For more information on the concurring opinion in this case, click here.
Cases of negligent misrepresentation under the Employee Retirement Income Security Act (ERISA) are common and perhaps inevitable. A health plan’s documents aren’t clear, or a health plan employee makes a mistake when representing the plan’s scope of coverage, and the result is a patient who finds out too late that a health procedure will not be covered. It was long thought to be the case that plaintiffs who sued over such situations were not entitled to make-whole relief in the form of monetary compensation. If they paid out-of-pocket for medical care that a plan representative mistakenly told them would be covered, they couldn’t get that money back.
However, the 7th Circuit’s June 13 decision in Kenseth v. Dean Health Plan, Inc. found just the opposite in light of the Supreme Court’s 2011 opinion in Cigna Corp. v. Amara, which, the 7th Circuit wrote, “substantially changes our understanding of the equitable relief under 1132(a)(3),” ERISA’s civil enforcement provision. In Cigna the Supreme Court said that monetary compensation in certain cases falls within the scope of “appropriate equitable relief” under ERISA.
Deborah Kenseth had been seeking relief in the form of monetary compensation since she launched her lawsuit. “We now know that, in appropriate circumstances, that relief is available,” the 7th Circuit wrote.
Nancy Ross, a partner at McDermott Will & Emery, says the Kenseth opinion is a significant departure coming from a court that is one of the most employer-deferential in the nation on such benefit-misrepresentation claims.
“Each and every circuit is eventually going to have to deal with how Cigna impacts one of the most common types of ERISA claims that employers experience,” Ross says. “This decision sets a precedent and instructs the district courts that people who get incorrect information from a company or an insurance company may well have a remedy under ERISA.”
When Kenseth’s doctor advised her to undergo surgery to correct complications from a gastric band procedure she underwent 18 years earlier, she called Dean Health Plan Inc.’s customer service number and spoke to a customer service representative, which was the only process that Madison, Wis.-based Dean provided to plan participants unsure about whether their plan covered a particular procedure. The customer service rep, perhaps confused about the procedure, told Kenseth that she only would have to make a $300 co-payment.
The day after her surgery, however, Dean denied coverage for the surgery based on its exclusion for services related to surgical treatment of morbid obesity, which the plan did not cover.
Kenseth received a medical bill for $77,974. After Dean refused to change its position, Kenseth sued. The 7th Circuit in 2010 upheld Kenseth’s claim under ERISA that Dean breached its fiduciary duty to her.
That earlier Kenseth decision also was significant for ERISA litigation. In 2010 the appeals court found in Kenseth that a plan fiduciary has an affirmative duty to communicate accurate and complete material facts to plan participants. The failure to train customer service staff adequately to field inquiries or to draft plan documents in clear language could constitute a breach of fiduciary duty.
However, the court noted that forms of relief to which Kenseth was entitled were limited. ERISA only authorized equitable relief such as injunctions, mandamus and restitution, and the appeals court said that the relief Kenseth seemed to be seeking was beyond the statute’s scope.
Lisa Goldman, the lawyer who represents Deborah Kenseth, says that after the court decided Cigna, it became “crystal clear” that plaintiffs could win monetary relief in the form of restitution, disgorgement and surcharge.
“Now the court has decided that equity also means money in the form of restitution, disgorgement or surcharge, so you can force a party to pay money if their actions are allowing themselves or a third party to benefit from their breach of a fiduciary duty,” says Goldman, a partner at Davey & Goldman.
Cigna dealt with pension benefits and intentional misrepresentation claims. It’s significant that other circuits have similarly applied Cigna outside the pension context, Goldman says, including the 4th and 5th Circuits. (Cigna came out of the 2nd Circuit.)
As the 7th Circuit has said repeatedly in its Kenseth decisions, plan fiduciaries will not be held liable because a nonfiduciary agent (here, a customer service rep) gives incomplete or mistaken advice to a participant—as long as the plan documents are clear and the fiduciary has properly trained its nonfiduciary agents in how to handle coverage inquiries. Kenseth’s claim is based upon Dean’s failure to take these reasonable steps.
“This should cause employers to be on their game and take a good hard look at the clarity of their plans and in particular who has the authority to represent the scope of coverage to a participant,” Ross says. “Employers need to take another good hard look at the training they’re giving people working within the benefits arena of their organization. Because we see these cases happening all the time.”