Wording Of Retiree Medical Benefits Clause May Be Critical

Litigation over the level of retiree medical benefits granted by a variety of labor contracts illustrates the care that needs to be taken with the crafting of contract language governing post-retirement medical insurance. The litigation involved the City of Sea Isle, New Jersey, which had labor agreements with an FOP lodge (covering rank-and-file officers), a PBA local (covering supervisors), and the Communications Workers of America (covering other City employees). The agreements had differently worded retiree medical provisions, and the retiree medical language in the FOP contracts had two different versions.

In 2010, the City advised the unions that retired employees would receive the same health benefits that current employees received under the current contracts. The changes resulted in decreased benefits for the retirees, and they sued, claiming they had vested contractual rights in the previous level of benefits.

When a trial judge granted summary judgment to the City on all the claims, the retirees sued. Keying in on the language in the different labor contracts, an appeals court upheld the judgment for the City with respect to some of the retirees, but not others.

The Court ruled that “the CBAs pertaining to police officers were unambiguous and did not require defendant to provide retirees with any particular level of health benefits in the future. The FOP CBAs and the PBA CBAs merely stated that defendant ‘shall continue in full force and effect the insurance coverage enjoyed by the members of the bargaining unit[.]’ The employer was free to modify the health benefits for retirees to make them consistent with those enjoyed by active employees, i.e., the members of the bargaining unit. Therefore, we affirm the judge’s decision granting summary judgment to defendant on the two FOP CBAs and the two PBA CBAs.

“With regard to the two remaining contracts, we reach a different result. Unlike the CBAs for the police officers, the CWA CBA specified that defendant would continue to pay premiums for a specific Blue Cross/Blue Shield plan ‘as described’ in the CBA when the employee retired. While the public workers covered by this agreement agreed to ‘change to any supplemental plans available and tie benefits into Medicare and Medicaid as a cost savings to’ defendant, the CBA stated that the parties ‘agreed that the benefits are Blue Cross/Blue Shield PACE, Rider J, major medical, dental, and prescription and the City will continue to provide this or an equal plan.’

“On the one hand, these contractual provisions could be read to mean that defendant agreed to provide a Blue Cross/Blue Shield health plan or its equivalent, but did not agree to provide a specific level of benefits under such a plan. On the other hand, the agreement could be read as requiring defendant to continue to provide a plan that was ‘equal’ in all respects, including the level of benefits, to the plan in effect at the time of the employee’s retirement. This is a material ambiguity that cannot be resolved on the basis of the current evidentiary record. Therefore, summary judgment should not have been granted on the CWA CBA.”

Retired Police Officers’ Association of Sea Isle City v. City of Sea Isle City, 2016 WL 3199475 (N.J. App. 2016).