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An appeals court handed a victory to several Liberty Mutual Insurance Co. employees last week ruling they could pursue claims against the insurer for denying them past service credits under its retirement plan.
The employees, who worked at a workers comp insurer Liberty Mutual bought nearly 20 years ago, claim Liberty Mutual assured them they would receive the service credits as it sought to win employee support in a bidding war for the insurer with rival American International Group Inc.
The U.S. Court of Appeals for the 9th Circuit, in a case argued in its Pasadena, California, courthouse, on Friday reversed and remanded part of a district court's ruling, finding that the employees involved in the class action, Moyle v. Liberty Mutual Retirement Benefit Plan, had a “reasonable expectation” that they would be given past service credit toward the retirement plan for the years they worked with Old Golden Eagle Insurance Co., which Liberty Mutual acquired.
The appellate court ruled that Liberty Mutual had a duty to disclose information about past service credit in its retirement plan summary description, and ruled that the employees could seek benefits and other “equitable relief.”
In 1997, Boston-based Liberty Mutual was in a bidding war with AIG to acquire San Diego-based workers comp insurer Old Golden Eagle, which was under conservatorship with the San Diego Superior Court. To win the war, Liberty Mutual sweetened the deal to include improved employee benefits, such as a retirement plan, for Golden Eagle employees, which previously did not have a retirement plan.
During the bidding process, Liberty Mutual allegedly told Golden Eagle employees that they would be given past service credit under the retirement plan for the years they worked at Golden Eagle. A document presented to the Conservation Court in 1997 also said the Golden Eagle employees would get credit for past service.
With Golden Eagle employees' endorsement, the Conservation Court in May 1997 approved Liberty Mutual's bid to acquire Golden Eagle. “It was perceived that Liberty Mutual would treat its employees better than AIG,” according to the appeals court opinion.
But following the acquisition, Liberty Mutual never gave the Golden Eagle-turned Liberty Mutual employees any past service credit towards the retirement plan and denied having said it would.
And until 2001, Liberty Mutual's retirement plan's summary description did not address past service credit.
According to the opinion, between 2002 and 2006, Liberty Mutual denied claims from nearly a dozen former Golden Eagle employees who sought past service credit.
Several employees eventually filed a class action in 2010 against the retirement plan, the Liberty Mutual Board, Liberty Mutual Insurance Group Inc., and Liberty Mutual Insurance Co. for violations of the Employee Retirement Income Security Act of 1974.
In 2013, the U.S. District Court for the Southern District of California in San Diego granted summary judgment in favor of Liberty Mutual and denied summary judgment for the former Golden Eagle employees.
Reversing part of the district court's ruling, the appeals court ruled that the employees could seek “equitable relief,” and said the employees could pursue their claims.
The appellate court also affirmed that Liberty Mutual breached its fiduciary duty to disclose information about past service credit in the retirement plan documents.
“Liberty Mutual had a duty to identify in its summary plan descriptions circumstances which may have resulted in the denial of any benefits that appellants might otherwise have reasonably expected the retirement plan to provide. In this case, appellants had the reasonable expectation, based on the alleged oral representations made by Liberty Mutual about past service credit, that they would receive credit for the purpose of benefits accrual,” the opinion states.
The appeals court remanded the case back to the district court for “determinations of fact and equitable relief in the form of reformation and surcharge,” meaning the employees can ask the lower court to rewrite the terms of the retirement plan to include past service credit. Retired employees who were denied the past service credit could also request payment, said Matthew Butler, president of San Diego-based Butler Firm A.P.C., which represents the employees in the case.
The case now turns to whether Liberty Mutual “breached its fiduciary duty by failing to inform Golden Eagle employees that past service credit for the purpose of benefit accrual did not include the period prior to October 1, 1997, when they were first employed by Golden Eagle,” the opinion states.
Liberty Mutual can now request a hearing en banc or submit a writ to the Supreme Court, Mr. Butler said, adding that he believes the insurer will choose one of those options.
If the case heads back to the district court, the court would hold a bench trial, Mr. Butler said.
Liberty Mutual and its counsel did not immediately return requests for comment.
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