Kenseth v. Dean Health Plan, Inc., represents a significant departure from the decades of law prior to Cigna v. Amara holding that employees could not recover for misrepresentations by employers over benefit coverage if the plan terms were clear. 

On June 13, 2013, the U.S. Court of Appeals for the Seventh Circuit deviated from its usual pro-employer stance in cases involving the Employee Retirement Income Security Act of 1974 (ERISA) and reached three conclusions that will have significant repercussions for benefit plan sponsors and fiduciaries.  (See Kenseth v. Dean Health Plan, Inc., Case No. 11-1560 (7th Cir.))  First, relying on the Supreme Court of the United States’ decision in Cigna v. Amara, 131 S. Ct. 1866 (2011), the Seventh Circuit held that a plaintiff may seek “make-whole money damages” as an equitable remedy under ERISA § 502(a)(3) if she demonstrated that the defendant breached its fiduciary duty in misrepresenting the scope of health benefits available and the breach caused her damages.  Second, the Seventh Circuit held that a plan participant or beneficiary may assert a breach of fiduciary duty claim under ERISA § 502(a)(3) against a plan fiduciary based on conflicting terms in a plan summary even when the plan’s language unambiguously supports the fiduciary’s decision to deny coverage.  Third, the Seventh Circuit reiterated that a plan fiduciary has an affirmative obligation to provide accurate and complete information when a plan participant or beneficiary inquires about his or her insurance coverage.

The facts giving rise to the Seventh Circuit’s ruling unfortunately occur all too often when employees ask for verbal confirmation regarding the scope of their benefits.  According to her complaint, the plaintiff, Deborah Kenseth, sought verification from her health insurer that her surgery would be covered before undergoing treatment and was told by a customer service representative for the insurer that coverage was available.  After her claim for coverage was subsequently denied, Kenseth file a lawsuit against her health insurer, Dean Health Plan, Inc., asserting a breach of fiduciary duty based on the denial of coverage.  The district court granted summary judgment in favor of the defendant after concluding that it could not award the plaintiff the relief she sought even if she was able to prove a breach of fiduciary duty by the defendant.  The district court held that the plaintiff’s request that the defendant cover the cost of her surgery was essentially a plea for compensatory damages, which were not available as equitable relief under ERISA § 502(a)(3).  After the district court’s ruling in favor of the defendant, the Supreme Court issued its decision in Cigna v. Amara.

The Seventh Circuit reversed the district court’s decision on appeal.  Acknowledging that the relief available for a breach of fiduciary duty claim under ERISA § 502(a)(3) is broader than the district court could have anticipated before the Supreme Court’s decision in Cigna v. Amara, which clarified that equitable relief may come in the form of a monetary remedy or “surcharge,” the Seventh Circuit held that ambiguities in the plan summary entitled the plaintiff to pursue monetary relief against the defendant.  Given that the plaintiff had already established that the plan summary was unclear as to whether there was coverage for the surgery she underwent, failed to identify a means by which a participant may obtain an authoritative determination on a coverage question, and invited participants to call customer service with coverage questions, but did not warn them they could not rely on any advice they received, the Seventh Circuit remanded the case to the district court for a determination as to whether these ambiguities constituted a breach of fiduciary duty and whether that breach harmed the plaintiff.  If so, the Seventh Circuit directed the district court to fashion an appropriate equitable remedy to redress plaintiff’s injury.

In a concurring opinion, Circuit Judge Daniel Manion cautioned that the Supreme Court’s decision in Cigna v. Amara did not mean that monetary relief would always be an appropriate equitable remedy under ERISA § 502(a)(3), but instead held that surcharge could be an appropriate equitable remedy under the right circumstances.  Accordingly, Judge Manion advised the district court to ensure that surcharge would be an appropriate equitable remedy given the facts of the case.     

The Seventh Circuit’s decision represents a significant departure from the decades of law prior to Cigna holding that employees could not recover for misrepresentations by employers over benefit coverage if the plan terms were clear.  Through Kenseth v. Dean Health Plan, Inc., employees who can show that the terms of the plan were not clear, and that they were told coverage would be available and then were denied coverage after treatment may now be able to collect monetary relief on their claim.  Employers seeking to avoid a similar result in administering their benefit plans should (1) undertake a review of plan documents to ensure clarity, (2) confirm that the personnel communicating with plan participants and beneficiaries are receiving adequate training and providing accurate information, and (3) advise plan participants and beneficiaries in the summary plan description that they cannot rely on any representation regarding coverage unless it is from an authorized person and in writing.