Extrinsic evidence indicated that retiree health care benefits vested for life

Finding that the language in a collective bargaining agreement was ambiguous, a divided Sixth Circuit concluded that extrinsic evidence indicated that an employer and union intended for the healthcare benefits of retirees to vest for life. Because a general-durational clause carved out life insurance and health care insurance, and stated that those coverages ceased at a time different than other provisions of the CBA, the appeals court examined extrinsic evidence to determine the parties’ intent. However, the matter was remanded to the district court because it failed to properly weigh the costs and the benefits of the employer’s proposed changes to the retirees’ current plan. Judge Donald filed a separate opinion concurring in the result. Judge Sutton filed a separate dissenting opinion.

Former employees who retired between 1994 and 2004 filed suit seeking a declaration that they were entitled to lifetime health care benefits, an injunction requiring the employer to “maintain the level of retiree health care benefits currently in effect,” and damages for injuries the retirees might sustain if the benefits were terminated. In 1971, the employer and union representing certain employees entered into a CBA in which the employer agreed “to provide health-care insurance to its retired employees and their spouses who were receiving a [pension or a spouse’s pension]” from the company. “From 1974 through 1995, each CBA renewed this commitment in ‘substantially unchanged’ form and each CBA provided that employees did not have to pay premiums in order to receive coverage.”

In 1998, the parties entered into the CBA that generated this lawsuit. That agreement outlined group benefits for individuals who retired after July 1, 1994. “The CBA does not spell out what ‘Medical’ benefits are included; it just says that eligibility for specific coverage will be based on each plan’s eligibility requirements, and goes on to note that no contributions . . . are required for the Health Care Plans . . . .”

Vesting presumption.

Ultimately, the courts in this long running litigation faced two questions: “Did [CNH] in the 1998 CBA agree to provide health care benefits to retirees and their spouses for life? And, if so, does the scope of this promise permit CNH to alter these benefits in the future?” An unexpected wrinkle was added to this case when the Supreme Court decision in M & G Polymers USA, LLC v. Tackett abrogated the Sixth Circuit’s Yard-Man decision and its progeny, and instructed courts to apply “ordinary principles of contract law” when reviewing collective-bargaining agreements.

The Tackett decision removed presumptions in favor of vesting. When a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.

Extrinsic evidence.

While, in some cases, the presence of a general-durational clause will cure any ambiguity as to the duration of benefits, that was not the case here because the parties carved out certain benefits, such as life insurance and health care insurance, and stated that those coverages ceased at a time different than other provisions of the CBA. Here, presuming that the CBA’s general-durational clause said everything about the parties’ intentions ignored evidence, taken from the whole instrument, indicating that the parties may have intended the benefits to extend beyond the end of the CBA. Accordingly, the Sixth Circuit examined the extrinsic evidence in this case to determine the parties’ intent.

The district court previously reviewed the extrinsic evidence and found that the retirees’ rights had vested and the appeals court concluded that the record supported the district court’s finding. In calculating the costs of certain retirees’ benefits, and when determining health care costs, the employer based the figure on the employees’ life span. Further, in a 1990 document to a surviving spouse, the employer informed her that she would have medical insurance coverage for her lifetime. Thus, the record indicated that the employer, the retirees, and the retirees’ spouses, intended and expected that the health care benefits provided were vested for life.

Reasonable changes.

However, unless a CBA says otherwise, the vesting of health care rights does not prevent reasonable modifications to those rights. Thus, the appeals court had to consider whether the employer’s proposed changes were reasonable. The district court had concluded that the employer’s proposed plan was not reasonably commensurate with the current plan. However, the appeals court found that the district court’ analysis erred in several ways. Reese II (Reese v. CNH America, LLC) made clear that the district court was to consider not only any increased costs to the retirees, but also any additional benefits that inured to them.
In this instance, the district court focused heavily on cost-shifting provided for in the proposed plan. It also erred by focusing too heavily on the future increased costs to non-Medicare-eligible retirees. Additionally, because the proposed plan was materially similar to the plan offered to current employees and retirees, while being less expensive to the plaintiffs, the district court erred in finding that this factor did not favor either side. Finally, the district court erred in determining whether the proposed plan was reasonable in light of changes to health care. It also held that it could not consider the reasonableness of the proposed plan in piecemeal fashion.

However, the appeals court found that true cost-shifting was less than that highlighted by the district court. Further, the proposed plan placed the plaintiffs in substantially the same position in terms of health care benefits as current employees and retirees, but they also paid less for these same benefits. Moreover, the appeals court saw no reason why the district court could not examine individual terms of the proposed plan for reasonableness. Accordingly, the appeals court concluded that because of the district court’s failure to consider the increased benefits of the employer’s proposes plan, remand was necessary.


Judge Donald agreed with the lead opinion as to affirming the district court’s vesting determination; however, she disagreed with the court’s previous determination that despite a lifetime vesting, the employer may unilaterally modify the scope of the retirees’ health care benefits.


In a dissenting opinion, Judge Sutton argued that the Supreme Court’s decision in Tackett told the Sixth Circuit to respect “general durational clauses” in CBAs, reminded it that “courts should not construe ambiguous writings to create lifetime promises,” and directed that, “when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.” He urged that those principles should have made quick work of this case, but that was not the outcome. Thus, the dissent argued that either the Sixth Circuit or the rest of the country is not applying “ordinary principles of contract law” to these agreements.

SOURCE: Reese v. CNH Industrial N.V., (CA-6), No. 15-2382, April 20, 2017.
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