Court: Retiree Health Premium Hike Didn't Violate ERISA

May 7, 2003 (PLANSPONSOR.com) - An Ohio company fending off an employee lawsuit over the cost of its retired employee health plan won its second legal skirmish in the case when a federal appeals court upheld a lower court ruling.

>As had an Ohio federal judge before it, the 6 th US Circuit Court of Appeals ruled that Midland Enterprises Inc., a Cincinnati, Ohio-based company “engaged in the transportation and handling of dry bulk commodities,” did not breach its ERISA fiduciary duty by raising its retiree health premiums, Washington-based legal publisher BNA reported.

>Rejecting plaintiff Glenn Hardy’s argument that Midland misinformed him in a letter explaining the health plan premiums, the court said the letter was not misleading because it stated the premium expense¬†at the time the document was written. The letter did not say that Hardy’s health care insurance premiums would never change until he was age 65, the court said. In addition, Midland’s official health care plan document provided that Midland reserved the right to modify the plan for any reason at any time, the court noted.

“An employer does not breach its duties under ERISA by summarizing the current terms of a benefits plan without explicitly noting its unilateral right to change the plan, including the price of the plan, at any time,” said US Circuit Judge Julia Smith Gibbons in the appeals opinion.

>The appeals court said that an employer’s fiduciary duty under ERISA might be implicated when it assumes the role of explaining its retirement program to employees considering retirement. However, appeals judges said Hardy did not prove that Midland misrepresented the amount Hardy would have to pay in premiums in the future.

ERISA Preemption

>The 6 th Circuit judges found that Hardy didn’t state a proper legal breach of ERISA fiduciary duty, claim, also agreeing with the lower court judge. They also reached the same conclusion that ERISA preempted Hardy’s state law claims seeking compensatory damage.

>The higher court said Hardy was seeking a state law remedy for the losses he incurred because of the increased premiums for the health plan in alleged contravention of the 1995 letter explaining the plan’s terms. These claims “relate to” the ERISA-governed health plan, in that they affect the relationship among the principal ERISA entities, the court said, and therefore, the claims are preempted by ERISA.

>Glenn Hardy worked as a Midland claims manager from 1979 until he retired in 1995. Before Hardy decided to take early retirement, he asked Midland about its retirement benefits. According to the court ruling, Midland’s benefits administrator responded by giving Hardy a letter in 1995 stating: “Until age 65, you and your spouse will be covered by the health and dental care plan that is provided to our retirees. You will need to pay the required contribution to continue your membership in the plan. The monthly contribution is $41.67 per month for two person coverage.” Hardy elected to participate in the plan.

>In July 1999, Midland told Hardy that his monthly premium would increase from $41.67 to $154.42 effective January 1, 2000, with further rate increases to follow. Hardy filed a lawsuit in June 2000, claiming the 1995 letter precluded Midland from raising his monthly health insurance premium until he was age 65. Hardy asserted state law claims and a claim under ERISA for breach of fiduciary duties.

>The US District Court for the Southern District of Ohio found that Hardy failed to state a claim under ERISA and that all but one of Hardy’s state law claims were preempted by ERISA. The case is Hardy v. Midland Enterprises Inc., 6th Cir., No. 01-4121, unpublished 4/30/03.

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