health coverage after a series of union contracts expired, a federal appellate court ruled.

The 7 th US Circuit Court of Appeals upheld a lower court ruling in rejecting workers’ assertions that the coverage promises contained in the collectively bargained insurance agreements (CBIA) were intended to last for the retirees’ lives. The appellate panel upheld the earlier lower court ruling by US District Judge Theresa Springman of the US District Court for the Northern District of Indiana.

“The contractual language at issue in this case was clear: ‘lifetime’ benefits extended only so long as the collectively bargained insurance agreement remained in effect,” Chief Judge Joel Flaum said in writing for the three-judge appellate panel.

The legal fight is being waged by retirees who had worked for a manufacturing facility in  Auburn, Indiana that was originally owned by Borg-Warner . It was purchased by Auburn Gear Inc. in November 1982. Between 1971 and 1992, Borg-Warner and Auburn Gear entered a series of three-year CBIAs with the United Auto Workers Local 825. The CBIAs contained relatively similar language, each stating that the benefits provided under the agreement would be maintained by Borg-Warner and Auburn Gear “during the period of” each agreement.

According to the court, a new CBIA was entered in December 1991 to cover the years 1992-1995. This new agreement for the first time included “retiree benefits” in the list of items that Auburn Gear must “provide during the term of the agreement.”

In affirming Springman, the appeals court noted that unlike pension benefits, health and welfare benefits do not automatically vest. Unless a contract provides for the vesting of health and welfare benefits, the presumption is that benefits terminate when a collective bargaining agreement ends, the appeals court said.

Moreover, the court said the fact that the agreements said the benefits would be for the “lifetime” of the retirees did not mean that the retirees had vested benefits. “It is well established that ‘lifetime’ benefits can be limited to the duration of a contract,” the court said. “At the end of each CBIA, lifetime benefits ceased and Auburn Gear was free to revoke or modify benefits,” the court added.

The opinion in Cherry v. Auburn Gear Inc., 7th Cir., No. 05-3682, 3/17/06 is  here .