August 31, 2010

Vesting health insurance rights

Vesting health insurance rights
Handy v Schoharie County, Appellate Division 244 A.D.2d 842

In the Handy case, the Appellate Division said a legislative body may adopt of a resolution that alters a retiree’s health insurance benefits and that such a change can be legally applied to people who retired prior to the vote to change benefits.

In December 1995, the Schoharie County Board of Supervisors adopted three motions changing its policy with respect to its providing County retirees health insurance benefits.

Under the new policy, any elected County official who completed 10 or more years of service would be entitled to “health insurance” at the County’s expense upon retirement. Prior to this change Schoharie paid the health insurance premiums for the retiree and his or her spouse if the retired employee had completed five years of County service and was receiving a state retirement allowance.

David E. Handy retired from the Board of Supervisors on December 31, 1995, having served as a member since 1978. The Board, however, at its January 19, 1996 meeting rescinded several December 1995 motions relating to health insurance for retirees.

The Board next reinstated its former policy with respect to providing health insurance to its retired employees. Because he was not receiving a state retirement allowance, the County said it would not pay for Handy’s health insurance in retirement.

Handy sued, contending that under the Board’s December 1995 actions he was “entitled to health insurance paid at [Schoharie County’s] expense as [he had] met the requirement of a vested right.”

The Appellate Division disagreed, holding that the County was under no contractual obligation to provide [Handy] with health insurance and, accordingly, it did not act arbitrarily or capriciously in terminating that benefit.

The Handy decision should be contrasted with two other retiree benefits cases: Della Rocco v City of Schenectady and Andriano v City of Schenectady.

The Schenectady cases differed in that they concerned executive action as opposed to legislative action and Taylor Law agreements were involved and held to control.

On August 28, 1997, State Supreme Court Justice Robert E. Lynch ruled that Schenectady must provide fully paid health insurance comparable to that in effect at the time of each retiree’s retirement because the municipality is bound by the Taylor Law agreement in effect when employees retired.

The fact that the Taylor Law agreements had expired did not alter the municipality’s obligations to retirees under them.

The key element was the existence or absence of a contractual obligation to provide retirees a benefit.

The Appellate Division pointed out that an act of a legislative body will be treated as a contract only when the language and the circumstances manifest a legislative intent to create a private right of a contractual nature.

As an illustration, the Court commented that in Cook v City of Binghamton, 48 NY2d 323, the Court of Appeals said that “certain types of legislative acts, including those fixing salaries and compensation ... are not presumed to create a contract.”

Quoting from the U.S. Supreme Court’s ruling in Dodge v Board of Education, 302 US 74 at page 79, the Court of Appeals said that “the presumption is that such a law is not intended to create a private contractual right or vested right but merely declares a policy to be pursued until the [legislative body] shall ordain otherwise.”

The Appellate Division said that it found nothing in the December 1995 actions by the Board that it “intended to fetter its power in the future” with respect to health insurance. “Rather than evincing an intent to create a private contractual or vested right, the motions are more reasonably read as declarations of [the Board’s] policy.”

Notwithstanding the fact that Handy would have enjoyed health insurance benefits at the expense of the County had the December motions not been repealed, the Appellate Division decided that the Board’s December 1995 actions did not create a contractual property right enforceable against Schoharie County.

As to any claim that the Board’s action gave Handy a vested retirement benefit, in Lippman v Sewanhaka Central High School District, 66 NY2d 313, the Court of Appeals decided that health insurance for retirees is not a retirement benefit protected against being diminished or impaired by the State’s Constitution.

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