Pirelli Retirees Roll on in Benefits Fight

September 18, 2002 (PLANSPONSOR.com) - A US appeals court has allowed a group of Pirelli Armstrong Tire Corp. employees to get back on the road with their legal battle over whether the company lied about its retiree health benefits

The 6 th US Circuit Court of Appeals ruled that Pirelli had breached its fiduciary duty when it gave workers “materially misleading and inaccurate information” about what health coverage they would qualify for as retirees. Those representations help prompt the workers to retire, the court said.

The appeals ruling reverses a contrary decision by a federal judge in the US District Court for the Middle District of Tennessee.

According to the ruling, Pirelli instituted an Optional Pension/Severance plan in 1990 to encourage early retirement.

The manager of a Pirelli tire plant said he told employees based on a script provided him from Pirelli corporate headquarters that their medical benefits wouldn’t change during their retirement. A separate Pirelli letter informed the employees that they would also qualify for reduced deductibles during retirement.

New Plan Slashes Benefits

Three years later, Pirelli adopted a new insurance program, which slashed medical coverage for both workers and retirees. The 23 retiree plaintiffs filed suit against the company. The lower court ruled for the company, saying that there was no evidence Pirelli had lied when answering specific worker inquiries.

In the latest ruling, the appeals court found that Pirelli breached its fiduciary duty to all the plaintiff retirees, regardless of whether Pike had deliberately misled the retirees or whether the employees had asked specific questions regarding the continuation of health benefits after retirement.

To establish a claim for breach of fiduciary duty, the court said employees must show that an employer, acting as a fiduciary, made material misrepresentations upon which the employees relied to their detriment, the appeals judges said.

The case is James v. Pirelli Armstrong Tire Corp., 6th Cir., No. 00-6475, 9/17/02.