Ninth Circuit examines claim of implied vested right to pooled premiums for Orange County retirees

The decades-long battle over retiree health in Orange County played out once again in the courts, this time before the federal Ninth Circuit Court of Appeals (Retired Employees Association of Orange County, Inc. v. County of Orange (9th Cir. 2014) No. 12-56706

REAOC brought suit against the County, claiming that retirees have an implied vested right to the pooling of their health care premiums with those of current employees.  From 1985 and through 2007 the County pooled health insurance premium rates for retirees and current employees.  In short, pooling resulted in more affordable premiums for retirees.  The applicable MOUs providing for retiree healthcare were silent on the issue of pooling.  REAOC, however, argued that an implied vested right to pooled premiums arose from the following facts:  (1) the right to pooled premiums is implicit in the language of the applicable MOUs; (2) the pooled rate was assumed by the parties during bargaining; and (3) County officials made statements confirming the existence of the implied right to pooled premiums.

The California Supreme Court has already established that vested health benefits can be implied under certain circumstances from a county ordinance or resolution.  Based on the facts presented, however, the Ninth Circuit ruled that the REAOC did not have sufficient facts to proceed with its lawsuit.  The Court noted that the MOUs themselves provided for retiree enrollment in health plans at a specific rate for a given year; there was no evidence in the MOU of a right to a lifetime pooled premium.  The bargaining history did not show that the parties shared an understanding that retirees would be entitled indefinitely to a pooled premium.  Although there were a few statements made by County officials regarding the pooled premium, they did not amount to statements of official County policy.

This decision highlights the importance of showing statutory language (such as that in a Resolution or Ordinance), or legislative or bargaining history, that demonstrates a public agency’s intent to create a vested right in a benefit.

By Sean D. Graham | February 18, 2014

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