UPDATE 2-Volvo, Mack Trucks to pay $525 mln to end lawsuit

Tue May 17, 2011 7:19pm EDT

Related Topics

* Parties agree cash payout provides certainty

* Dispute over rescinding of lifetime health benefits

* More than 9,300 retirees affected (Adds background, details of settlement, byline)

By Jonathan Stempel

NEW YORK, May 17 (Reuters) - Volvo AB (VOLVb.ST) has agreed to pay $525 million to settle a class-action lawsuit by more than 9,300 retirees, who accused its Mack Trucks Inc unit of illegally reducing their lifetime health benefits.

U.S. District Judge R. Barclay Surrick granted preliminary approval of the settlement on May 12, a filing with the U.S. District Court in Philadelphia showed.

Under the settlement, the $525 million would be paid in five annual installments into a trust to fund a new health care plan, court papers showed.

Surrick scheduled a Sept. 7 hearing for a final determination on whether the accord was fair and reasonable.

The dispute concerned whether Mack, which had been having financial difficulties, could alter or rescind lifetime benefits it had agreed to provide through collective bargaining with the retirees' union, the UAW. Mack was bought by Swedish company Volvo in 2001.

While the agreed-upon changes reduce medical coverage, lawyers for the retirees, the UAW and Mack said in a joint court filing that they provide "reliable" and "substantial" benefits by reducing uncertainty about the availability of coverage.

In his ruling, Surrick said the settlement avoided potential litigation concerning the "difficult and unsettled issue" under federal labor law over whether the benefits had vested.

He also said the settlement secured an up-front payment that was guaranteed by Volvo, and neither dependent on Mack's future performance nor subject to claims by its creditors.

"The proposed settlement provides the retirees with significant lifetime medical benefits," and "falls well within the range of reasonableness," Surrick wrote.

Lawyers for the retirees and Mack did not immediately return requests for a comment.

The case combined lawsuits filed in federal courts in Michigan and Pennsylvania. Mack has an assembly plant outside Allentown, Pennsylvania, according to its website.

The case is Rachilla et al v. Mack Trucks Inc et al, U.S. District Court, Eastern District of Pennsylvania, No. 07-03737. (Reporting by Jonathan Stempel)

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