Jottings By An Employer's Lawyer

Sunday, September 14, 2003

6th Cir. - Union Has Fiduciary Duty With Respect To Life Insurance Policy

When American Airlines life insurance policy seemed too expensive, the union for many of its employees, the Transportation Workers Union, stepped in and selected an alternative policy that it made available through union meetings. Unfortunately, the Union or the broker that placed the coverage emphasized that the rates would never go up, or if they did, only a few pennies. What they did not mention was the company's right to cancel if the group were less than 50. When the company exercised its rights and canceled, the members were left with a revised plan that was much more expensive than the 'promised version.'

Upset, they sued the Union, its president and vice-president, as ERISA fiduciaries. The District Court granted summary judgment to the defendants. The 6th Circuit reverses, noting that the duties of an ERISA fiduciary are the highest known to law. It first found that the defendants reliance on an independent expert was misplaced since the expert was really a broker, who was not charged with looking out solely for the interests of the employees. Furthermore, when the Union President who signed the policy admitted that he had not read it during his deposition, the Court somewhat sarcastically noted, that while being a fiduciary didn't require becoming an expert in employee benefits, it did not seem too much to ask the person signing it to at least have read the policy. A stronger argument for the defendants, supported by case law from other Circuits, was that this was a welfare not a pension plan, and thus did not vest, so that it was always subject to amendments. Thus the defendants argued they had not breached their duty. Distinguishing the other cases, the 6th Circuit held that although they were not required to disclose certain information, when they voluntarily chose to do so, they could not provide misleading information, which is what they had arguably done here. Gregg v. Transportation Workers Union (6th Cir. 9/11/03) [pdf].

Somewhat ironically, on the same day the Court refused to create a common law cause of action under ERISA on behalf of a union that had received misinformation from a third party administrator about the amount of insurance coverage which would be obtained by a specified increase in the employer's contribution which it used in negotiating a collective bargaining agreement with the company. When the error was disclosed it was too late to correct. Although acknowledging issues with respect to standing and the failure of ERISA to provide a cause of action for negligence in making such disclosures, the Union sought to overcome both by having the Court create a common law cause of action. An invitation which the Court declined. Local 6-0682 v. National Industrial Group Pension Plan (6th Cir. 9/11/03) [pdf].

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