                  IN THE COURT OF APPEALS OF TENNESSEE
                              AT NASHVILLE
                                   January 29, 2001 Session

    ROBERT TERRY DAVIS, ET AL. v. WILSON COUNTY, TENNESSEE

                    Appeal from the Chancery Court for Wilson County
              No. 98348   John D. Wootten, Jr., Judge, Sitting by Interchange



                     No. M2000-00785-COA-R3-CV - Filed April 30, 2001


Wilson County sought to modify its health insurance plan providing coverage for “retired”
employees. Two employees, fitting the definition of retired employees but not yet retired, challenged
the modification on the ground that their rights in the prior plan had vested. The Chancery Court of
Wilson County held that the employees had a vested right to continue under the prior plan. We hold
that health insurance benefits are welfare benefits that do not vest absent a contractual provision that
they cannot be changed. We therefore reverse the lower court’s decision and dismiss the complaint.

          Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                                 Reversed and Dismissed

BEN H. CANTRELL , P.J., M.S., delivered the opinion of the court, in which WILLIAM B. CAIN and
PATRICIA J. COTTRELL , JJ., joined.

Michael R. Jennings, Lebanon, Tennessee, for the appellant, Wilson County, Tennessee.

Neal Agee, Jr., Lebanon, Tennessee, for the appellees, Robert Terry Davis and Donald Hamblen.

                                              OPINION

                                                   I.

        Wilson County has for several years provided free health insurance to its employees.
Apparently that benefit had also been extended to retired employees. In 1992, the Wilson County
Commission passed a resolution to provide for the continuation of this insurance coverage for retired
employees and to establish eligibility criteria for future retirees. The 1992 resolution provided that
employees hired before July 1, 1982, who retired before age sixty-five (65) with eight (8) years of
continuous service before retirement, could remain on the plan until they reached age sixty-five (65)
or became Medicare eligible. Employees hired after July 1, 1982, who retired before age sixty-five
(65) with ten (10) years of county service, eight (8) of them continuous before retirement, could also
remain on the plan until they reached age sixty-five (65) or became Medicare eligible. Dependents
of the retirees could also remain covered subject to some conditions not at issue here.

       The resolution also contained these two additional paragraphs:

       3.      For purposes of this policy, an employee is considered retired when he or she
               meets the guidelines for retirement as established by the Tennessee
               Consolidated Retirement System (TCRS).

               ....

       6.      Wilson County reserves the right to alter the terms of this agreement and their
               corresponding financial contribution at any time provided said change is
               approved by resolution of the county legislative body . . . .

        In November of 1992, the Commission amended paragraph three of the prior resolution to
read as follows:

       For purposes of this policy, an employee is considered retired and eligible to obtain
       the benefits contained in this policy when they have provided at least ten (10) years
       service with the County, with the last eight (8) years required to be continuous
       service.

        On August 1, 1998, the Commission passed Resolution 98-8-1 amending the eligibility
requirements for retirees to have continued health coverage. A retired employee would be eligible
for continuing coverage in three ways: (1) employee is age fifty-five (55) with twenty (20) years of
service and covered under the plan for one (1) year prior to retirement; (2) employee is age sixty (60)
with ten (10) years of service and covered under the plan for three (3) years prior to retirement; and
(3) employee is under age sixty-five (65) and has thirty (30) years of service. Resolution 98-8-1 also
stated that the eight (8) years of continuous service requirement was still in effect. This resolution
became effective as of September 1, 1998 and triggered this litigation.

       Appellees, Robert Davis and Donald Hamblen filed their complaint in this action on August
31, 1998. They were eligible for continued coverage upon retirement under Resolutions 92-10-19
and 92-11-1. However, they did not meet the requirements under Resolution 98-8-1.

         The appellees’ complaint requested “a declaratory judgment declaring Resolution 98-8-1 void
and unenforceable as to persons vested with these rights, and those persons be restored all of the
legal rights that they had earned under prior Resolutions.” The appellees also requested a temporary
restraining order, which the trial court granted, to stay the enforcement of the new resolution.

       In response to the appellees’ complaint, the County Commission enacted Resolution 98-12-5,
which amended the resolutions set out above. This resolution divided retirees into three categories.


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The first category, Category I, consisted of employees who were hired before July 1, 1992 and are
eligible to have the county pay their insurance after retirement assuming they meet the 10/8 rule.
There is no age limit on this category. Category II consists of employees hired after July 1, 1992,
but before September 1, 1998. This category of employees will be covered by insurance if they are
at least forty-five (45) years of age and meet the 10/8 rule. During the time the employee is between
the ages of forty-five (45) and fifty-five (55) the insurance will be at the employee’s expense. When
the employee reaches the age of fifty-five (55), Wilson County will pay for the insurance. Category
III consists of employees hired after September 1, 1998. In this category, the employee must meet
the 10/8 rule and be at least fifty-five (55) to qualify for insurance benefits. An employee in this
category may have ten (10) years of service with the last year under the plan and be at least sixty (60)
years of age. Under this category, an employee, retiring at any age, may qualify for insurance
benefits after completing thirty (30) years of service.

       This resolution also listed “Additional Stipulations.” The stipulation relevant to this case
reads as follows:

        2. Anytime the employee goes to work for another employer and insurance is
        available the employee shall use that program and Wilson County shall drop the
        insurance on said employee. It is the responsibility of the employee to advise Wilson
        County that health insurance is available, either if provided by the employer of [sic]
        provided to the employee at his cost. After the employee advises Wilson County,
        Wilson County shall terminate their policy of health insurance at the end of the next
        month following being advised that insurance was available.

This stipulation was not present in any of the previous resolutions. After the County Commission
enacted this resolution, appellees amended their complaint and added a request that Resolution 98-
12-5 also be declared void and unenforceable.

       After a bench trial, the trial court addressed two issues in its Memorandum Opinion: (1) did
the appellees have a vested interest in health insurance benefits under the 1992 resolutions; and (2)
could the county alter the terms of coverage of those who had already met the eligibility
requirements.

        In regard to whether the appellees had a vested interest, the trial court held that Wilson
County had entered into a contract with its employees to provide health insurance. The trial court
held that a vesting point was established for insurance benefits by the 10/8 rule included in the 1992
resolutions. The trial court stated, “the plaintiffs have a vested interest in these benefits.”

       In addressing the second issue, the trial court first noted that the Wilson County Commission
in Resolution 92-10-19 had “reserve[d] the right to alter the terms of this agreement and [the
employees’] corresponding financial contribution at any time.” But the trial court went on to say that
although Tennessee Code Annotated § 8-27-502(c) allows for the alteration, modification, change
or discontinuance of insurance coverage by counties for their employees, the Wilson County


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resolution only provided for alteration. The court read that distinction as narrowing the county’s
right to change the plan. The trial court also recognized that Wilson County was not required to
offer health insurance to its employees but stated, “Once that threshold is crossed and an employee
vests pursuant to the defendant’s definition, then there can be no material change to the privilege of
receiving medical insurance.” The trial court then held that the requirement that a retired employee
give up his insurance benefit upon employment elsewhere would prospectively terminate his benefit
and, therefore, paragraph 2 of Resolution 98-12-5 was null and void as applied to the appellees.

                                                 II.

        In Hamilton v. Gibson County Utility District, 845 S.W.2d 218 (Tenn. Ct. App. 1992), this
court addressed the identical question involved in this case. The Utility District in 1985 adopted a
resolution allowing employees to participate in the District’s health plan until age sixty-five when
they had served the District more than twenty-five years or where they had reached the age of sixty
upon retirement. The plaintiff retired in 1990 at age sixty-three with more than twenty-eight years
of service. When the District later quit paying his insurance premiums the plaintiff sued the District
alleging that he had a vested contractual interest in the health insurance benefit by virtue of the
resolution and his election to participate in the plan. This court rejected that contention and said:

               Insurance coverage provided to employees under a group health insurance
       plan are classified as “welfare benefit” plans as opposed to pension benefit plans,
       whereby retirement income is provided for employees. The law is clear that there is
       no legal requirement on the part of a governmental entity to provide a welfare benefit
       plan to its employees and if it chooses to do so, the plan may be modified or
       terminated at any time. State ex rel Thompson v. City of Memphis, 147 Tenn. 658,
       251 S.W. 46 (1923).

               The majority of cases that we have unearthed in this area are suits brought
       pursuant to the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §
       1001 et seq. (1974). By its provisions, ERISA does not apply to governmental
       entities. Furthermore, under ERISA, pension or retirement income rights
       automatically vest. Employee benefits in welfare benefit plans, however, are not
       protected by ERISA’s vesting umbrella. Nonetheless, employers can contract to
       provide non-terminable, post-employment welfare benefits to retired employees
       irrespective of ERISA’s vesting protection. Retirees seeking to establish entitlement
       to such benefits have the burden of proving an employer’s non-termination intent.
       In the absence of ambiguity, resolution of this issue turns on the benefit plan
       documents. Matter of Consol. Mutual Ins. Co., 77 N.Y.2d 144, 565 N.Y.S.2d 434,
       435, 566 N.E.2d 633, 634 (1990).

845 S.W.2d at 223.




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        Our Supreme Court has held that even public pension plans may be modified “when
necessary to protect or enhance the actuarial soundness of the plan, provided that no such
modification can adversely affect an employee who has complied with all conditions necessary to
be eligible for a retirement allowance.” Blackwell v. The Quarterly County Court of Shelby County,
622 S.W.2d 535, 543 (Tenn. 1981). The Supreme Court reversed a holding of the Court of Appeals
that governmental pension and retirement plans are governed by the common law of contracts and
that employees under the retirement plan “had the vested right to earn the benefits of the plan as it
existed and under the conditions of the plan as it existed upon entering into service of the county and
accepting the plan by contributing thereto.” Id. at 537. The Supreme Court held that the Court of
Appeals had overlooked the fact that “a public employee ordinarily is not deemed to have a contract
of employment within the meaning of the ‘impairment of contracts’ provisions of the state and
federal constitutions.” Id. at 539. The Court went on to say:

                 Of course, direct compensation and pension benefits are not necessarily
         controlled by identical principles. At some point after an employee has performed
         services or has paid into a pension and retirement plan, he acquires fixed and
         immutable rights in the system. Such rights are subject to the terms and conditions
         of the pension plan, however, and no contractual rights, other than those conferred
         by the plan, exist simply by reason of employment.

Id. at 540.1

        We think the Hamilton and Blackwell cases dispose of the contention that the right to
participate in a plan providing medical benefits to county employees becomes vested simply by
reason of employment. Blackwell held that the right to a pension did vest when public employees
had complied with all conditions necessary to be eligible for a retirement allowance (the so-called
Pennsylvania rule). See 622 S.W.2d at 543. But the Hamilton Court made the distinction between
pension plans and group health insurance plans and held that absent a specific provision in the plan
documents, the latter may be modified or terminated at any time. See 845 S.W.2d at 223.

          Except for the resolutions we have referred to there is no other proof in the record that
pertains to the plan under which Wilson County provided the health insurance. We note the
provision in the 1992 resolution that the plan could be altered by the subsequent action of the County
Commission, and despite the trial judge’s view of the power this provision reserved to the county,
it is the only evidence on the question of whether the rights created become immutable at some point.
Since the plaintiffs have the burden of establishing the specific plan provision making their rights
unchangeable, Hamilton v. Gibson County Utility District, 845 S.W.2d 223 (Tenn. Ct. App. 1992),
we have to conclude that their claim must fail.



         1
          The Blackw ell court was carefu l to distinguish cases invo lving pu blic emp loyees w hose righ ts are expre ssly
controlled by the state constitution. See Miles v. Tennessee Consolidated Retirement System, 548 SW.2d 299 (Tenn.
1976).

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       The judgment of the court below is reversed and the plaintiff’s claim is dismissed. The cause
is remanded to the Chancery Court of Wilson County for any further proceedings that may become
necessary. Tax the costs on appeal to the appellees, Robert Terry Davis and Donald Hamblen.




                                              _________________________________________
                                              BEN H. CANTRELL, PRESIDING JUDGE, M.S.




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