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Supreme Court Says Retiree Health Benefits Ended When CBA Expired

On Behalf of | Mar 14, 2018 |

The U.S. Supreme Court, in CNH Industries N.V. v. Reese, has ruled that certain retiree health benefits provided under a collective bargaining agreement (“CBA”) terminated when the CBA expired. In particular, the Supreme Court held that a CBA is to be interpreted according to ordinary principles of contract law unless it is subject to more than one reasonable interpretation.

Background. In 1998, CNH agreed to a CBA that provided health care benefits under a group health plan to certain employees. Other benefits, such as life insurance, ceased when an employee retired. The CBA contained a provision saying it would expire in May 2004. When the CBA expired, several retirees and beneficiaries filed a lawsuit to request a declaratory judgment that their health care benefits had vested for life and to enjoin CHN from terminating the benefits.

While the retirees’ lawsuit was pending, the Supreme Court decided M&G Polymers USA, LLC v. Tackett, holding that where a CBA defines rights to retiree health benefits, it must be interpreted according to ordinary contract law principles. In particular, the Supreme Court rejected the “Yard-Man” inference adopted by numerous courts, including the Sixth Circuit Court of Appeals, where the immediate case was pending.

NOTE: In International Union, United Auto., Aerospace & Agric. Implement Workers of America v. Yard-Man, the Sixth Circuit applied a retiree-friendly judicial inference that retiree health benefits are vested for life in the absence of specific language to the contrary in the plan document or CBA.

In the wake of Tackett, the district court, which had initially ruled in favor of CNH, surprisingly reversed course and ruled in favor of the retirees. In turn, CNH appealed to the Sixth Circuit.

Sixth Circuit. On appeal, the Sixth Circuit affirmed the district court’s decision, finding that the CBA was silent concerning whether the retiree health benefits vested for life. Specifically, the Sixth Circuit found the CBA’s general duration clause was inconclusive because it: (i) provided that coverage for certain benefits ended at different times; and, (ii) tied eligibility for retiree health benefits to pension plan eligibility. As a result, the Sixth Circuit concluded that the CBA was ambiguous as a matter of law and subject to interpretation based on extrinsic evidence that supported lifetime vesting of retiree health benefits. CNH appealed the decision to the Supreme Court.  

Supreme Court. In reviewing the matter, the Supreme Court reversed the Sixth Circuit, holding that a contract is not ambiguous unless it is subject to more than one reasonable interpretation. The Court observed that no other Court of Appeals would find ambiguity under the immediate circumstances, that the CBA was straightforward, and that the only reasonable interpretation of the 1998 CBA was that retiree health care benefits expired when the CBA expired in 2004. Accordingly, the Court reversed and remanded the matter for further proceedings consistent with its opinion.