FRYE v. THOMPSON STEEL COMPANY (September 2, 2011)

During Basil Frye's long employment with Thompson Steel Company in Franklin Park Illinois, he suffered two work-related injuries. He received over $80,000 in workers’ compensation settlements for permanent partial disabilities. In 2007, Thompson decided to close its Franklin Park facility and Frye chose to take early retirement. The company's Retirement Committee, which administered Frye's pension, advised Frye that his pension benefits would first go to repay the workers’ compensation settlement amounts. The Plan provided that amounts paid to an employee for an injury causing "disability in the nature of a permanent disability" would be deducted from the employee's pension benefits. Frye challenged the Committee's determination unsuccessfully. He then filed suit under ERISA’s § 502 to recover benefits. Magistrate Judge Cole (N.D. Ill.) granted summary judgment to Frye, concluding that the Committee's decision was arbitrary and capricious. The court based its ruling on the Plan's definition of disability. Thompson appeals.

In their opinion, Seventh Circuit Judges Ripple, Evans (who, as a result of his death, took no part in the decision), and Sykes reversed and remanded. The Court first noted that the Committee had substantial leeway in interpreting the Plan under the arbitrary and capricious standard of review. Although it is not free to disregard unambiguous language, its construction and interpretation of ambiguities is entitled to substantial deference. Here, the Plan defined disability as when an employee "has been totally disabled by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment." The Court conceded that there were two reasonable interpretations of the Plan’s settlement offset section. Under one, a permanent partial disability like Frye's could be an offset disability because it is in the nature of a permanent disability. Under another, an offset disability must be one that prevents the employee from engaging in any occupation or employment, which Frye’s is not. The Court found nothing in the Plan’s structure or the application of common sense to resolve the ambiguity. The Committee was entitled to interpret the plan to the best of its ability and its interpretation was reasonable. The Court remanded with instructions to enter summary judgment for Thompson.