SPD Language Not Enough To Vest Retiree Benefits

July 28, 2003 (PLANSPONSOR.com) - A company did not breach a contract with retired employees by terminating an unvested postretirement life insurance benefit.

>The US District Court for the Southern District of Georgia ruled that vesting could not be contrived from plan documents stating that employees would “continue” or “keep” their benefits once they retired, thus rejecting the retirees’ contention their life insurance benefits were vested.   The court said the use of the words “keep” and “continue” were insufficient evidence that the retirees had vested benefits in granting summary judgment to the defendant, according to Washington-based legal publisher BNA.

>Further, Judge William Moore Jr. dismissed the retirees’ claim that their former employer was promissorily estopped from denying them benefits, due to the failure by the retirees to show they received from their employer an oral interpretation of an ambiguity in the life insurance plan.    The retirees had argued they were promised that by working for the company until they were eligible for retirement, the company would provide them with life insurance coverage.

Case History

>Independent Life and Accident Insurance Co. maintained separate group life insurance plans for its employees and its retirees. In 1996, Independent merged with American General Life and Accident Insurance Co. and on January 1, 2001, American General terminated the retiree life insurance plan.

>Gerald Jones, a retiree of Independent, contested the discontinuation of his life insurance through the plan’s claim.   Jones’ claim was denied by American General leading to the Jones filing a lawsuit.

In December 2002 the district court certified as a class action Jones’s claim that American General breached its contract with retirees by terminating the retiree life insurance plan. However, in that decision the court refused to certify as a class action Jones’s claim that the company, through its representations to retirees, was promissorily estopped from terminating their life insurance benefits.

The case is Jones v. American General Life and Accident Insurance Co., S.D. Ga., No. CV101-003, 7/22/03.

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