A local utility broke its contract with its former directors when it revoked their health insurance coverage, a majority of the Indiana Court of Appeals ruled. A dissenting judge, however, found that the majority had engaged in a “logical error” in concluding that the utility was obligated to continue providing coverage to claimants.
The case of Clark County CTMIR v. Glenn Reis, Dale Bottorff, Jimmie Sanders and Steve Stumler, 20A-CT-622, dates back to 1972, when the Clark County REMC Board of Trustees passed a resolution allowing former trustees to participate in a REMC funded health insurance scheme, along with some references from years of service were met. Directors Glenn Reis and Dale Bottorff met these criteria and therefore continued with the REMC plan after their retirement from the board of directors in 2005 and 2014.
But when the board learned later in 2014 that retirees 65 and over would no longer be eligible to participate, it changed the policy to allow eligible former directors to obtain their own insurance and receive reimbursement from the REMC. Reis and Bottorff switched to the repayment plan, as did Steve Stumler and Jimmie Sanders when they stepped down in January 2018.
All four administrators have fulfilled the years of service requirement to continue to receive Medicare through the MMER. However, in May 2018, the new council voted to revoke the policy and stopped reimbursing claimants for their premiums.
The four former directors sued REMC for breach of contract, among other claims, and the Clark Circuit Court granted partial summary judgment to the plaintiffs on this claim. A majority of the Indiana Court of Appeals upheld Tuesday, Judge Nancy Vaidik dismissing Clark County REMC’s argument that there was no “mutuality agreement” making politics a contract .
“First, while the policy may have been revocable at any time, the point is that it was not revoked until 2018, after the claimants had already served the required number of years. … Therefore, once the claimants served the number of years required by the policy, the CTMIR became obligated to provide the promised benefits, ”wrote Vaidik, joined by Judge Leanna Weissmann. “Second, none of the versions of the policy indicated that it was revocable for directors, such as claimants, who had already served the required number of years.
“… And even as amended, the policy still imposed the same basic obligation on the MMER – to provide lifetime health insurance benefits to eligible former directors who had served the required number of years,” the majority continued. “Because there was a mutual obligation under the policy, the trial court did not err in concluding that the policy was a contract.”
The majority also rejected the argument that the trial court’s decision was contrary to public policy, specifically concluding that “it is not true that concluding that the policy is an enforceable contract” compromises the ability of the REMC board of directors to modify the remuneration policies of the board of directors ”.
“… Here, the members of the CEMR finally elected directors willing to get rid of the policy, but only after it had been on the books for forty-six years and after the applicants had served the number of ‘years required,’ the majority concluded. “To require the CTMIR to honor its long-standing obligation is not contrary to public order.”
But in a 10-page dissent, Justice L. Mark Bailey wrote that he “challenges the majority’s conclusion that a contract was formed out of politics …”.
“Due to the inherently flexible nature of policies, in my opinion, it is not necessary to delve into the principles of contracts to resolve this case,” Bailey wrote. “Simply put, the REMC had the inherent power to eliminate politics. He did it. Thus, the applicants cannot demonstrate that the CTMIR has broken a contract.
Even in the context of a contractual analysis, Bailey wrote, “the application of well-established rules of interpretation leads to the conclusion that the CTMIR had the implicit power to eliminate the policy at any time.” He wrote that the majority had adopted a “logical error” and created an unwritten “vesting” provision by believing that “once the applicants have served the number of years required by the policy, the CTMIR is become bound to provide the promised benefits ”.
“Overall, I cannot join the majority in concluding that the policy implicitly contained a non-obvious and elaborate ‘vesting’ provision,” Bailey wrote. “On the contrary, in my opinion, the REMC always had the implicit power to eliminate politics, which it did.”
Finally, Bailey wrote that public policy favors the adoption of a default rule “provided that, without more, the adoption of a policy does not amount to a binding contractual obligation”.