• Paul Peter Nicolai

Retiree Medical Benefits Litigation

Litigation over medical coverage for retirees is increasing. As the cost of medical care continues to rise and the proportion of the workforce in retirement rises with those costs, many long-term retiree medical coverage commitments are increasingly questioned.

Most of these commitments are contained in contracts, specifically, collective bargaining agreements. In the public sector, these commitments are also found in regulations and statutes.

So far, the trend is favoring employers.

In one case, a collective bargaining agreement provided healthcare benefits to employees who retired during its term. It had a durational clause which said that all terms and conditions provided through the contract would expire when the contract expired. It expired in 2004 and the company sought to terminate retirees’ healthcare benefits. The retirees sued, claiming their benefits were vested. A district court and the Sixth Circuit ruled for the retirees. It said the durational clause was not dispositive and other language tied healthcare benefits to pension eligibility. These provisions made the agreement ambiguous. Using extrinsic evidence, the court concluded there was vesting.

In a summary reversal, the US Supreme Court directed courts to apply ordinary principles of contract interpretation. The Supreme Court found the case straightforward. The only reasonable interpretation was that retirees’ benefits expired along with the CBA. The Supreme court applied the same ruling to a second case as well.

Later, the Sixth Circuit reversed an injunction preventing another company from terminating retiree medical benefits. The retirees there argued the contract language said retirees would continue to be covered under the plan until age 65 which meant vested benefits until age 65. The company said the until age 65 language only explained who was eligible for benefits during the contract’s operation and retiree medical benefits were subject to the general durational clause. Using the Supreme Court’s decision the court found the “until age 65” language did not trump the general durational clause.

These cases put to rest any idea that the rules for assessing retiree medical claims in a contract context are special. Without explicit contrary language, general durational clauses govern the duration of retiree medical benefits, and the obligation to provide them ends with the contract.