Court Affirms Summary Judgment in Employer’s Favor on ERISA Claims Arising from Discontinuation of Life Insurance

In Klaas v. Allstate Insurance Co., 2021 U.S. App. LEXIS 38473 (11th Cir. Dec. 28, 2021), the Eleventh Circuit affirmed summary judgment in the employer’s favor on ERISA claims stemming from the employer’s discontinuation of retirees’ life insurance benefits.

Until 2013, Allstate provided eligible Allstate employees with life insurance that continued after the employee’s retirement. The benefit was described in written communications distributed in the 1980s as “paid up” and/or “no cost” insurance. Beginning in 1990, Allstate included a reservation of rights in the relevant summary plan description, or “SPD,” to the effect that “[t]he Employer intends to continue the Plan indefinitely, but reserves the right to change, amend or terminate the Plan or the provisions of the Plan at any time.” Representatives of the company continued to make oral statements that the life insurance was “paid up” or “paid for life,” until 2006 if not later, and some employees received written communications, as late as 1997, using similar language.

In 1994, Allstate offered certain employees a Special Retirement Opportunity, or “SRO,” under which the participating retiree would receive a three-year bump to length of service, and a five-year bump to age, for purposes of calculating the retiree’s benefits. The booklet describing the SRO provided that participating retirees would receive no-cost life insurance, but added that employees should check the plan’s SPD for more details. The SRO booklet also said that “[t]he benefits, plans, and programs described or referred to in this booklet may be modified or terminated at any time.” To accept the SRO, an employee had to waive any employment-related claims against Allstate.

In 2013, Allstate announced to retirees who had retired after 1990 that, effective January 1, 2016, Allstate would no longer pay the premium for the life insurance benefit. Shortly thereafter, two putative classes of plaintiffs—one a group of Allstate retirees, the other a group of Allstate retirees who had executed waivers to receive the SRO—sued Allstate, claiming that the discontinuation of the life insurance benefit violated ERISA’s § 502(a)(1)(B), concerning the payment of benefits due under an ERISA plan, and also constituted a breach of Allstate’s fiduciary duty. The district court granted Allstate’s motions for summary judgment, concluding that the plan documents unambiguously gave Allstate the right to terminate the benefit and that the plaintiffs’ claims for breach of fiduciary duty were time-barred. The plaintiffs appealed.

The Eleventh Circuit, in an opinion written by Judge Jill Pryor, affirmed. The court first rejected the argument that the SPD’s reservation of Allstate’s right to terminate benefits was ambiguous, noting that the Supreme Court rejected a similar argument in M&G Polymers USA, LLC v. Tackett, 574 U.S. 427 (2015). In M&G, the Sixth Circuit had permitted ERISA claims to proceed based on an “infer[ence] that parties to collective bargaining would intend retiree benefits to vest for life.” The Supreme Court reversed and vacated the judgment, stating that “[w]here the words of a contract in writing are clear and unambiguous, its meaning is to be ascertained in accordance with its plainly expressed intent,” and remanded with instructions to interpret the benefits “apply[ing] ordinary principles of contract law. . . .”

The earliest retirement in the putative class against Allstate occurred in 1994, after the reservation-of-rights language appeared in the SPD. Accordingly, the Eleventh Circuit held, “[t]he provisions in the SPDs from 1990 onward stating that Allstate would provide life insurance to employees ‘at no cost’ were subject to the limitation that the provisions continued to exist—i.e., that they were not terminated.” The Seventh and Third Circuits, the court noted, have similarly rejected claims that a benefit “for life” was inconsistent with a reservation of the right to modify or terminate that benefit.   

The court also rejected an argument by the SRO plaintiffs that the reservation of the right to terminate benefits “at any time” could be interpreted to mean at any time prior to an employee’s acceptance of the SRO, and that a contrary interpretation would render the consideration for the SRO retirees’ waivers illusory. The plaintiffs’ argument relied heavily on a Third Circuit decision, In re New Valley Corp., 89 F.3d 143 (3d Cir. 1996), which was distinguishable, the court said, because New Valley involved a “top hat” retirement plan exempt from ERISA’s writing requirements. And the reservation of rights did not render the consideration for the waivers illusory, the court held, because the consideration for the waiver was not retirement benefits themselves, but year and age credits that would apply in calculating retirement benefits—and the year and age credits were unaffected by the discontinuation of the life insurance benefit. To the extent that the discontinuation of the insurance benefit might violate the Age Discrimination in Employment Act (“ADEA”)’s provisions concerning consideration for giving up rights under the Act, the court added, the plaintiffs had asserted no ADEA claim.

As for the plaintiffs’ claims for breach of fiduciary duty, the court agreed with the district court that these were barred by 29 U.S.C. § 1113, which establishes “a statute of repose, and not a mere statute of limitations” for such claims.

Judge Brasher, concurring, wrote that the plaintiffs’ allegations were that Allstate promised to buy a particular kind of policy—a fully paid-up insurance policy—and did not. That claim, sounding in fraud, might have fallen under Section 1113’s provision that claims of “fraud or concealment . . . may be commenced not later than six years after the date of discovery of such breach or violation,” he observed. But the plaintiffs had not pressed that argument, and had not established that Allstate fraudulently promised “paid up” benefits and then concealed its failure to provide that kind of insurance. Accordingly, Judge Brasher concurred in the judgment.

Posted by Valerie Sanders.

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