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An ERISA plan administrator's denial of participants' claim for their earnings calculation to include pay in the lieu of vacation for calculating pension benefits was not arbitrary and capricious, according to the 7th U.S. Circuit Court of Appeals.

Amoco Corp. administers a defined benefit retirement plan for its employees governed by ERISA. The annual retirement benefits of plan participants are computed according to three alternative formulas; whichever formula yields the highest benefits to the particular participant is the one used to determine his or her benefits. Under the Annuity Benefit Formula, the participant's average earnings in his highest three years of earnings during employment by Amoco are used as the basis to compute benefits. The issue here was whether Amoco must include "pay in lieu of vacation" in determining earnings in the three base years under this formula. For as long as anyone could remember, Amoco has not treated payments in lieu of vacation as earnings under the formula. But this policy was stated nowhere. In 1993, Matthew J. Gallo raised the issue and was told they were excluded. He and other participants brought this action against Amoco to force calculation of their pensions to include as earnings pay in lieu of vacation. The trial court ruled in their favor.

The appellate court said the plan documents were silent on the issue and such treatment was consistent with administration of the plan since its inception. The court also noted that the plan administrator had discretion to interpret the plan. Although the plan administrator's interpretation may be right or wrong, the court said, it was not unreasonable. Thus, the court concluded that the administrator's denial of the claim was not arbitrary and capricious. The trial court decision was reversed.

Gallo vs. Amoco Corp., 7th U.S. Circuit Court of Appeals, Dec. 17, 1996. (BI/04/Jy.- $10).

Taking compensation with your coffee

An employee injured when struck by an automobile when she left her employer's office building during an authorized coffee break to walk one and one-half blocks to a gift shop to buy a gift for a co-worker was entitled to workers compensation benefits, according to the Supreme Court of Montana.

Carol Ann Carrillo, an employee of Blue Cross & Blue Shield, left work during a coffee break to walk to a museum one and one-half blocks away. She had planned to buy a gift for a co-worker who was leaving and for whom Carrillo and other co-workers were planning a party. While enroute to the museum, Carrillo was injured when she was struck by an automobile while crossing an intersection. Carrillo filed for but was denied workers compensation by the insurer. The workers compensation court also denied benefits.

The appellate court concluded that an injury occurring during a coffee break, as opposed to a lunch break, was compensable because the controls of employment can justifiably be said to not be in suspension during this short interval. Furthermore, the court noted there was a right to a break here and that such breaks served the employer's interests and were not a departure from work. Thus, the court concluded that Carrillo was acting within the course and scope of her employment when injured and was entitled to compensation benefits.

Carrillo vs. Liberty Northwest Inc., Supreme Court of Montana, Sept. 3, 1996. (BI/02/My.-$10)

These abstracts were prepared by Mayo H. Stiegler. Copies of these decisions are available by sending a $10 check payable to Mayo H. Stiegler, to Business Insurance, 740 N. Rush St., Chicago, Ill. 60611-2590. List the number for each opinion.