Under Contract, Retiree Health Benefits Can Be Tied to Those Provided Active Employees

For more than 20 years and over the span of approximately 60 collective bargaining agreements, the City of Duluth entered into language calling for the provision of retiree health care coverage to its police officers, firefighters, and other employees. Two contract clauses cover the issue of retiree health care.

The first clause, which nominally covered only active employees, provided that retirees “shall receive hospital-medical insurance coverage to the same extent as active employees.” The second clause provided that “the City will provide any eligible retired employee without claimed dependents the approved fee for service coverage or plan coverage, whichever is designated by the employee at the time of retirement, provided active employees, without cost to the retiree.”

For many years, the City construed the health insurance language to “freeze” the health care benefit levels of retirees past the date of their retirement. In 2008, however, the City began to tie the health care benefit levels provided to retirees to the levels furnished active employees. A group of retirees sued, and the dispute wound up in the Minnesota Supreme Court.

The Court upheld the City’s decision. The Court found that the “active employee” language in the collective bargaining agreement was clear and unambiguous, and linked the health insurance benefit levels provided to retirees to those received by active employees. The Court found that the retirees’ proposed interpretation “would require us to add words to the active employee clause. The proposed interpretation requires us to change the phrase ‘active employees’ to ‘active employees at the time of retirement’ or ‘then-active employees.’ However, we have consistently stated that when a contractual provision is clear and unambiguous, the Court should not rewrite, modified, or limit its effect by a strained construction.”

The retirees argued that the retiree medical language of the collective bargaining agreement, at a minimum, created an ambiguity with respect to the level of health insurance benefits retirees were to be provided. The retirees pointed to the language stating that they were entitled to one of two health insurance plans, “whichever is designated by the employee at the time of retirement,” into language that “such coverage shall be for the life of the retiree.” Retirees contended that these two clauses supported the interpretation that the active employees clause referred to employees who were active at the time of a retiree’s departure.

The Court disagreed with the retirees’ argument. The Court found that “the clause requiring a retiree to select a single health insurance plan at the time of retirement does not guarantee the retiree the selected plants throughout retirement. The initial election of a health insurance plan is effective for as long as the City offers the selected plan to current city employees. The City is required only to provide retirees the same health benefits that are available to current City employees. Any other interpretation would require us to add words to both the active employees clause and the clause requiring an initial selection of a health plan by a retiree.”

Savela v. City of Duluth, 2011 WL 5864807 (Minn. 2011).

Note: The Court’s decision was a close one, with three of the seven justices dissenting from the ruling in favor of the City. The dissenting judges found the various contract clauses to be ambiguous, and would have allowed a trial on the meaning of the contract language. For NFL fans, one of the dissenting judges was Alan Page, long a member of the Minnesota Supreme Court, but even longer one of the best lineman in the National Football League.