Subject: Benefits Law Hurts Some It Aimed to Help Date: Published: 3/4/93 (194 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Law -- Legal Beat: Benefits Law Hurts Some It Aimed to Help ---- By Junda Woo Staff Reporter of The Wall Street Journal A 1974 law designed to protect employee benefits has actually made it tougher and at times even impossible for some workers to collect pensions, health insurance and other benefits. Courts are still struggling to interpret parts of the federal pensions and benefits law. But some lawyers for employees say their clients are falling into loopholes in the law that result in their not getting benefits they were promised by their employers. When the law was enacted, the late Senator Jacob K. Javits called it "the greatest development in the life of the American worker since Social Security." These days a growing number of lawyers disagree. "The bottom line is that the law just isn't effective in protecting people," says William K. Carr, an attorney whose Denver firm, Smith & Carr, represents employees. "Congress could not have intended that we'd be in the situation we are in now." Of course, some lawyers who represent companies in disputes over benefits disagree. They argue that if employers weren't permitted under the law to limit or revoke health benefits, they might never offer those benefits in the first place. And these lawyers say the law offers workers some protections they didn't have before. Nevertheless, numerous court rulings illustrate employees' disappointments in the Employee Retirement Income Security Act of 1974, known as Erisa. Since Erisa became law, for instance, oral promises about certain health care benefits don't count, even if they were repeatedly made by company executives. Before Erisa, spoken promises could be binding contracts. That's one reason that a federal appeals court in Cincinnati denied insurance last month to 25 retirees and spouses of retired workers at a Scott & Fetzer Co. unit. The plaintiffs say high-ranking employees of the unit, now a part of Universal Components Corp., Orland, Ind., told them they'd have health insurance for life or, in some cases, until they remarried. A former president of the division even testified in court that he had made such promises. "We would have bought some other insurance if we'd known," said Mildred Wheeler of Coldwater, Mich., a widow of a retiree. Mrs. Wheeler, 74 years old, said she and her husband, Leonard, were told at least three times that she would be insured if he died. "After you work in a place that amount of years, and the understanding is that you are to have a lifetime of health insurance, what else would you expect?" Erisa also overrides all state laws that might otherwise give employees sizable benefits. And it even trumps some laws that don't relate to benefits at all. A federal appeals court in New Orleans recently threw out a wrongful-death case that would have been permitted under state law. The case was thrown out because a fetus died during a dispute between a pregnant woman and her health-insurance carrier. The appeals court said that because of the fight over benefits, it had to be guided by Erisa, which courts have not interpreted to allow such wrongful-death suits. Erisa allows employers to suddenly cut off health and insurance benefits. The U. S. Supreme Court last year declined to review a decision that allowed a Houston record store to drop coverage for AIDS-related treatments after an employee developed AIDS. The store was self-insured and said it couldn't afford the treatments. The employee died in 1991. Courts are also severely restricting the kinds of damages workers can collect. Last week, for instance, the federal appeals court in Cincinnati denied money damages to a widow who says she and her husband never received critical documents about how his pension plan worked. The court ruled that Erisa has no provision that would allow her to collect money. Plaintiff lawyers aren't the only ones complaining. Judge H. Emory Widener Jr., of the Fourth U. S. Circuit Court of Appeals, pointed out Erisa's problems in a decision last month. In the majority ruling, a three-judge panel of the appeals court, based in Richmond, Va., said insurer errors don't have to be corrected as long as the insurer acted reasonably, based on what it knew. The decision allowed one wife of a deceased bigamist to keep a $3,600 insurance payment even though another wife had legal claims to the money. Judge Widener wrote in a separate ruling that he found "it quite disturbing" that his court so frequently heard cases in which workers were denied health benefits because of provisions in Erisa. In the bigamy case, Judge Widener added, the insurer dodged liability that it would have faced before Erisa. But lawyers for employers said that Erisa, despite some flaws, is much better than having a crazy quilt of state laws. "I think if you have 50 states with different methods of recovery, you're going to be looking at complete and total chaos," said Steven D. Baderian, an Erisa specialist with the New York labor-law firm Jackson, Lewis, Schnitzler & Krupman. Mr. Baderian added that workers who can't win back their benefits under Erisa can still try using other federal laws. Other lawyers argue that workers are far better off under Erisa than they were two decades ago. Previously, for instance, employees who lost their jobs for any reason before turning 65 could lose their pensions. And a worker whose pension fund ran out of money was out of luck. Erisa set up coverage rules and established national pension insurance. "Those kinds of things definitely helped employees in the long run," said Lesyllee White, a staff attorney for the Pension Rights Center, a Washington lobbying group for employees. She added, however, that the law has "glaring loopholes" that hurt employees who were misled by employers. Changes might be on the horizon. Some members of Congress are drafting legislation that would address the gripes of employees. In addition, courts, including the federal appeals court in Chicago, have begun helping employees by applying some principles of contract law to Erisa cases. Any such changes, however, would come too late for Mrs. Wheeler, the widow in Coldwater, Mich. "My insurance ended today," she said Monday. "I don't have as big a problem as some people do -- my health is pretty good. But you never know when something is going to happen." --- Reliance Group Vs. Insurer A New York state appeals court ruled that directors-and-officers liability insurance doesn't cover the cost of a settlement with shareholders allegedly victimized by a corporate raider's "greenmail" tactics. The decision came in a case arising from the 1984 raid by Saul Steinberg and his New York-based Reliance Group Holdings Inc. on Walt Disney Co. Reliance was seeking reimbursement by its insurers for the $21 million Reliance paid in 1989 to settle lawsuits filed by Walt Disney shareholders. The shareholders alleged that Reliance had unfairly extracted from Walt Disney a premium of more than $60 million -- the so-called greenmail -- in return for agreeing to give up a bid to control the entertainment concern. In a unanimous ruling, the New York appeals court said the settlement payment can't be covered by insurance because it merely returns money that was wrongfully earned through the greenmail. The court also pointed out that, even with the settlement, Reliance made money on the Disney deal. As a result, the court said, there were no damages to be covered by insurance. Attorneys for Reliance's insurers said the ruling marked the first time that an appellate court had considered the issue. "The decision reflects the judicial view that unjustly earned profits" shouldn't benefit from insurance coverage, said Kenneth A. Sagat, an attorney at New York's D'Amato & Lynch, which represented National Union Fire Insurance Co. The unit of American International Group was the primary D&O insurer for Reliance. A spokesman for Reliance said the company objected to the court's finding that its profits in the Walt Disney deal were wrongfully acquired and planned an appeal. "We believe that the court's suggestion that a voluntary settlement is equivalent to a determination of wrongdoing is not supportable, and we trust that the issue will be resolved by the state's highest court," the spokesman said. (Reliance Group Holdings Inc vs. National Union Insurance Co., Appellate Division First Department, New York, No. 46624) --- USX Settles Marathon Suit USX Corp. said it agreed to pay $23 million to settle an 11-year-old lawsuit over its 1981 acquisition of Marathon Oil Co. The suit alleged that USX, then known as U. S. Steel, treated some Marathon shareholders unfairly in its tender offer for Marathon. Pittsburgh-based U. S. Steel offered $125 a share for the first 30 million shares that were tendered, giving it majority control of Marathon. Under the tender offer, the company then exchanged securities valued at $75 for each of the remaining 28 million Marathon shares. Because more than 30 million Marathon shares were tendered under the first part of the offer, U. S. Steel prorated that purchase price evenly among the 54 million shares it said had been tendered properly. The lawsuit arose after some former Marathon holders alleged that the value of their stock was diluted by more than $200 million because USX improperly included about eight million shares in the total that was prorated. The $6 billion takeover of Marathon was one of the largest takeovers at that time. The issues raised in the lawsuit, however, about the proper way for shares to be tendered during a takeover have long become outdated because of changes in securities regulations. The settlement was announced the day the case was scheduled to go to trial in federal court in New York. A U. S. magistrate judge in 1991 had recommended a ruling in favor of the plaintiffs, but last year a U. S. district judge decided not to accept the magistrate's recommendation and ordered the case to go to trial. USX said the $23 million settlement, which is subject to court approval, "isn't expected to have a significant impact on the first-quarter income of either the Marathon Group or USX. " Dale Schreiber, an attorney for the plaintiffs at the law firm Proskauer Rose Goetz & Mendelsohn, declined to comment. --- Jonathan M. Moses contributed to this article. [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]