HIV AIDS Resource Guide/HIV-AIDS Resource Guide.iso/STAT/CASES/OWENS-ST.ASC

Text File | 1993-01-14 | 20KB | 354 lines

/* This case is reported in 61 EPD 42079. This is one of several
cases in which employees have challenged the legality of the
reduction of benefits for AIDS under health insurance plans under
ERISA. These cases have failed-- however, more recent laws
probably have changed the results of future cases, as regulations
have been proposed to eliminate singling out of AIDS or other
diseases under different federal laws. */

DUBINA, C.J.: Richard Owens ("Owens") sued his former employer,
Storehouse, Inc. ("Storehouse"), claiming that Storehouse's
modification of its employee health plan to include a lifetime
benefits cap of $25,000 for AIDS-related claims violated section
510 of the Employee Retirement Income Security Act of 1974,
Pub.L. No. 93A06, 88 Stat. 829, as amended, 29 U.S.C. 1001-1461
("ERISA"). [1] The district court granted summary judgment in
favor of Storehouse. 773 F.Supp. 416 We affirm.

                         I.   Background

Storehouse owns a chain of retail specialty furniture stores and
employs nearly 160 persons full-time. In 1988, Storehouse
sponsored an employee welfare benefit plan with in the meaning of
ERISA, 29 U.S.C.  1002(1) ("the Plan") [2] The Plan provided
group hospital and medical benefits up to a lifetime maximum of
$1,000,000 per employee. Owens worked for Storehouse in 1988 and
participated in the Plan. In November 1988, Owens was diagnosed
with Acquired Immune Deficiency Syndrome ("AIDS"). Shortly
thereafter, Storehouse's insurer notified Storehouse of its
intent to cancel Storehouse's policy because of the high
incidence of AIDS in the retail industry generally and among
Storehouse's plan members in particular. At the time, five
Storehouse employees had AIDS. Negotiations followed, and the
insurer renewed the policy but with drastic changes: the new
policy provided less coverage, was more costly, and was
guaranteed for six months only. Moreover, the new policy required
Storehouse to remain self-insured for the first $75,000 in AIDS-
related claims, as opposed to $25,000 for all other plan
participants.

Faced with the added possibility that at the end of the six month
term it would be self-insured for all claims up to $1,000,000 per
employee, Storehouse sought another carrier. Its insurance broker
advised Storehouse that it could insure its plan only by placing
a maximum lifetime limit on coverage of AIDS and AIDS-related
illnesses. Storehouse accepted this advice and modified the Plan
to include a $25,000 cap on all AIDS-related medical claims. [3]
The modifications were made pursuant to the Plan's express terms,
which stated in part:

     The full, absolute and discretionary right is reserved in
     the Plan for the Plan Sponsor to amend, modify, suspend,
     withdraw, discontinue or terminate the Plan in whole or in
     part at any time for any and all participants of the Plan.

The Plan at 45.

Despite the cap, Storehouse paid $116,324 for Owens' AIDS-related
claims. [4] Because of the dwindling financial condition of Store
house and the Plan, however, Storehouse notified Owens that in
the future it would adhere strictly to the terms of the modified
plan. It then forwarded Owens an additional $7,500 as a
"transitional" benefit.

Owens filed suit in federal district court, alleging that
Storehouse's modification of its medical benefits plan violated
section 510 of ERISA and state law. Section 510 states:
It shall be unlawful for any person to discharge, fine, suspend,
expel, discipline or discriminate against a participant or
beneficiary for exercising any right to which he is entitled
under the provisions of an employee benefit plan ... or for the
purpose of interfering with the attainment of any right to which
such participant may become entitled under the plan.
29 U.S.C.  1140.

Owens sought a temporary restraining order to prevent Storehouse
from denying his AIDS-related claims. The district court denied
his motion, finding that both ERISA and the express terms of the
Plan gave Storehouse the right to impose such a limitation. The
parties conducted expedited discovery and submitted cross-motions
for summary judgment. During the course of discovery, Owens died
and Beavers was substituted as plaintiff. The district court
granted summary judgment for Storehouse on all of the ERISA and
state law claims. Beavers then perfected this appeal, limiting it
to the claim asserted under section 510 of ERISA only.

                          II.  Analysis

A district court must grant summary judgment if the moving party
shows that there is no genuine dispute regarding any material
fact and it is entitled to judgment as a matter of law. Celotex
Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91
L.Ed.2d 265 (1986); Fed.R.Civ.P. 56(c). We review a district
court's grant of summary judgment de novo, Thompson v.
Metropolitan Multi-List, Inc., 934 F.2d 1566, 1570 (11th
Cir.1991), and apply the same legal standards as those that
controlled the district court, Real Estate Financing v. RTC, 950
F.2d 1540, 1543(11th Cir.1992). As there are no material fact
issues in dispute, we must decide whether the district court's
determinations were proper as a matter of law. See West v.
Greyhound Corp., 813 F.2d 951, 954 (9th Cir. 1987).

Section 510 of ERISA prohibits discrimination against any plan
member "for exercising any right to which he is entitled under
the provisions of the employee benefit plan ... or for the
purpose of interfering with the attainment of any right to which
such participant may become entitled under the plan ... " 29
U.S.C.  1140. Beavers claims that Storehouse's modification of
the Plan to include a lifetime AIDS-related benefits cap
discriminated against Owens under both prongs of section 510.
Beavers' claims cannot be supported.

ERISA does not prohibit a company from terminating previously
offered benefits that are neither vested nor accrued. Phillips v.
Amoco Oil Co., 799 F.2d 1464,1471(11th Cir.1986), cert. denied,
481 U.S. 1016, 107 S.Ct. 1893, 95 L.Ed.2d 500 (1987). Unlike
pension benefits, welfare benefit plans neither vest nor accrue.
See 29 U.S.C.  1051(1); Vasseur v. Halliburton Co., 950 F.2d
1002, 1006 (5th Cir.1992); Hozier v. Midwest Fasteners, Inc., 908
F.2d 1155, 1160 (3rd Cir.1990). This is because Congress
determined that vesting requirements for welfare plans "would
seriously complicate the administration and increase the cost of
plans whose primary function is to provide retirement income."
H.R.Rep. No. 807, 93rd Cong., 2d Sess. 60, reprinted in 1974
U.S.C.C.A.N. 4639, 4670, 4726; S.Rep. No. 383, 93rd Cong., 1st
Sess. 51 reprinted in 1974 U.S.C.C.A.N. 4890, 4935. [5] Instead,
Congress intended employers to be free to create, modify, or
terminate the terms and conditions of employee welfare benefit
plans as inflation, changes in medical practice and technology,
and the costs of treatment dictate. Moore v. Metropolitan Life
his. Co., 856 F.2d 488, 492 (2nd Cir.1988); see also Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732, 105 S.Ct.
2380, 2385, 85 L.Ed.2d 728 (1985) (ERISA "does not regulate the
substantive content of welfare-benefit plans").

Nevertheless, Beavers argues that employers may not change the
terms of their employee insurance programs to affect a particular
illness once an employee has contracted that illness and begun
making claims for it. Beavers thus reads into section 510 a
latent vesting requirement that ripens upon the contraction of,
and the submission of claims for, a particular sickness. Yet,
section 510 contains no such requirement. See Musto v. American
Gen. Corp., 861 F.2d 897, 901 n. 2 (6th Cir.1988), cert. denied,
490 U.S. 1020,109 S.Ct. 1745, 104 L.Ed.2d 182 (1989) (Congress
specifically declined to make health benefits non-terminable.).
Moreover, while an employer may contractually bind itself to
provide fixed medical benefits, Halliburton, 950 F.2d at 1006,
Storehouse did not do so here. Instead, it reserved the right to
change or terminate the terms of its plan at any time. Absent
contractual obligation, employers may decrease or increase
benefits. Id; Hamilton v. Travelers Ins. Co., 752 F.2d 1350, 1351-
52 (8th Cir.1985); see also Alday v. Container Corp. of Am., 906
F.2d 660, 665 (11th Cir.1990), cert. denied, -- U.S. --, 111
S.Ct. 675, 112 L.Ed.2d 668 (1991) ("any retiree's right to
lifetime benefits at a particular cost can only be found if it is
established by contract under the terms of the ERISA governed
benefit plan document"). Thus, Beavers has failed to demonstrate
a statutory or contractual right under section 510 upon which a
claim of discrimination could be based.

We also reject Beavers' contention that the plan modifications at
issue here constitute the discrimination forbidden by section
510. As noted, section 510 targets discriminatory conduct
designed to interfere with the exercise or attainment of vested
or other rights under the plan or ERISA. 29 U.S.C.  1140. It does
not broadly forbid all forms of discrimination. Rather, it
outlaws discrimination undertaken for purposes expressly made
"impermissible," see Furnco Construction Corp. v. Waters, [17 EPD
 8401] 438 U.S. 567, 577, 98 S.Ct. 2943, 2949, 57 L.Ed.2d 957
(1978), by the terms of the plan or statute. Thus, to prevail
under section 510, a plaintiff must show that the alleged
discrimination was designed either to retaliate for the exercise
of a right or to interfere with the attainment of an entitled
right. It is insufficient merely to allege discrimination in the
apportionment of benefits. Shaw v. Delta Air Lines, Inc., [32 EPD
 33,679] 463 U.S. 85, 91, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490
(1983). Accordingly, section 510 relates to discriminatory
conduct directed against individuals; it does not forbid
discrimination relating to the plan in general. See Deeming v.
American Standard, Inc., 905 F.2d 1124, 1127 (7th Cir. 1990);
Aronson v. Servus Rubber Div. of Chromalloy, 730 F.2d 12, 16 (1st
Cir.), cert. denied, 469 U.S. 1017, 105 S.Ct. 431, 83 L.Ed.2d 357
(1984).

[Discriminatory Intent]

To survive summary judgment, therefore, a plaintiff must present
evidence of the employer's specific intent to violate ERISA,
Gavalik v. Continental Can Co., 812 F.2d 834, 851 (3rd Cir.),
cert. denied, 484 U.S. 979, 108 S.Ct. 495, 98 L.Ed.2d 492 (1987);
that is, evidence that the employer intentionally discriminated
against an employee to retaliate for the exercise of rights, or
to interfere with the attainment of entitled rights, under the
plan or ERISA. 29 U.S.C.  510. The record here is void of any evi
dence of intentional discrimination.

First, the record demonstrates no retaliatory intent. It is
uncontroverted that Storehouse acted to reduce plan costs at a
time of financial hardship. It amended the Plan because it was
unable to secure long-term coverage for all its employees.
Indeed, its insurance broker warned that the only way to preserve
the Plan would be to cap coverage for AIDS-related claims. Faced
with the possibility of terminating its Plan altogether or
modifying it to incorporate a cap, Storehouse chose the latter.
Contrary to Beavers' argument, Owens was not singled out for in
jurious treatment. Storehouse's payment of $91,324 in claims
beyond the $25,000 cap supports this conclusion. Additionally,
Owens was neither fired nor harassed. See Conkwright  v.
Westinghouse Elec. Corp., 933 F.2d 231, 237 (4th Cir.1991)
(holding that primary purpose of section 510 is to prevent
unscrupulous employers from discharging or harassing employees to
prevent them from obtaining vested pension rights) (quoting West
v. Butler, 621 F.2d 240, 245 (6th Cir.1980)); Lojek v. Thomas,
716 F.2d 675, 680 (9th Cir.1983) (same). Nor was Owens
constructively discharged. See Crouch  v. Mo-Kan Iron Workers
Welfare Fund, 740 F.2d 805, 810 (10th Cir.1954) (determining that
plaintiff entitled to relief under section 510 when hostile
working conditions forced plaintiff to quit because she claimed
pension benefits). The Plan modifications applied to all
employees and included benefits caps for other illnesses.
Furthermore, we do not infer retaliatory animus merely because
Storehouse amended the Plan after Owens began making claims under
it. It is inevitable that plan modifications undertaken to cut
costs related to certain benefits will adversely affect those
making claims for such benefits. Yet this result is not
tantamount to retaliation for purposes of section 510.
Modification of an employee welfare benefit plan that "cuts along
independently established lines ... and that has a readily
apparent business justification, demonstrates no invidious in
tent." Aronson, 730 F.2d at 16.

Second, the record does not establish that Storehouse amended its
plan to interfere with the "attainment of any right" to which
Owens might have been entitled under section 510. The "right"
referred to is not any right in the abstract. Rather, it is one
specifically conferred by the plan or by ERISA. As discussed,
ERISA does not confer a right to particular health benefits. See
Shaw, 463 U.S. at 91, 103 S.Ct. 2896. Moreover, Storehouse
reserved the right to amend its plan at any time and acted
pursuant to that right. When a plan sponsor reserves the absolute
right to amend its health plan, section 510 does not prevent
amendments made for the demonstrated purpose of cost-saving
alone.

Nonetheless, Beavers discards the plain language of section 510
to argue that an AIDS-related benefits cap is discriminatory on
its face. He cites Vogel v. Independence Fed. Savings Bank, 725
F.Supp. 1210 (D.Md. 1990), for support. In Vogel the plaintiff
had a stroke and submitted claims under his employer's medical
plan. Two years later, the employer's insurance plan became more
expensive. Consequently, the employer, a bank, changed insurance
carriers and purchased a new insurance plan that excluded Vogel
from its coverage. The bank adopted another insurance policy that
again excluded Vogel. Vogel sued under section 510, and the
federal district court held that the bank's actions precluded
summary judgment in its favor. Vogel, however, is inapposite. The
Vogel plan affected the plaintiff only and had no potential to
affect other present or future employees. Thus, the evidence
suggests that the bank in Vogel deliberately singled out its
employee for exclusion from its insurance policy. As noted, the
plan at issue here affected all employees equally, and there is
no evidence of discriminatory intent. We decline to apply Vogel
to these undisputed facts.

[Benefits Apportionment]

The facts and issues here are virtually indistinguishable from
those in McGann v. H & H Music Co., [60 EPD  41,868] 946 F.2d
401 (5th Cir.1991), cert. denied sub nom. Greenberg v.  H & H
Music Co., [60 EPD 41,869] -- U.S. --, 113 S.Ct. 482, 121
L.Ed.2d 387 (1992). In McGann an employer altered its group
medical plan by reducing benefits for AIDS-related claims from
$1,000,00o to $5,000. An employee with AIDS sued under section
510, alleging discrimination. The district court granted summary
judgment for the employer. The Fifth Circuit affirmed, noting:

ERISA does not broadly prevent an employer from "discriminating"
in the creation,  alteration  or  termination  of employee
benefits plans; thus, evidence of such intentional discrimination
cannot alone sustain a claim under section 510. That section does
not prohibit welfare plan discrimination between or among cat
egories of diseases.

946 F.2d at 408.

Not surprisingly, Beavers argues that McGann was incorrectly
decided. He claims that section 510 prohibits discrimination re
lating to all conditions of employment. Appellant's Reply Brief
at 5, Butler, 621 F.2d at 245. We disagree. Section 510 simply
does not forbid discrimination relating to the apportionment of
benefits within an insurance plan. See Shaw, 463 U.S. at 91, 103
S.Ct. at 2896. Beavers' argument to the contrary stretches
section 510 too far. Under his theory, employers who reduce or
terminate coverage for certain categories of illness to avoid
catastrophic costs would face near-automatic section 510
liability, regardless of the circumstances driving the employer's
actions. Congress did not require employee welfare benefit plans
to be chiseled in stone. It intended flexibility in the
apportionment of their terms. Moore, 856 F.2d at 492. Section 510
prohibits discrimination driven by a desire to retaliate against
an employee or to deprive an employee of a right to which he or
she may become entitled. It does not prohibit an employer from
crafting its medical plan to meet economic imperatives. Neither
does it mandate fixed coverage of catastrophic diseases. See
McGann, 946 F.2d at 408; see also Shaw, 463 U.S. at 91, 103 S.Ct.
at 2896 (ERISA does not require employers to provide any
particular benefits nor does it forbid discrimination in the pro-
vision of employee benefits); Hlinka v. Bethlehem Steel Corp.,
863 F.2d 279, 283(3rd Cir.1988) (ERISA does not require an em
ployer to provide any particular level of coverage once a medical
benefits plan is established); Moore v. Reynolds Metals Co.
Retirement Program For Salaried Employees, 740 F.2d 454, 456 (6th
Cir.1984), cert. denied, 469 U.S. 1109, 105 S.Ct. 786, 83 L.Ed.2d
780 (1985) (courts have no authority to decide which benefits
employers must provide employees); Viggiano  v. Shenango China
Div. of Anchor Hocking Corp., 750 F.2d 276, 279 (3rd Cir.1984)
(ERISA does not require employers to provide medical benefit
plans). In short, Beavers' reading of section 510 would create
rights and benefits never intended by Congress. Absent evidence
of retaliation or interference with the attainment of an entitled
right under the plan, ERISA provides no right to perpetual health
insurance with immutable terms. To hold otherwise would impair
Congress' express intent that employers be free to fashion
medical benefits plans as costs, technology, and the marketplace
dictate.

        IV. Conclusion

For the foregoing reasons, we conclude that no statutory or
contractual obligation prevented Storehouse from amending its
employee welfare benefit plan to include a cap for AIDS-related
claims. Accordingly, we affirm the district court's order
granting summary judgment on behalf of Storehouse.

Affirmed.

FOOTNOTES
1.   Subsequent to filing this action, Richard Owens died. Aaron
Dunill Beavers ("Beavers") was substituted as plaintiff.
2.   "The Plan" refers to the Storehouse benefits plan entitled,
"Your Medical Benefits Plan," prepared April 11, 1988.
3.   Storehouse also placed caps on claims related to mental
illness and substance abuse ($25,000), temporomandibular joint
dysfunction ($2,500), nicotine dependence ($500), and growth
hormone drugs for dependent children ($10,000).
4.   Storehouse had found a new insurance company to insure its
modified plan; the new insurer, however, refused to provide
coverage for seven individuals, including the five Storehouse
employees known to have AIDS.
5.   It has been suggested that Congress feared that the
imposition of vesting requirements on welfare benefit plans might
discourage employers from offering any insurance at all. See
Adams, 905 F.2d at 947 (citation omitted).