When it comes to ‘or,’ context matters

Chicago Daily Law Bulletin
August 27, 2014

By Mark D. DeBofsky

Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari, PC. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage . He can be reached at [email protected]

Arecent ruling from the 7th U.S. Circuit Court of Appeals illustrates that the context of words can make a dramatic difference in the interpretation of a pension plan.

In Schane v. International Brotherhood of Teamsters Union Local 710 Pension Fund, 2014 U.S.App.LEXIS 14118 (7th Cir. July 23), the appeals court established that the word “or” is not always read disjunctively, but may be read conjunctively in certain instances.

In the interpretation of plans governed by the Employee Retirement Income Security Act, if the plan administrator has been granted discretion to interpret the plan terms, courts must afford these interpretations broad deference so long as they’re reasonable. However, the Schane ruling illustrates that courts will not stretch the limits of interpretive discretion beyond the plain language of a benefit plan.

The dispute in this case arose after Jeffory Schane suffered a job-related injury in 2008 while working for a trucking company and participating in the Teamsters Local 710 pension plan. Although he was cleared to return to light-duty work, no such work existed, and Schane ultimately retired after his workers’ compensation benefits were paid out.

His pension benefit was based on his age at retirement, and the crux of the case centered on the question of when the retirement took effect.

The fund argued that Schane retired in 2009, while the plaintiff maintained that he retired at a later age, in 2011. Accepting Schane’s argument would have entitled him to a higher monthly retirement benefit.

The confusion arose because Schane was actively employed in covered employment until August 2009, when his employer ceased coverage on his behalf after he was no longer able to work in the trucking industry. However, Schane remained employed with a contributing employer until 2011, when he ceased receiving workers’ compensation benefits and resigned from his company.

The court distilled the issue to the following:

“[W]hether cessation of covered employment is sufficient for retirement or merely one of two necessary requirements (the other being cessation of the enumerated activities in [S]ection 6.05(a)(i)-(v)). The district court reasoned that, because the definition of ‘retire’ took the form cessation of X or Y, the trustees were free to interpret it disjunctively: that is, to treat cessation of X as a sufficient condition. We find that the matter is not so clear.”

The court used several analogies to point out the flaw in the plan trustees’ determination, including the following example from a recent book on legal interpretation:

“After a negative, the conjunctive and is still conjunctive: Don’t drink and drive. You can do either one, but you can’t do them both. But with Don’t drink or drive, you cannot do either one: Each possibility is negated. Antonin G. Scalia and Bryan A. Garner, ‘Reading Law: The Interpretation of Legal Texts,’ 119 (2012).

“In propositional logic, this move — the rule of inference that not (X or Y) is equivalent to not X and not Y — is known as one of ‘De Morgan’s Laws.’ See Lawrence M. Solan, ‘The Language of Judges,’ 49 (1993). Formal notation aside, the point is merely that determining the meaning of or in a sentence is not just a matter of declaring that the word is disjunctive. Context matters.”

The court found the plan trustees failed to address the plan’s definition of “retirement.” The plan defines it as “the cessation of being employed in covered employment or engaging in the activities listed in section 6.05(a)(i)-(v).”

Moreover, the court observed that the trustees’ view neglected to take into consideration the plan provisions dealing with suspension of benefits if a retiree were to engage in covered employment after retirement.

The court concluded that by interpreting retirement to exclusively mean cessation of covered employment, the trustees “cannot now turn around and say that, for suspension-of-benefits purposes, cessation of covered employment alone is not enough.”

Hence, the court held that the only way to interpret the plan is that a participant “must cease both covered employment and the activities listed in [S]ection 6.05(a)(i)-(v) to be deemed ‘retired.’” The court further refused the defendant’s request for remand and ordered the fund to pay the differential owed based on the determination that Schane’s retirement was in 2011 — not 2009.

Although the disjunctive “or” usually means one or the other, as the court pointed out, “context matters.”

Thus, given the plan’s language, the court found the only reasonable interpretation of the plan was that Schane retired at the later date — when his workers’ compensation payments expired. Consequently, he was entitled to the higher benefit amount.