COA majority holds Clark Co. REMC breached insurance contract, but dissent finds ‘logical fallacy’

A local utility breached its contract with its former directors when it revoked their health insurance coverage, a majority of the Indiana Court of Appeals has ruled. A dissenting judge, however, found that the majority engaged in a “logical fallacy” in holding that the utility was obligated to continue providing coverage to the plaintiffs.

The case of Clark County REMC v. Glenn Reis, Dale Bottorff, Jimmie Sanders, and Steve Stumler, 20A-CT-622, dates all the way back to 1972, when the Clark County REMC board of directors adopted a resolution allowing former directors to participate in an REMC-funded health insurance plan, as along as certain years-of-service benchmarks were met. Directors Glenn Reis and Dale Bottorff met those benchmarks and thus continued on the REMC plan after their retirements from the board in 2005 and 2014.

But when the board learned later in 2014 that retirees 65 and older would no longer be eligible to participate, it amended the policy to allow eligible past directors to obtain their own insurance and receive REMC reimbursement. Reis and Bottorff switched to the reimbursement plan, as did Steve Stumler and Jimmie Sanders when they resigned in January 2018.

All four directors met the years-of-service requirement to continue receiving health insurance through the REMC. However, in May 2018, the new board voted to revoke the policy and stopped reimbursing the plaintiffs 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 that claim. A majority of the Indiana Court of Appeals affirmed Tuesday, with Judge Nancy Vaidik rejecting Clark County REMC’s argument that there was no “mutuality of agreement” making the policy a contract.

“First, while the Policy may have been revocable at any time, the fact is it was not revoked until 2018, after Plaintiffs had already served the requisite number of years. … Therefore, once Plaintiffs served the number of years called for by the Policy, the REMC became bound to provide the promised benefits,” Vaidik wrote, joined by Judge Leanna Weissmann. “Second, none of the versions of the Policy said it was revocable as to directors, like Plaintiffs, who had already served the requisite number of years.

“… And even as amended, the Policy still imposed the same core obligation on the REMC — to provide lifetime health-insurance benefits to eligible former directors who had served the requisite number of years,” the majority continued. “Because there was mutuality of obligation under the Policy, the trial court did not err by finding the Policy to be a contract.”

The majority also rejected the argument that the trial court’s ruling was contrary to public policy, specifically finding that “it is not true that finding the Policy to be an enforceable contract ‘impairs the ability of the REMC board to amend board compensation policies.’”

“… Here, the REMC’s members eventually elected directors willing to do away with the Policy, but only after it had been on the books for forty-six years, and after Plaintiffs had served the requisite number of years,” the majority concluded. “Requiring the REMC to honor its longstanding obligation is not contrary to public policy.”

But in a 10-page dissent, Judge L. Mark Bailey wrote that he “take(s) issue with the majority’s conclusion that a contract was formed from the Policy … .”

“Because of the inherently flexible nature of policies, in my view, there is no need to delve deeply into contract principles to resolve this case,” Bailey wrote. “Simply put, the REMC had the inherent power to eliminate the Policy. It did so. Thus, the Plaintiffs cannot show that the REMC breached a contract.”

Even under a contractual analysis, Bailey wrote, “applying well-established rules of interpretation leads one to conclude that the REMC had the implied power to eliminate the Policy at any time.” He wrote that the majority had embraced a “logical fallacy” and had created an unwritten “vesting” provision by holding that “once Plaintiffs served the number of years called for by the Policy, the REMC became bound to provide the promised benefits.”

“All in all, I cannot join the majority in concluding that the Policy impliedly contained a non-obvious, elaborate ‘vesting’ provision,” Bailey wrote. “Rather, in my view, the REMC always had the implied power to eliminate the Policy, which it did.”

Finally, Bailey wrote that public policy favors adoption of a default rule “providing that, without more, the adoption of a policy does not amount to a binding contractual obligation.”

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