|Robert Harte was an employee of Bethlehem Steel. In 1985, Harte became disabled and started receiving long-term disability benefits under the Bethlehem Steel LTD plan. In November 1995, Harte received a letter from Bethlehem stating that his continuous employment had been severed as of January 1988, almost eight years earlier. Because of the termination he fell 19 days short of fulfilling a service requirement for a better pension than he was entitled to with his credited service.
Harte's claim was a breach of fiduciary duty. He argued that (1) the plan document was ambiguous about when a break in service would be effected, (2) he reasonably believed that he was still employed under the terms of the plan, and therefore (3) Bethlehem, as an ERISA fiduciary, should have at least notified him that it was about to break his service. The district court granted summary judgment for Bethlehem.
In the appeal, Harte v. Bethlehem Steel Corp. (No. 98-2052, February 2000), the U. S. Appellate Court for the Third District vacated the grant of summary judgment and remanded the case for further proceedings on the breach of fiduciary duty claim.
The primary issue presented by the appeal was whether ERISA requires plan administrators, as fiduciaries, to timely inform plan beneficiaries that their service is being broken if the severance is made pursuant to an ambiguous plan provision that a reasonable person could interpret differently from the administrator. The appellate court said that it does, giving rise to the ancillary issue of whether the plan provision was ambiguous, whether it was material, and whether Harte detrimentally relied on it.
The phrase at issue was "compensable disability." The plan document stated that although continuous service is broken two years after leaving work for a disability, it is not broken if the reason for leaving is a "compensable disability incurred during course of employment."
Over the years, this phrase had continuously been interpreted by Bethlehem Steel as work-related disabilities that are compensated by state workers' compensation. However, Harte applied for, received, and continued to receive, compensation for his disability through the company's LTD program. Harte thought this was a "compensable disability" because he was receiving compensation for his disability from the company and he had worked for Bethlehem up until his disability.
The court found that the plan administrator had the authority to make the interpretation that he did and to effect the severance. However, the company also had a fiduciary duty to timely inform Harte of its interpretation. The court held that a fiduciary may not make inconsistent confusing statements or fail to disclose material facts about a plan. It follows, said the court, that when a material plan provision regarding severance is ambiguous and beneficiaries might predictably rely on an alternate interpretation, a fiduciary may be held liable for failing to inform them that their service has been broken at a time at which they could attempt corrective action or seek alternatives. In short, the plaintiff succeeded on a claim under ERISA Section 502(a)(3).
Although this was a pension case, the conclusion holds true for welfare plans also.