Williams Industries, Inc. v. Eugene F. Pribyla and Karen J. Pribyla

Williams Industries v. Pribyla IN THE TENTH COURT OF APPEALS No. 10-94-099-CV WILLIAMS INDUSTRIES, INC., ET AL., Appellants v. EUGENE F. PRIBYLA AND KAREN J. PRIBYLA, Appellees From the 134th District Court Dallas County, Texas Trial Court # 91-12846-G O P I N I O N On August 4, 1986, Eugene Pribyla sold all of his shares in John F. Beasley Construction Company to Williams Industries, Inc. under a stock purchase agreement that obligated Williams Industries to "cause the coverage under Beasley's Health Insurance Policy in existence for the benefit of Pribyla and his dependents to be continued at the expense of Beasley for a period of not less than five years, after which period Pribyla and his dependents shall have the option of continuing such coverage under such policy at his or their own expense." (Emphasis added). In 1991 Pribyla and his wife, Karen, sued Williams Industries and Beasley for breaching the italicized portion of the agreement and obtained a joint and several judgment for $2.5 million and $135,000 attorney's fees. A principal contention on appeal, as it was in the trial court, is that the suit is preempted by ERISA and, for that reason, the trial court lacked jurisdiction. We will reverse and render judgment that the Pribylas take nothing against Beasley and reform and affirm the judgment against Williams Industries. FACTUAL BACKGROUND Eugene Pribyla, an officer, director, and stockholder of Beasley, and other shareholders sold all of their stock in the company to Williams Industries on August 4, 1986, leaving Williams Industries as Beasley's sole shareholder. At the time of the sale, Beasley's employees and executives were covered by a group medical policy issued by Connecticut General Life Insurance Company (CIGNA), a policy that had been in effect since 1984. Pribyla was severely disabled from a 1978 stroke and, for some time prior to the stock sale, had been receiving in-home nursing care provided by private-duty nurses. The stock sale agreement contained the following provision: 8. Continuation of Health Insurance and Disability Benefits for Pribyla. Upon acquiring control of Beasley by means hereof, [Williams Industries] shall cause the coverage under Beasley's Health Insurance Policy in existence for the benefit of Pribyla and his dependents to be continued at the expense of Beasley for a period of not less than five years, after which period Pribyla and his dependents shall have the option of continuing such coverage under such policy at his or their own expense. The Union Mutual Disability Policy currently in effect for the benefit of Pribyla shall continue in effect with benefits accruing for the benefit of and paid to Pribyla on the same basis as heretofore until such policy terminates upon Pribyla attaining the age of 65. Beasley maintained the CIGNA policy in effect during the five-year period following the stock sale, and the Pribylas remained covered by the policy at Beasley's expense. During this period, as it had done for some time prior to the stock sale, CIGNA continued to reimburse Pribyla for all of his nursing expenses. However, as the five-year period was drawing to a close, Beasley and Williams Industries notified the Pribylas that they could continue their coverage under Beasley's group policy at a premium cost of $284,000 a year or they could enroll in the Williams Industries Employee Benefit Trust (Williams Trust), which provided medical coverage for all other companies owned by Williams Industries. On October 24, 1991, the Pribylas sued Williams Industries and Beasley in the state district court for breach of the insurance provision, alleging that they wanted to continue their coverage under the CIGNA policy at their own expense but that Williams Industries had breached the agreement by refusing to require Beasley to continue such coverage. If the CIGNA policy had been continued the Pribylas' pro rata share of the group premium was estimated to be $17,400 a year. They also sought (1) specific performance against Williams Industries of the insurance provision, (2) an injunction requiring Beasley to continue the Pribylas' coverage under the CIGNA policy, and (3) a declaratory judgment interpreting the insurance provision. Because they needed medical coverage, the Pribylas elected to enroll in the Williams Trust on November 1, 1991, with the express understanding that they were not waiving their rights under the insurance provision. Beasley did not renew the CIGNA policy for the policy year 1991-1992, and Beasley's employees and executives, who were formerly covered by the CIGNA policy, thereafter received medical benefits through the Williams Trust. In January 1992 Pribyla submitted claims for reimbursement of his nursing expenses to Prudential Insurance Company of America, which then provided the group medical coverage for the Williams Trust, but Prudential denied the claims on the ground that the nursing services were not medically necessary. He submitted another claim for reimbursement to Massachusetts Mutual in January 1994, just prior to trial, but the claim was also denied. PROCEDURAL HISTORY Using competing motions for summary judgment as vehicles to obtain an interpretation of the insurance provision, each side sought an interpretation that would benefit its interest. The court denied the motion filed by Williams Industries and Beasley and granted the Pribylas' motion. In its order ruling on the motions, the court interpreted the provision as follows: (1) the provision "obligates [Williams Industries and Beasley] after a period of five years to offer [the Pribylas] the option of continuing coverage under the . . . CIGNA policy (i.e., the policy in effect when the Stock Purchase Agreement was executed), or an equivalent policy if the CIGNA policy is no longer in effect"; and (2) the provision "obligates [Williams Industries and Beasley] to offer [the Pribylas] the option described above at the Pribylas' expense which is to be an equal, pro rata share of the company's premium, just like any other employee or family unit covered by such policy would be or might be required to pay." Later, during a jury trial on liability and damages, the court included an instruction in the charge on its interpretation of the provision. It also included an instruction setting forth the limitations in the three group policies (i.e., CIGNA, Prudential, and Massachusetts Mutual) on reimbursement of in-home nursing expenses. The jury found that both Williams Industries and Beasley had breached the "continuation of health insurance" portion of the insurance provision and awarded the Pribylas $2.5 million in damages. Based on the verdict, the court entered a joint and several judgment against the defendants for the amount of damages found by the jury, plus $135,000 attorney's fees stipulated by the parties. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA) I. GENERAL OVERVIEW ERISA comprehensively regulates employee welfare benefit plans that, through the purchase of insurance or otherwise, provide medical, surgical, hospital care or benefits. 29 U.S.C.A. § 1002(1) (West Supp. Pamph. 1994). Without question, then, the medical benefits provided by Beasley under the CIGNA policy, as well as the benefits provided by the Williams Trust through the policies issued by Prudential and Massachusetts Mutual, constitute employee welfare benefit plans. ERISA preemption is both express and implied. ERISA expressly preempts any and all state laws, including common-law actions for breach of contract, that "relate to" any employee welfare benefit plan. Id. § 1144(a) (West 1985); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987). ERISA also impliedly preempts any state action that conflicts directly with an ERISA cause of action specified in section 1140. 29 U.S.C.A. § 1140 (West 1985) (Interference with protected rights); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 484-85, 112 L.Ed.2d 474 (1990). Preemption, however, does not automatically divest a state court of jurisdiction. State and federal courts have concurrent jurisdiction of civil actions by a plan participant or beneficiary (1) to recover benefits due him under the terms of his plan, (2) to enforce his rights under the terms of the plan, or (3) to clarify his rights to future benefits under the terms of the plan. 29 U.S.C.A. § 1132(a)(1)(B), (e)(1) (West 1985 & West Supp. Pamph. 1994). Jurisdiction of all other civil actions brought by a plan participant or beneficiary is vested exclusively in the federal district courts. Id. § 1132(e)(1) (West Supp. Pamph. 1994). Thus, if ERISA preempts a claim filed in a state court with concurrent jurisdiction, the state court can exercise its jurisdiction, but in doing so it must apply federal common law. [CITE]. Williams Industries and Beasley first contend that the suit for breach of contract is expressly preempted because it "relates to" a plan governed by ERISA or, alternatively, that it is impliedly preempted because it conflicts directly with an ERISA cause of action specified in section 1140. They also argue, alternatively, that the trial court lacked jurisdiction because the suit does not fall within section 1132(a)(1)(B) or, if the court had concurrent jurisdiction, then it erred when it failed to apply federal common law during the trial. II. "PREEMPTION THICKET" The Fifth Circuit has aptly described the legal morass surrounding the question of ERISA preemption as the "preemption thicket." Memorial Hosp. System v. Northbrook Life Ins. Co., 904 F.2d 236, 244 (5th Cir. 1990). The problem lies, of course, in determining when a state action "relates to" an employee benefit plan. Congress intended the key words "relate to" to be given their "broad common-sense meaning, such that a state law [or action] `relate[s] to' a benefit plan `in the normal sense of the phrase, if it has a connection with or reference to such plan.'" Pilot Life Ins. Co., 107 S.Ct. at 1553 (citing Metropolitan Life Ins. Co. v. Mass., 471 U.S. 722, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985)). Although the language of the preemption clause is "deliberatively expansive" and "conspicuous for its breadth," it nevertheless has its recognized outer limits. Ingersoll-Rand, 111 S.Ct. at 482, 483. A state action, for example, may affect an employee benefit plan in "too tenuous, remote or peripheral a manner to warrant a finding that the [action] `relates to' the plan." Shaw v. Delta Airlines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 2901 n. 21, 77 L.Ed.2d 490 (1983). In fact, the United States Supreme Court has declined to draw a bright line between actions that "relate to" a plan and those that are too tenuous, remote or peripheral to justify such a conclusion. Id. Twenty years after ERISA's adoption, litigants and courts alike continue to wrestle with the "relate to" language and its effect on a state law or action. III. COMPETING CONTENTIONS Williams Industries and Beasley essentially contend that the contract action has a "connection with" or "makes reference to," and thus "relates to," an ERISA plan because (1) the trial court had to interpret the three group policies and compare their policies' level of benefits; (2) their liability depends upon the impact of amendments to the health plan—i.e., the change in policies and insurers; and (3) the contract action is based on the difference between the benefits promised in the insurance provision and the benefits established by each health policy. They characterize the suit as a complaint by "plan participants"—whose principal evidence is the three policies—that their plan benefits had been reduced by the change in policies. See 29 U.S.C.A. § 1002(7) (West Supp. Pamph. 1994) (defines "plan participant"). Another contention by Williams Industries and Beasley is that the suit is impliedly preempted because it is nothing more than an action for interference with the "attainment of rights" under the health plans, which conflicts with an ERISA action. See id. § 1140 (West 1985). The Pribylas contend, however, that their contract action does not "relate to" the health plans, which they concede are governed by ERISA, because it is for the breach of the stock sale agreement. Their suit is not preempted, they argue, merely because the court had to refer to or interpret the three policies. According to the Pribylas, any such reference to or connection with the plans is too tenuous, remote or peripheral to justify preemption. IV. DOES ERISA PREEMPT THE PRIBYLAS' CLAIM? We will use the Fifth Circuit's two-factor test to narrow our preemption inquiry. See Hook v. Morrison Milling Co., 38 F.3d 776, 781 (5th Cir. 1994) (citing Memorial Hosp. System, 904 F.2d at 245). First, does the suit for breach of contract address areas of exclusive federal concern, such as the right to receive benefits under an ERISA plan? See id. Second, does the claim directly affect the relationship among the principal ERISA entities (i.e., the employer, the plan and its beneficiaries, and the participants and beneficiaries)? See id. FIRST FACTOR As the Fifth Circuit recognized in Memorial Hosp. System, the congressional intent underlying ERISA's preemption clause is to afford "employers the advantages of a uniform set of regulations governing plan fiduciary responsibilities and governing procedures for processing claims and paying benefits." Memorial Hosp. System, 904 F.2d at 245. Our initial inquiry will thus focus on whether the suit for breach of the insurance provision implicates this regulatory or preemptive scheme? See id. at 246. As part of the consideration for the purchase of Eugene Pribyla's stock in Beasley, Williams Industries agreed to the terms of the insurance provision in the stock sale agreement. Obviously, the court had to examine and interpret the provisions of the CIGNA policy to determine the extent of Williams Industries' undertaking. Williams Industries and Beasley contend that the contract action "relates to" an ERISA plan because the court was forced to interpret the CIGNA policy and the replacement policies and compare their benefits. If referring to an ERISA plan for the purpose of calculating damages will not provide a sufficient nexus to justify preemption, then we fail to see how referring to a plan to determine the extent of Williams Industries' contractual obligation will suffice as a nexus. See Rozzell v. Security Services, Inc., 38 F.3d 819, 822 (5th Cir. 1994); Memorial Hosp. System, 904 F.2d at 247. Williams Industries obligated itself to allow the Pribylas, at their expense, to continue their coverage under Beasley's group policy. The Pribylas sued for breach of this portion of the agreement. The breach occurred, they alleged, when Williams Industries refused to allow them to continue their coverage under Beasley's CIGNA policy, the policy in effect at the time of the stock sale, at their pro rata share of the group premium and then terminated their coverage under the policy. They measured their actual damages by the total amount of in-home nursing expenses incurred from the date the CIGNA policy terminated to the time of trial, reduced by the total of pro rata premiums they would have paid on the CIGNA policy during that period. Using this same measure for calculating damages, the Pribylas also sued for future damages from the date of trial. Using the CIGNA policy to calculate damages for breach of the insurance provision does not provide a sufficient nexus to effect a preemption. See id. Neither CIGNA nor any other insurance carrier were made parties to the suit. While that fact does not determine the question of preemption, it cannot be ignored. See [CITE]. Furthermore, the Pribylas did not seek to recover benefits from any ERISA plan or allege that their claims for reimbursement were improperly processed. Other than serving as a benchmark for determining the scope of Williams Industries' promise and calculating damages, the terms of the CIGNA policy were essentially irrelevant to the outcome of the suit. See Christopher v. Mobil Oil Corp., 950 F.2d 1209, 1220 (5th Cir. 1992); Memorial Hosp. System, 904 F.2d at 247. If Williams Industries' underlying conduct is stripped of its sole link to Beasley's benefit plan—i.e., reference to the plan for the purposes of determining the scope of Williams Industries' contractual obligation and calculating damages—the suit would not cease to exist but would stand alone. Cf. Christopher, 950 F.2d at 1220 (holding that underlying conduct could not be divorced from the ERISA plan). Moreover, enforcing Williams Industries' obligation under the insurance provision will not impede the congressional intent behind ERISA's preemption clause. See Memorial Hosp. System, 904 F.2d at 245. Regardless of whether the Pribylas recover, Williams Industries, Beasley, and other employers will still be afforded the same advantages of uniform regulations governing the procedures for processing claims, paying benefits, and the responsibilities of plan fiduciaries. Nor will preempting the contract action, which would insulate Williams Industries from the legal consequences flowing from its commercial dealings, further the congressional goal of "protecting the interests of employees and their beneficiaries in employee benefit plans." See id. at 247. Finally, the one-time recovery of damages from Williams Industries for breach of the insurance provision will not affect the ongoing administration or obligations of any ERISA plan. See id. Under these facts, the state action for breach of the insurance provision does not implicate the regulatory or preemptive scheme underlying ERISA. SECOND FACTOR Our next inquiry will focus on whether the contract action directly affects the relationship between the principal ERISA entities. See id. at 245. Although the suit on its face appears to involve plan participants (the Pribylas) and two plan sponsors (Williams Industries and Beasley), in reality it centers on the breach of a contractual duty owed by a stock purchaser to a seller of stock. The parties' dual relationships, although parallel, are independent under the facts presented. See Sommers Drug Stores v. Corrigan Enterprises, Inc., 793 F.2d 1456, 1468 (5th Cir. 1986). The suit has nothing to do with their ERISA relationship but everything to do with the breach of a duty owed by one to the other under a written agreement that is otherwise irrelevant to any ERISA plan. Under the circumstances, their contractual agreement and the suit for its breach does not implicate or affect their relationship as ERISA entities; rather, it affects them in their separate capacities as contractual obligor and obligee. See id. For this reason, the contract action does not directly affect the relationships among principal ERISA entities. For the reasons given, we also reject the alternative contention that ERISA impliedly preempts the contract action. Standing alone, the suit is for recovery of damages arising from the breach of the insurance provision, not an action for interference with the "attainment of rights" under an ERISA plan. See 29 U.S.C.A. § 1140 (West 1985). Having applied the test used by the Fifth Circuit and finding both factors missing, we hold that the Pribylas' claim for breach of contract is not preempted by ERISA and, for that reason, conclude that the court had jurisdiction of the suit. Points one and two are overruled. IS BEASLEY JOINTLY LIABLE? Beasley moved for an instructed verdict on the ground that there was no evidence that it was liable for a breach of the insurance provision. It contended that only Williams Industries (the "Buyer" under the stock sale agreement) was obligated to carry out its terms. Beasley's third point complains about the denial of the motion. The Pribylas first contend that Beasley waived this complaint when it did not file a verified denial asserting that it was not liable in the capacity in which it was sued. See Tex. R. Civ. P. 93(2). "Capacity," as that term is used in Rule 93(2), refers to a party's standing to sue or be sued; it does not relate to the merits of a claim or of a defense to a claim. Light v. Wilson, 663 S.W.2d 813, 814 (Tex. 1983). The Pribylas sued Beasley and Williams Industries as separate legal entities, obtained a jury finding that both had breached the insurance provision, and received a joint and several judgment. Under the circumstances, Beasley's standing to be sued was not in issue, only its liability under the evidence presented against it. See id. Accordingly, Beasley was not required to file a verified denial under Rule 93(2) and may, on the basis of its general denial, challenge the proof of its liability in any capacity alleged. See id. (holding that the sole shareholder of a defendant corporation could challenge the proof of his joint and several liability even though he filed no verified denial under Rule 93). There was no waiver of Beasley's right to challenge the legal sufficiency of the evidence supporting a finding of its liability. Relying on the opinion in Pledger v. Schoellkopf, 762 S.W.2d 145 (Tex. 1988), the Fort Worth court of appeals reached a different conclusion on the application of Rule 93(2). Beacon Nat. Ins. Co. v. Reynolds, 799 S.W.2d 390, 395 (Tex. App.—Fort Worth 1990, writ denied). The question in Pledger was whether the defendant had to file a verified denial before it could complain on appeal that the cause of action sued on was not owned by the plaintiff; the Court held that the complaint had to be raised by a verified denial. Pledger, 762 S.W.2d at 145-46. However, we view Pledger and Light as being consistent in their interpretations of Rule 93(2)—"capacity" (i.e., the standing of the plaintiff to sue on a claim owned by another) was at issue in Pledger and, for that reason, a verified denial was required to raise the issue of the plaintiff's standing to sue. See id. Because we interpret the holdings in both Light and Pledger as consistent, we refuse to follow the holding in Beacon Nat. Ins. Co. Because the stock sale agreement designates Williams Industries as "Buyer" and lists Beasley as one of the "Sellers," the parties clearly intended the term "Buyer" to refer only to Williams Industries, not to Beasley. Thus, only the "Buyer"—Williams Industries—is obligated to carry out the insurance provision. Upon execution of the agreement, Beasley became a wholly-owned subsidiary of Williams Industries. Frank Williams, the majority shareholder in Williams Industries, had served on Beasley's board even before its acquisition and, after the stock sale, obviously continued to influence the policies and actions of both companies. As a separate and distinct legal entity, Beasley would not be liable for the acts or obligations of Williams Industries merely because it was a wholly-owned subsidiary or because both companies were then under common management. See Harper v. Lott Town & Improvement Co., 228 S.W. 188, 194 (Tex. Comm'n App. 1921, judgm't adopted); Robbins v. Houck, 251 S.W.2d 429, 432 (Tex. Civ. App.—Galveston 1952, writ ref'd n.r.e.). Nor would common management, standing alone, establish any principal-agency relationship between the two companies. See Cosand v. Gray Wolfe Co., 262 S.W.2d 547, 548 (Tex. Civ. App.—Galveston 1953, no writ). However, the insurance provision obligated Williams Industries to "cause" Beasley, at its expense, to continue the Pribylas' health coverage under Beasley's group policy for a five-year period and then, inferentially, to "cause" Beasley to extend to the Pribylas the option of continuing coverage at their own expense. Considering the plain language used, the parties to the stock sale agreement clearly understood and intended for Williams Industries to act through its wholly-owned subsidiary, Beasley. Thus, the agreement itself is evidence of an express agent-principal relationship between Beasley and its parent corporation, at least as far as the insurance provision is concerned. Because a portion of the stock sale agreement—the insurance provision—disclosed Williams Industries as the principal, an inference arose that the insurance provision was the undertaking of Williams Industries, the principal, and not that of Beasley, the agent. See Restatement (Second) of Agency § 157 (1957). The Pribylas had the burden of showing that Beasley was a party to the insurance provision, and they could overcome the inference that it was not a party by proof that Beasley had made a promise to carry out its terms, other than as Williams Industries' agent, or by proof of other facts connected with the transaction showing that Beasley had made the obligation its own. See id. § 320 cmt. b, c. The record is devoid of any such proof, and the court thus erred when it denied Beasley's motion for an instructed verdict. Consequently, we sustain point three and, in our disposition, we will reverse and render a judgment that the Pribylas take nothing against Beasley. INTERPRETATION OF THE INSURANCE PROVISION Both sides sought an interpretation of the insurance provision through competing motions for a summary judgment. The court granted the Pribylas' motion and denied that of the defendants. In its order ruling on the motions, the court interpreted the provision as follows: (1) the provision "obligates [Williams Industries and Beasley] after a period of five years to offer [the Pribylas] the option of continuing coverage under the . . . CIGNA policy (i.e., the policy in effect when the Stock Purchase Agreement was executed), or an equivalent policy if the CIGNA policy is no longer in effect"; and (2) the provision "obligates [Williams Industries and Beasley] to offer [the Pribylas] the option described above at the Pribylas' expense which is to be an equal, pro rata share of the company's premium, just like any other employee or family unit covered by such policy would be or might be required to pay." Williams Industries complains in point four about what it considers to be the court's erroneous rulings on the motions for summary judgment, which allegedly resulted in an incorrect interpretation of the provision. Point five attacks the jury instruction containing the court's allegedly erroneous interpretation. It argues in point six, alternatively, that the insurance provision is ambiguous, which precluded summary judgment regarding its interpretation. We group these points for discussion and disposition. Our point of departure is the language of the insurance provision: 8. Continuation of Health Insurance and Disability Benefits for Pribyla. Upon acquiring control of Beasley by means hereof, [Williams Industries] shall cause the coverage under Beasley's Health Insurance Policy in existence for the benefit of Pribyla and his dependents to be continued at the expense of Beasley for a period of not less than five years, after which period Pribyla and his dependents shall have the option of continuing such coverage under such policy at his or their own expense. The Union Mutual Disability Policy currently in effect for the benefit of Pribyla shall continue in effect with benefits accruing for the benefit of and paid to Pribyla on the same basis as heretofore until such policy terminates upon Pribyla attaining the age of 65. To ascertain the parties' intent, we will apply the well-settled rules governing the interpretation of contracts set out in R & P Enterprises v. LaGuarta, Gavrel & Kirk, 596 S.W.2d 517, 518-19 (Tex. 1980). Briefly summarized, the following rules will guide us in our task. We must determine their intent from the language used in the insurance provision. See id. at 518. Our interpretation must give meaning and effect to all of its terms. See id. at 519. If, after applying these rules, the provision is reasonably susceptible to more than one meaning, then the provision will be declared to be ambiguous. See id. Ambiguity is a question of law. Id. at 518. This portion of the insurance provision is at the heart of the parties' dispute: "[Williams Industries] shall cause the coverage under Beasley's Health Insurance Policy in existence for the benefit of Pribyla and his dependents to be continued . . . ." Reduced to its essence, Williams Industries' basic contention is that the parties intended the language to be a generic reference to "whatever health insurance policy may be in effect for employees of Beasley at any given time." Williams Industries argues that the parties intended the phrase, "Beasley's Health Insurance Policy in existence," to refer to whatever policy Beasley had in effect at any time. To reach that conclusion, however, Williams Industries disconnects the words "in existence" from the remainder of the phrase they obviously relate to, "for the benefit of Pribyla and his dependents." Consistent with its basic premise, it then argues that the court thus erred when it interpreted the provision as obligating Williams Industries, after five years, to extend to the Pribylas "the option of continuing coverage under the . . . CIGNA policy (i.e., the policy in effect when the Stock Purchase Agreement was executed), or an equivalent policy if the CIGNA policy is no longer in effect." According to Williams Industries, the court's interpretation ignores the plain meaning of the phrase, "Beasley's Health Insurance Policy in existence," which obviously does not refer to any specific policy, and improperly rewrites the provision to add a specific reference to "the CIGNA policy . . . or [its] equivalent." To further illustrate that the court's additions to the contract were improper and not intended by the parties, Williams Industries points out that, in the second sentence of the provision, the parties made specific reference to the disability policy that was to be continued for Eugene Pribyla's benefit—"The Union Mutual Disability Policy currently in effect for the benefit of Pribyla shall continue in effect with benefits accruing for the benefit of and paid to Pribyla on the same basis as heretofore until such policy terminates upon Pribyla attaining the age of 65." Finally, it asserts that the court's interpretation would deprive it of the right, granted by ERISA, to adjust the nature, level, and type of health benefits for Beasley's employees as long as Eugene Pribyla lived. The Pribylas assert, however, that the court's interpretation is correct because the interpretation suggested by Williams Industries would render the insurance provision meaningless. Because an employer has the right under ERISA to adjust or even eliminate any non-vested employee welfare benefit, the Pribylas point out that under Williams Industries interpretation, it could have merely cancelled the CIGNA policy at any time, without replacing it, and thereby avoided whatever obligation it had under the provision. Such an interpretation, they argue, would surely render their agreement meaningless. Parties are presumed to have intended their agreement to have a legal effect, and if there are two possible interpretations, a court must adopt the one that will render it effective and reasonable. See Portland Gasoline Co. v. Superior Marketing Co., 150 Tex. 533, 243 S.W.2d 823, 824 (1951). Therefore, a court must avoid an interpretation that will lead to a ridiculous result. Id. These rules require us to reject Williams Industries' suggested interpretation. Employee welfare benefits, which by their very nature are non-vested rights, can be decreased or even eliminated by an employer, without liability under ERISA. Wise v. El Paso Natural Gas Co., 986 F.2d 929, 934-37 (5th Cir. 1993). Thus, a logical extension of Williams Industries' interpretation is that it did not, in reality, promise the Pribylas to continue any health benefits at all. Instead, it could have directed its wholly-owned subsidiary, Beasley, to cancel and not replace the CIGNA policy, which would have legally negated Williams Industries' obligation to the Pribylas under the insurance provision. Such an interpretation would lead to the absurd result of the Pribylas having contracted for nothing at all. On the other hand, the court's interpretation recognizes the presumption that the parties intended their agreement to be effective and, moreover, leads to the only reasonable result the parties could have intended. Transposing the complete phrase, "in existence for the benefit of Pribyla and his dependents," so that it immediately follows the word it was intended to modify, gives a clearer insight into the parties' intent: "[Williams Industries] shall cause the coverage [in existence for the benefit of Pribyla and his dependents] under Beasley's Health Insurance Policy to be continued at the expense of Beasley for a period of not less than five years, after which period Pribyla and his dependents shall have the option of continuing such coverage under such policy at his or their own expense." See Porter v. Milner, 352 S.W.2d 787, 789 (Tex. Civ. App.—Fort Worth 1961, no writ) (holding that a court can transpose words or sentences if it will effectuate the parties' intent without defeating the evident purpose of the agreement). Thus transposed, the plain language used by the parties show that they clearly intended that Williams Industries would cause Beasley to continue the coverage in existence for the Pribylas for a period of five years and then extend them the option of continuing such coverage at their own expense. Rather than "in existence" being the key words for unlocking the first sentence's meaning, as contended by Williams Industries, the real key to resolving the whole dispute over interpretation is to be found in the term "coverage." Did the parties intend "coverage" to mean any policy that would cover the Pribylas then, or in the future, or did they intend the term to mean "level of benefits"? The first alternative is absolutely essential to Williams Industries' analytical construct. That meaning cannot be accepted, however, because it leads inevitably to the absurd result that Williams Industries could escape any obligation under the insurance provision by causing Beasley to cancel the CIGNA policy and not replace it. This leaves only one logical alternative—the parties intended the term "coverage" to mean "level of benefits." Words are to be given their common, ordinary meaning when interpreting a contract, a rule that yields only to the principle that the parties' intent will control. Fox v. Thoreson, 398 S.W.2d 88, 92 (Tex. 1966). Because the "level of benefits" has to be determined at a point in time, the court essentially ruled that the parties intended to measure the level of benefits by the level of benefits in existence for the Pribylas at the time the stock sale agreement was executed, i.e., the level of benefits under the CIGNA policy. This is the logical interpretation of their intent from the language used. When viewed in this light, the parties' intent becomes crystal clear: "[Williams Industries] shall cause the [level of benefits in existence for the benefit of Pribyla and his dependents] under Beasley's [CIGNA] Health Insurance Policy to be continued at the expense of Beasley for a period of not less than five years, after which period Pribyla and his dependents shall have the option of continuing such [level of benefits] under such policy at his or their own expense." As can now be seen, the parties were referring to the continuation of benefits measured by a specific policy in the first sentence, just as they were in the second sentence of the provision. The court ruled that the insurance provision "obligates [Williams Industries and Beasley] after a period of five years to offer [the Pribylas] the option of continuing [their level of benefits] under the . . . CIGNA policy (i.e., the policy in effect when the Stock Purchase Agreement was executed), or an equivalent policy if the CIGNA policy is no longer in effect." This interpretation is entirely consistent with our view of the parties' intent, taking into consideration that Beasley is not obligated under the provision. Of necessity, the court had to add the phrase, "or an equivalent policy if the CIGNA policy is no longer in effect," so as to clarify the parties' intent and to avoid the absurd result suggested by Williams Industries' interpretation. See Danciger Oil & Refining Co. v. Powell, 137 Tex. 484, 154 S.W.2d 632, 635 (1941) (holding that a court can add a provision to a contract if it is necessary to effectuate the parties' intent). This leads us into an examination of the second part of the court's interpretation, which deals with the meaning of the phrase, "at his or their own expense." The court interpreted the phrase as requiring "[Williams Industries and Beasley] to offer [the Pribylas] the option described above at the Pribylas' expense which is to be an equal, pro rata share of the company's premium, just like any other employee or family unit covered by such policy would be or might be required to pay." This part of the court's interpretation is addressed only tangentially in the parties' briefs. The court's interpretation is material, of course, because it was later included in the charge that asked the jury to determine whether Williams Industries breached the portion of the provision relating to "continuation of health insurance." After Beasley had paid for the Pribylas' coverage under the CIGNA policy for five years, the Pribylas were extended the option of continuing their coverage under the CIGNA policy at a cost of $284,000 a year. This annual cost was calculated by an actuarial firm, at Williams Industries' request, and represented the incremental cost to Beasley of having the Pribylas remain as a part of the group covered by the CIGNA policy. In other words, if everyone except the Pribylas remained covered by the CIGNA group policy, then Beasley's annual premium would be reduced by $284,000. Williams Industries does not dispute that the incremental cost of $284,000 was calculated based on Eugene Pribylas' individual claim history. When they used the phrase, "at his or their own expense," did the parties intend for the Pribylas to pay a premium based on Eugene Pribyla's individual claim history or did they intend the cost for continuing their coverage to be determined on a COBRA-type basis? Just because the parties did not specify how the expense for continuing the coverage would be calculated does not mean the provision is ambiguous. The parties were contracting with regard to the continuation of the level of benefits measured by Beasley's group policy. They specified that Beasley would pay the group premium for five years, after which the Pribylas could continue their level of benefits at their own expense. Williams Industries essentially argues the parties intended that the Pribylas would continue to receive their level of benefits under Beasley's group policy, but at an annual premium calculated as if they were no longer a member of a group. Considering the subject matter of the provision and the language used, this suggested interpretation is unreasonable and must therefore be rejected. See Portland Gasoline Co., 243 S.W.2d at 824. A more reasonable interpretation of their intent is dictated by the phrase, "after which Pribyla and his dependents shall have the option of continuing such [level of benefits] under such policy at his or their own expense." (Emphasis added). The word "such" is a specific reference to the level of benefits under a group policy. Thus, the language used clearly indicates the parties intended that the Pribylas would be given the option of continuing their level of benefits under a group policy at a pro-rata share of a group rate, not as if they were the only insureds under a policy. Given the subject of the contract and the language used, that is the only reasonable interpretation the parties could have intended the word "expense" to have. The court's interpretation in this regard is entirely consistent with ours. In presenting their own interpretations, the parties allude to various circumstances surrounding the transaction, including Eugene Pribyla's need for good health-care coverage, Beasley's financial condition, acts carried out by Williams Industries and Beasley while partially performing the obligations under the provision, and other extraneous facts. Because the insurance provision is unambiguous and the parties' intent can be determined solely from the language of their agreement, we have not considered these extraneous circumstances in interpreting the provision. Cf. James Stewart & Co. v. Law, 149 Tex. 392, 233 S.W.2d 558, 561 (1950) (holding that court could consider extraneous circumstances if agreement is ambiguous). Summarizing, we hold that the insurance provision is unambiguous, that the court's interpretation of its terms and the parties' intent is correct, and that the jury instruction containing the court's interpretation is also proper. Thus, we overrule points four through six. JURY INSTRUCTION ON THE POLICIES The court gave the jury the following instruction on the provisions in the CIGNA policy relating to reimbursement of charges for in-home nursing services: The Connecticut General [CIGNA] policy covered charges for 24-hour per day in-home private duty nursing services, with no annual visit limitation and no annual reimbursement limit, to the extent the services were recommended by a physician, were essential for the necessary care and treatment of an injury or sickness, and were not for custodial care. The Connecticut General [CIGNA] policy provided an unlimited lifetime maximum benefit for covered charges. Williams Industries attacks the instruction in point seven, contending that the court improperly interpreted the CIGNA policy because it does not provide unlimited reimbursement for in-home private-duty nursing expenses but, in fact, limits reimbursement to not more than forty in-home visits a year. It points out that the term "private duty" does not appear in the CIGNA policy. Even if the court correctly interpreted the CIGNA policy, Williams Industries argues in point eight that the court should have included additional language regarding coverage under the two replacement policies for in-home nursing expenses in the portion of the instruction quoted above. The CIGNA policy expressly provides in Section 11 (Insuring Provisions) that "Covered Expenses" means the "expenses incurred by or on behalf of an Employee . . . to the extent that the services or supplies provided are recommended by a Physician and are essential for the necessary care and treatment of an Injury or a Sickness." Section 11's list of covered expenses includes the following in numbered subsections: (1) charges made by a hospital, on its own behalf, for bed, board, necessary services, and supplies. (5) charges made by a skilled nursing facility, on its own behalf, for medical care and treatment, limited to not more than sixty days' confinement in any calendar year. (9) charges made by a nurse, other than a member of the employee's family, for professional nursing service. (11) charges made by a home health care agency for the following medical services and supplies provided under the terms of a home health care plan for the person named in the plan: (a) part time or intermittent nursing care by or under the supervision of a registered graduate nurse; and (b) part time or intermittent services of a home health aide. (However, the policy excludes any charges for more than forty home health care visits a year and charges for care or treatment which is not stated in the home health care plan). Section 12 (General Limitations) provides that no payment will be made for expenses incurred for "unnecessary care" or "for and in connection with custodial care." Section 9 (Definitions) defines "nurse," "home health care plan," "home health care agency," "home health aide," and "skilled nursing facility." Essentially, Williams Industries argues that the CIGNA policy provides coverage for in-home nursing services only through a home health care agency, which the policy expressly limits to forty in-home visits a year. A careful reading of the entire policy, however, does not reveal any such limitation, either express or implied. If Williams Industries' interpretation is correct, the express listing of "charges made by a nurse . . . for professional nursing service" as covered expenses in subsection (9) of Section 11 becomes superfluous and meaningless. There would be no need for subsection (9) because subsection (11) expressly provides that charges made by a home health care agency for part-time or intermittent nursing services are covered expenses. In other words, why specify that covered expenses include "charges made by a nurse . . . for professional nursing service" if, indeed, in-home nursing care can only be delivered by a home health care agency, within the limitations of subsection (11)? We must interpret the CIGNA policy in a way that gives effect to all of its provisions. See Liberty Mut. Ins. Co. v. Am. Emp. Ins. Co., 556 S.W.2d 242, 245 (Tex. 1977). Williams Industries contends that the court's interpretation of the CIGNA policy as providing unlimited coverage for in-home nursing expenses is unreasonable because "a person who does not qualify for a home health care plan, or who, having qualified, then decides to engage the nursing services from someone who does not meet the qualifications of a home health care agency, by not qualifying would vastly increase his available coverage, and bypass what would otherwise be severe policy limitations." If that hypothetical is true, the problem lies in the failure of the policy to provide otherwise, not with the Pribylas' claim. Considering all of its provisions, the CIGNA policy is unambiguous and does not limit in-home nursing services to those delivered by a home health care agency. The court's interpretation of the CIGNA policy is correct. Williams Industries nevertheless argues that, even if the court's interpretation were correct, the court should have instructed the jury on the coverage available to the Pribylas for in-home nursing care under the Prudential and Massachusetts Mutual policies, the policies that replaced the CIGNA policy. The court included the relevant terms of the two replacement policies in other portions of the instruction. As already noted, the benchmark for determining the scope of Williams Industries' obligation and for calculating damages is the level of benefits provided by the CIGNA policy. By its instruction, the court allowed the jury to compare the level of benefits in all three policies in determining damages. Williams Industries concedes that the two replacement policies did not provide unlimited reimbursement for in-home nursing expenses but capped reimbursement at $10,000 a year. Because the instruction as a whole included the relevant terms of all three policies, the court properly refused to include Williams Industries' request to include additional language relating to the replacement policies in the portion of the instruction dealing with the CIGNA policy. We overrule points seven and eight. DISPOSITION Having sustained point three, we reverse the portion of the judgment decreeing a joint and several judgment against Beasley and render judgment that the Pribylas take nothing against Beasley. However, we otherwise affirm the judgment against Williams Industries. BOB L. THOMAS Chief Justice Before Chief Justice Thomas, Justice Cummings, and Justice Vance Reversed and rendered in part, reformed and affirmed in part Opinion delivered and filed June 14, 1995 Do not publish