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Viggiano v. Shenango China Division of Anchor Hocking Corp.

December 19, 1984



Author: Weis

Before: ALDISERT, Chief Judge, HUNTER and WEIS, Circuit Judges


WEIS, Circuit Judge.

The dispute in this case is whether an employer was required to continue payment of premiums for a group hospitalization plan for its employees during a strike. Because the employer's obligation to fund the Plan had its roots in the collective bargaining agreement, we conclude that the parties should resort to its grievance procedures in the first instance rather than ERISA's judicial remedies. For that reason we will vacate the district court's summary judgment on the merits and remand for the entry of a stay.

Alleging violations of fiduciary duties, plaintiffs brought this suit under Section 502 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. ยง 1132 (1982), against their employer, Shenango China Division of Anchor Hocking Corporation. The district court granted the plaintiff's motion for summary judgment and denied the defendant employer's motion for dismissal under Fed. R. Civ. P. 12(b)(1). Both parties have appealed.

The controversy is about the employer's unilateral termination of the hospital and surgical benefits insurance Plan for employees and their dependents. The insurance program, negotiated by the company and the United Steelworkers Union representing the employees, is mentioned in the labor agreement but not in detail. A provision for continuation of the Plan and funding by the employer was included in the collective bargaining agreement effective for a three-year period beginning March 1, 1980.A similar clause had appeared in several earlier contracts.

When the union went on strike at the termination of the contract on February 28, 1983, the company stated it would no longer make payments to Blue Cross/Blue Shield, which had administered the insurance Plan. The company also notified health care providers in the New Castle, Pennsylvania area, where the plant was located, that the insurance program for its employees had been discontinued.

The strike was settled about four weeks later, on March 27, 1983, when the union and the company agreed on a new contract. During the strike, some union members or their dependents had received medical or hospital services. As part of the strike settlement, the company agreed to pay either the premiums for interim coverage for those persons who had been treated, or the actual amount of their bills, whichever was less.*fn1 Consequently, no employee suffered any financial loss because of the company's short-lived refusal to continue the medical insurance Plan.

This suit was filed about five weeks after the strike was settled. Plaintiffs brought the action on behalf of all employees eligible for coverage under the Plan. They alleged that the company's refusal to continue insurance coverage during the strike caused them to suffer anxiety and hardship, and would do so in the future. The complaint asserted the company had violated provisions in the insurance Plan which stated that if participants "are absent because of a strike or lockout of employees of the company, your coverage . . . will continue . . . [but] will terminate six months after your last day worked."*fn2

Plaintiffs contended that the company violated its fiduciary duties under ERISA by terminating the insurance to gain leverage during contract negotiations and limit financial obligations under the Plan. Injunctive relief against future denials of coverage was requested, as were compensatory and punitive damages.

The employer asserted that its obligation to pay premiums was governed by the collective bargaining agreement, which provided that "the agreements of the parties . . . including the . . . insurance program presently in effect . . . shall continue in effect to and including midnight of February 28, 1983." Shenango also pointed out that the Plan booklet contained a provision stating that the insurance coverage ends "when the group contracts are discontinued." The company contended, however, that the suit should be dismissed because plaintiffs had failed to submit the dispute to arbitration as provided in the collective bargaining agreement.

The district court noted that the grievance procedures applied to disputes defined as "points of contention" regarding "wages, working conditions, contract interpretation and application." However, in the court's view, those provisions did not include controversies about employees "denied insurance benefits" under the Plan. The court observed that under the terms in the Plan booklet an employee could submit a claim for denial of benefits to Blue Cross as well as file suit in a state or federal court. Having determined that the employer's action did not come within the scope of the grievance provisions, the court denied the company's motion to dismiss.

The court concluded that "it is clear on the undisputed facts that Shenango violated the specific terms of the collective bargaining agreement when it terminated the employees' insurance premiums in the face of the six-months insurance coverage provision in the Group Insurance Plan." The employer was also found to have violated its fiduciary duty under ERISA because the termination was "not solely ...

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