Pension & Benefits News Certain surviving spouses of Caterpillar retirees weren’t entitled to lifetime health benefits
Friday, December 13, 2019

Certain surviving spouses of Caterpillar retirees weren’t entitled to lifetime health benefits

By Pension and Benefits Editorial Staff

The Sixth Circuit in an unpublished opinion reversed a district court decision requiring Caterpillar to provide lifetime, premium-free health insurance to surviving spouses of retirees who both retired (or were eligible to retire) and died after a 1988 Group Insurance Plan (1988 GIP) promising such lifetime premium had terminated pursuant to removal of the "lifetime" language in a subsequent collective bargaining agreement. Though the appeals court agreed with Caterpillar that the agreement’s language prevented the benefits from vesting as to these plaintiffs, it affirmed the district court’s judgment as to surviving spouses of retirees who had died while the 1998 GIP remained in effect.

1998 GIP covers spouses’ health care. In 1998, Caterpillar entered into a new CBA with its workforce, which was represented by the auto workers union (UAW). The CBA contained the 1988 GIP, which defined the employees’ healthcare and retirement benefits. Section 5 stated that, "following the death of a retired Employee," the company would continue to provide healthcare coverage "for the remainder of his surviving spouse’s life without cost." But it also stated that "benefits in accordance with this Section will be provided for the duration of any Agreement to which this Plan is a part."

New CBA removes "life without cost." In January 2005, Caterpillar and the UAW entered into a new CBA which removed the "life without cost" language from the GIP. Caterpillar then notified the spouses of deceased employees that the company would soon be deducting healthcare premiums from their monthly pension payments. After some of them objected, the company agreed not to charge those premiums to spouses of employees who had died before the 2005 CBA took effect (the "actual surviving spouses").

Procedural history. The plaintiffs in this certified class action, which began in 2006, were surviving spouses of Caterpillar employees who retired while the 1998 GIP was in effect and subsequently died either before or after the 2005 CBA took effect. All the plaintiffs sought a declaration that under the 1998 GIP, they had a "vested" entitlement to free health care benefits for life.

In 2010, the district court granted partial summary judgment for the plaintiffs, relying in large part on the Sixth Circuit’s Yard-Man decision. However, the Supreme Court subsequently "emphatically rejected" the rule of Yard-Man in its Tackett and Reese decisions. This prompted Caterpillar to file several motions for reconsideration, which the district court denied. In March 2018, the district court entered a final judgment and this appeal followed.

Arguments as to "actual surviving spouses" abandoned. At the outset, the Sixth Circuit rejected Caterpillar’s contention that the claims of "actual surviving spouses" was moot and also held that the company abandoned any challenge to the district court’s judgment insofar as it provided relief to this group. Because Caterpillar now averred that their claims had been resolved and their rights "already been determined," there was nothing for the Sixth Circuit to do.

Remaining claims not time-barred. The court also rejected Caterpillar’s contention that the claims of the "post-termination spouses" (those whose spouses had died after the 2005 CBA) were time-barred. For their claims to be time-barred, Caterpillar must have unequivocally put them on "clear and unequivocal" notice no later than April 2000 that it would not pay the benefits at issue. It failed to "remotely" make that showing.

Termination of CBA. On the merits, Caterpillar argued that the 1998 GIP did not provide the plaintiffs with a vested entitlement to lifetime healthcare benefits without cost. Pursuant to the Supreme Court’s Reese decision, the Sixth Circuit was tasked with resolving the issue according to "ordinary principles of contract law." One of those principles (sometimes overlooked under the Yard-Man approach, which the district court was bound to follow in its 2010 ruling) was that "contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement."

Durational provisions. Collective-bargaining agreements typically contain a "general durational" provision that states when the agreement ends. Discrete parts of the agreement may also have their own "specific" durational provision. Moreover, unless an agreement says otherwise, promises subject to a durational provision do not vest—because contractual obligations end when the agreement ends.

Here, the 1998 CBA included not only a general-durational provision for the GIP, but also a specific-durational provision for healthcare benefits. The general-durational provision provided that the agreement "shall remain in force until April 1, 2004" and may remain in force thereafter depending on certain actions or inaction of the parties. The durational provision specific to healthcare benefits stated they "will be provided for the duration of any Agreement to which this Plan is a part."

In Watkins v. Honeywell Int’l Inc., the Sixth Circuit recently interpreted nearly identical "for the duration of this Agreement" language in a nearly identical context to mean that the employer had promised to provide healthcare benefits only "for as long as the agreement lasts." Interpreting the durational language the same way here, the court held that Caterpillar’s obligation to provide healthcare benefits terminated when the GIP did, which was no later than January 10, 2005—the effective date of the new CBA and its new deal as to healthcare benefits. In so ruling, the court rejected the plaintiffs’ assertion that the 1998 GIP’s promise of healthcare "for the remainder of [their] life without cost" amounted to a separate durational provision that trumped the plan’s more general durational language.

SOURCE: Kerns v. Caterpillar Inc., (CA-6), November 13, 2019.

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