Unisys Made Misrepresentations about Health Insurance Coverage

July 23, 2007 (PLANSPONSOR.com) - The U.S. District Court for the Eastern District of Pennsylvania said that Unisys Corp. would have to restore the free or low-cost retiree health benefits of 12 employees who retired from the company's predecessor.

In dealing his decision, U.S. District Judge Bruce W. Kauffman took on the recommendation of a magistrate judge, who said that Unisys had, in fact, breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by misleading 12 employees to believe they would have free or at least low-costs health benefits for life.

Kauffman refused to order the company to pay back wages and reimburse the retirees for medical premiums they have paid since Unisys decided to charge them for their health coverage, agreeing with the magistrate judge that the type of relief requested by the retirees was not “equitable relief” within the meaning of ERISA.

Even though the summary plan description (SPD) gave Unisys the authority to amend retiree benefits, the court said that the company’s actions made misrepresentations to the 12 plaintiffs about their retiree health benefits and that the retirees had relied to their detriment on those misrepresentations.

The basis for the claim by the employees stretches back more than a decade to 1993, when the Blue Bell, Pennsylvania-company embarked on a cost-savings measure in which it would start phasing in a requirement that retirees pay the full cost of their retiree medical coverage. The phase out would end in 1996, at which point Unisys would stop contributing to retirees’ premiums (See Remaining Unisys Retiree Benefits Claims De-Classified )

Plaintiffs in the original complaints fell into one of three groups named for the companies that had joined to form Unisys in 1986:

  • the “Sperry” plaintiffs, those who had originally worked for Sperry Corp. and retired before 1989, the year that employee benefits of the merged company were unified.
  • the “Burroughs” plaintiffs, who originally worked for Burroughs and retired before 1989
  • the Unisys plaintiffs, which comprised those who retired in 1989 or later.

Unisys ended the old plans and created the new plan that sparked a litany of lawsuits and led to a class action of about 32,000 retirees – a number that was later trimmed down by 8,000.

In 1995, the 3 rd U.S. Circuit Court of Appeals said that the class members would get equitable relief under ERISA if they could show that Unisys led them to believe they had lifetime health benefits but did not make reference to the a reservation of rights statement that barred the class members from claiming they were contractually entitled to free or low-cost health benefits.

In 1997, the district court granted summary judgment in 1997 for Unisys on the breach of fiduciary duty claims asserted by class members who had retired more than six years prior to the filing of the complaint, as well as those class members who left the company involuntarily. That decision was overturned in 2001 by 3 rd U.S. Circuit Court of Appeals, which said that some of the retirees would not be time-barred from pursuing their claim, depending on the date and nature of their reliance on alleged misrepresentations made by Unisys.

Unisys moved to get the class decertified, arguing that the 3 rd Circuit’s decision had dramatically changed the case. The plaintiffs agreed that there may be factual differences among the class members, but those differences did not affect the cohesiveness of their claims since the employer had engaged in a “systematic and pervasive common course of conduct” in misrepresenting to employees that they would have lifetime retiree medical benefits.

Kauffman then ruled that plaintiffs must provide individual evidence of misrepresentation by Unisys: “A large number of plaintiffs base their claims on representations made by their co-workers or supervisors. In order for those individuals to qualify as fiduciaries, they must have had actual or apparent authority to advise the company’s employees of their rights under the plan,” he wrote.

Unisys Misrepresented Health Insurance Promise

This case was then collectively filed by 14 individuals who retired from Unisys between 1987 and 1989 and who were formerly employed by Burroughs. Twelve of the 14 were found in September by Magistrate Judge Thomas Reuter as having proven that Unisys made misrepresentations to them about their retiree health benefits and that they had relied to their detriment on those misrepresentations.

Kauffman ruled that Unisys’ actions trumped the medical plan documents and SPDs, which said that the company could amend the retiree benefits.

“The alleged misrepresentations made by Unisys may not have been technically false, but the factual findings of the Magistrate Judge establish that they were nonetheless misleading,” Kauffman wrote in the opinion.”They were misleading because the company failed to qualify adequately the information it supplied regarding the low cost of the Burroughs plan with an acknowledgement that the company would modify or terminate the retirees’ medical benefits. The company knew its employees were confused and that this confusion would benefit the company financially.”

Kauffman also found that the suit was not time-barred because it was brought within the three-years of their knowledge of the fiduciary breach. He also said it wasn’t necessary that plaintiffs prove the misrepresentations were made to them by someone with fiduciary status.

The case is In re Unisys Corp. Retiree Medical Benefits ERISA Litigation, E.D. Pa., No. 03-3924, 7/16/07.