Opinion
No. 2:97 CV 445
May 24, 2002
ORDER
Before the court is the second motion for summary judgment filed in this case by defendant Val Corporation Employee Benefit Plan 501 ("Plan 501"). The court denied Plan 501's first summary judgment motion on August 7, 2000. Rather than reiterating all of the facts here, the court incorporates by reference pages 1-4 of its August 7, 2000, memorandum order, as an adequate summary of the undisputed facts. A summary judgment should of course be granted when, with all facts and reasonable inferences arising therefrom construed in favor of the non-moving party, "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c).
After plaintiff failed to respond to the motion, Plan 501 filed a "Motion for Summary Disposition." On May 17, 2002, plaintiff responded to that motion stating that her attorney had no record of ever receiving the summary judgment motion (it appears it may have been lost in the mail), and asked for leave to file a response. The present order makes the motion for summary disposition and plaintiff's request for leave moot, and both are therefore DENIED.
Briefly, and as explained in the prior order, the plaintiff in this case is pursuing an action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., to recover medical benefits alleged to be due under Plan 501's terms for medical claims submitted to the Plan in early February, 1997. Plan 501 contends, as it did in its first motion for summary judgment, that because plaintiff's decedent, Steven Retherford, was notified by letter dated December 17, 1996, that Plan 501 was terminating on January 31, 1997, Plan 501 gave adequate notice of termination as required by ERISA, its implementing regulations, and Plan 501's terms. As a consequence, any claim filed after January 31, 1997, was untimely and need not be paid.
The only difference between Plan 501's present motion and its first is that Plan 501 now brings to the court's attention 29 C.F.R. § 2520.104b-1, which, as pertinent to this discussion, provides that when a plan administrator is required to disclose information to plan participants, disclosure requirements are met when the plan administrator uses "measures reasonably calculated to ensure actual receipt of the material by plan participants and beneficiaries. . . . Material distributed through the mail may be sent by first, second, or third-class mail." 29 C.F.R. § 2520.104b-1(b). Plan 501 argues that because there is undisputed evidence that the termination letter dated December 17, 1996, was mailed by first-class mail to Steven Retherford at his place of employment, adequate disclosure of Plan 501's termination was made more than 31 days prior to termination, entitling Plan 501 to summary judgment.
This argument largely misses the point of the court's prior order. The letter was mailed one week before Christmas, a time when common wisdom-which may be more fiction than fact-holds that an unusually large amount of mail is lost or misdelivered, and sent to Retherford's work address, where it may have been opened by an assistant without Retherford ever seeing it. Nevertheless, the court did not deny summary judgment to Plan 501 on the basis that there was a question of fact whether Retherford received the notice. The court denied summary judgment because there was, and is, a question as to whether the December 17, 1996, letter was an effective notice of termination. To explain, the court simply quotes its August 7, 2000, order:
On December 17, 1996, [Plan 501] sent via first class mail a letter to each store manager at the store address. The letter contained information regarding the going-out-of-business sale, the date each manager's last day of employment would be, the date the last payroll check would be mailed, etc. In the middle of the letter was this paragraph:
I told you earlier that the Val Executive Committee decided to continue your health and life insurance through January 31, 1997. On that date Val is discontinuing all insurance.
. . . . . . . . . . . . . . . .
. . . Plan 501 relies on [cases involving termination of pension plans] to support its argument that notice of plan termination is sufficient to apprise a plan beneficiary that all benefits will cease. . . .
This is an entirely different situation, involving a different set of expectations, than occurs when notice of the termination of an occurrence-based medical benefits plan is given, and that plan allowed covered employees to submit their claim for benefits up to one year and 364 days later. At the very least there is a question of fact as to whether a reasonable person would understand the plan's termination to mean that all claims for benefits had to be on file with the plan by the date of termination, or would expect that some reasonable claims-filing period would follow the termination.
The first notice of termination Plan 501 provided to Retherford that explained that claims had to be submitted by the Plan's termination date in order to be paid was the January 6, 1997, letter written by Gene Hawkins. Plan 501 argues that it is irrelevant that notice of the claims deadline was not given earlier, because Plan 501's terms required notice of termination to be given, not notice of the deadline for submission of claims. The court disagrees. Because, for an occurrence-based plan such as Plan 501, a reasonable person could assume that medical charges incurred before the plan terminated would be within the plan's coverage, there is at least an issue of fact whether any notice of termination not explaining this to be the case would be an effective notice. Thus, a reasonable fact finder could determine that the first time Plan 501 provided an effective notice of termination was by the January 6, 1997 Hawkins letter. Plan 501 has not shown that all of the medical claims at issue were submitted more than 31 days after the date this notice was given or received. Accordingly, Plan 501's motion for summary judgment must be denied.
Memorandum Order dated August 7, 2000, at pp. 4-6.
The court then went on to deny plaintiff Patricia Retherford's cross-motion for summary judgment, in which she argued that the claims were timely submitted using the January 6, 1997, letter as the first effective notice of termination. The court did so because it believed that a reasonable fact-finder could find that the December 17, 1996 letter was an effective termination notice. The present summary judgment motion has caused the court to critically re-examine that conclusion.
The letter mailed on December 17, 1996, which Plan 501 contends gave adequate notice to plan participants that Plan 501 was terminating, does not even use the word "terminate" or state that Plan 501 was terminating or ceasing to exist. For that matter, it does not mention Plan 501 by name at all. Instead, it stated that Val Corporation, Steven Retherford's employer, was "discontinuing all insurance" on January 31, 1997. As the court sees it, the only reasonable conclusion a plan participant could draw from being told that his or her insurance was "discontinuing" on a certain date is that coverage ceased on that date, and that covered occurrences before that date would be paid as long as the claim was submitted by normal deadlines. In Plan 501's case, that was the end of the calendar year after the occurrence.
Assuming that the second letter, written by Gene Hawkins dated January 6, 1997, was a valid termination notice and effectively modified the normal deadline (the prior order raised questions as to whether this is the case), requiring claims to be submitted within 31 days, the claims at issue in this case were timely filed. As a result, Retherford's prior motion for summary judgment should have been granted.
In saying this, the court is aware that in its order of August 7, 2000, it did not address the merits of another argument Plan 501 made in support of summary judgment: that Plan 501 participants had constructive notice as early as September, 1996, that Plan 501 was terminating due to their knowledge that Val Corporation, Plan 501's sponsor, was winding up its business and ceasing operations.
All of the cases that Plan 501 cited on the issue of constructive notice involve pension, not welfare, plans. The court has searched for, but been unable to find, a single case involving a welfare plan terminated by constructive notice. In the context of pension plans, a constructive-notice doctrine makes sense. First, because an employee whose employment ends because his employer has closed its doors would be "presumptuous in believing that pension benefits were continuing to accrue." Pension Committee for Farmstead Foods Pension Plan for Albert Lea Hourly Employees v. Pension Ben. Guar. Corp., 991 F.2d 1415, 1421 (8th Cir. 1993). Second, because ERISA contains elaborate provisions regulating the termination of pension plans, and the termination date can have a profound impact on the employer's liability for vested, but unfunded, pension benefits. See Pension Benefit Guar. Corp. v. Dickens, 535 F. Supp. 922, 925 (W.D. Mich. 1982).
In contrast, there are almost no provisions in ERISA governing termination of welfare plans. An employer is generally free to make a unilateral decision to modify or terminate its welfare plan at any time; to do so, it only "must follow the formal procedures set forth in the plan." Inter-Modal Rail Employees Ass'n v. Atchison, Topeka and Santa Fe Ry. Co., 520 U.S. 510, 515-16, 117 S.Ct. 1513, 1516, 137 L.Ed.2d 763 (1997). As noted in the August 7, 2000, order, Plan 501 reserved the right in the plan document to terminate at any time by giving "at least 31 days prior notice."
The court cannot see how, absent that express notice of termination given by Plan 501, a participant could be expected to deduce, from knowledge that Val Corporation was ceasing business, the exact date that Plan 501 would terminate, and that claims submitted only a few days after that date, whatever it might be, would not be paid. For this reason, and because welfare plans are free to terminate at any time simply by following plan procedures, this court will not be the first to endorse the concept of constructive notice of termination of a welfare plan.
Accordingly, Plan 501's motion for summary judgment is DENIED. Thirty days from the date of this order the court will enter summary judgment for plaintiff, unless Plan 501 files a memorandum during that time-with citations to appropriate authority-persuading the court that the phrase "Val is discontinuing all insurance" in the letter dated December 17, 1996, buried in the midst of instructions as to how Val Corporation's winding up should be handled, provided effective notice to Plan 501 participants that Plan 501 was terminating and that claims not submitted by January 31, 1996 would never be paid.
SO ORDERED.