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PA Superior Court Rules a Second Class Township may not enter into an Individual Life Insurance Policy

On August 17, 2017, in Murray v. Willistown Township, 2017 Pa. Super. 265 (Aug. 17, 2017), the Superior Court of Pennsylvania ruled that a Township of the Second Class lacks the requisite authority to purchase an individual life insurance policy for any of its employees or retirees. Therefore, the Court held, a Township’s separation agreement with a former Township Manager that was partially premised on a mutual mistake as to insurance eligibility could not be reformed to require the Township to purchase an individual life insurance policy for the former Manager.

The Township and its former Township Manager had agreed that the manager “shall be entitled to continue to participate, at the Employer’s expense, in the present group life insurance plan ($375,000) offered by the Employer as may be carried from time to time for all eligible employees on the same terms and conditions that the Employee currently participates.” Unbeknownst to either party, the Township’s group life insurance plan entitled the township manager upon retirement to a lump sum payment in the amount of $20,000, instead of the $375,000 as referred to in the settlement agreement. The manager sued the Township to enforce the terms of the original agreement and to collect the $375,000 instead of the $20,000.

The trial court granted the Township’s motion for summary judgment and reformed the contract to provide for the $20,000 benefit rather than the $350,000 amount referenced in the parties’ separation agreement. The manager appealed this determination and the Superior Court affirmed the trial court’s order. In doing so, the Court declared that the judiciary can reform a contract when a mutual mistake voids an essential contract provision and a court may supply a term that is reasonable under the circumstances.

More importantly, the Court affirmed the position that the Courts do not have the authority to order payment by the Township for an individual life insurance policy because a Township is not authorized to do so under its enabling statute. The Court cited the Second Class Township Code, which states that a Township may purchase insurance “under a policy or policies of group insurance covering life, health, hospitalization, medical service or accident insurance.” 53 P.S. § 66512(d). Because a municipality may only do that which the state legislature has authorized it to do in its enabling statute, the Court rejected the manager’s argument that the Township needed to purchase an individual life insurance policy that provided a benefit of $375,000 because the Township only had the authority to purchase group insurance coverage. Therefore, the Township was only required to maintain its current group policy (not a separate individual policy) and the manager was only entitled to the benefits of the group policy offered to all employees, which was $20,000.

Lamb McErlane PC represented the Township in this case. Partner Mary-Ellen Allen was trial counsel, Partner Scot Withers was appellate counsel, and Partner Vince Pompo assisted in developing the legal theories that were relied upon by the Court.

For further information on the impact of this ruling on municipalities around Pennsylvania, please contact Bill Christmanbchristman@lambmcerlane.com or 610-701-3271.

Bill is an associate in the municipal practice group at Lamb McErlane PC, where he focuses on municipal law and election law. He specifically concentrates on municipal, land use, property tax, administrative, finance, and election law matters.