California appellate court rules that county can modify insurance contributions for retirees

Apr 27, 2022

Last week, the Sixth District Court of Appeal published a favorable opinion for cities regarding Normandy Rose et al. v San Benito County, a case concerning retiree health insurance premiums. The court held that San Benito County did not enter into an implied contract with retirees and could modify its contributions to their health insurance premiums.

Case background

For more than two decades, San Benito County provided health insurance benefits for its employees under the Public Employees' Medical Hospital Care Act. The act required the county to pay retirees’ health insurance benefits at the same contribution rate given to current employees.

The county’s contributions were set — usually annually — by resolutions adopted by the San Benito County Board of Supervisors. These resolutions set forth the contributions that were agreed upon during collective bargaining. Depending on the plan selected, a retiree could receive health care at no cost.

In 2017, the county opted out of the act to offset rising costs and enrolled in another health care plan. The county reduced its contribution for Medicare-eligible retirees’ health care insurance premiums to 70% of the contribution given to current employees.

Plaintiffs — county retirees who selected plans that they had to pay for under the new contract — sued the county in response. They alleged since that the county had previously paid their premiums in full, it had given them an implied guarantee that their premiums would remain unchanged during retirement. Therefore, the county’s decision to opt out of the act and cap their health insurance premiums to 70% of the contribution given to current employees violated the terms of an implied contract.

Appellate court reverses trial court’s ruling

A trial court judge determined that the county breached an implied-in-fact promise to provide certain health insurance benefits and required the county to provide the same insurance contributions to retirees that it gave to current employees. This decision was based in part on testimony from past and present members of the county board of supervisors about their intent when adopting certain related resolutions. The county appealed to the Sixth District Court of Appeal.

The League of California Cities filed a joint amicus brief with the California State Association of Counties in support of San Benito County. The amicus brief discussed the potential uncertainty the trial court’s ruling created by finding a lifetime right in a particular health care plan.

The brief also argued that absent clear language, one cannot presume the creation of a vested, contractual right. It stated that the subjective understanding of certain legislators — in this case, the board of supervisors — is not only improper, but also inadmissible as evidence of legislative intent.  

The court of appeal reversed the lower court’s decision and ruled in favor of the county. The court held that implied rights are not inferred without clear and convincing evidence and that the trial court erred by relying on the board of supervisors’ testimony to determine legislative intent. The court also held that because the resolution did not contain any express language vesting retiree health care benefits in perpetuity, no such rights existed. 

Cities can rely on this published opinion to show that there are no “implied” vested lifetime rights for retiree health insurance benefits.