An employee is informed by an employer health plan that surgery is approved, only to learn afterwards that the plan changed its mind and refused to pay over $77,000 in bills. The occasion of these simple and all-too-common facts gives the Seventh Circuit an opportunity to apply the recent U.S. Supreme Court decision Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011). It holds that Cigna “substantially changes our understanding of the equitable relief available under section 1132(a)(3)” and expands judicial options for remedies, including monetary relief.
Kenseth v. Dean Health Plan, No. 11-1560 (7th Cir. June 13, 2013): Plaintiff Kenseth had, 18 years earlier, undergone a gastric band procedure for weight reduction. That surgery had, later in life, caused Kenseth distress in the form of acid reflux and other serious health conditions. She was urged by her doctor to submit to addition al surgery to relieve the discomfort. Kenseth called her employer’s health provider, Dean, to determine whether the surgery would be covered by her health plan and the Dean representative, after checking with her supervisor, told Kenseth that it was covered (subject to a $300 co-pay). Dean’s representative “did not ask whether the surgery was related to an earlier surgery for the treatment of morbid obesity” and did not advise Kenseth that she could not rely on the advice given over the phone.
The advice Kenseth received from Dean’s representative proved to be wrong. Dean regarded the second surgery to be related to weight reduction, too, a condition specifically excluded by the plan. Thus, after Kenseth had already undergone surgery, Dean denied coverage. A review of the Certificate of Insurance was ambiguous on whether there was coverage for the surgical procedure. The Certificate also, critically, failed “to identify a means by which a participant may obtain an authoritative determination on a coverage question,” and “invit[ed] participants to call customer service with coverage questions but not warning them that they could not rely on any advice they received.”
Concerning Dean’s duty of due care, there was evidence that
“Dean did not train customer service representatives to warn callers that they could not rely on the answers they were given by phone in response to coverage-related questions. Moreover, the evidence indicated that Dean did not train customer service representatives to advise callers like Kenseth how they might obtain definitive advice regarding whether particular medical services would be covered by the policy.”
Finally, there was a whiff of self-dealing in the mix: “The hospital where Kenseth had the surgery was owned by SMS Health Care, which owned five percent of Dean Health Systems, Inc. and a forty-seven percent interest in Dean.”
Kenseth sued Dean for violations of state and federal law, the latter under the Employee Retirement Income Security Act (ERISA). On a first trip to the Seventh Circuit, the panel agreed that the one claim that the employee could pursue was an ERISA breach of fiduciary duty claim. Kenseth v. Dean Health Plan, Inc., 610 F.3d 452 (7th Cir. 2010). On remand to the district court, the judge held that the employee must lose because there was no form of “appropriate equitable relief” that Kenseth could obtain, even if she were to win the breach of fiduciary duty claim at trial. Only after the case was dismissed and on appeal did the U.S. Supreme Court breakthrough holding in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), that monetary relief in the form of equitable “surcharge” could be awarded under ERISA § 502(a)(3).
The Seventh Circuit vacates and remands the dismissal, sending the case back for a trial. It first holds under Amara that “appropriate equitable relief” may include “make whole” relief, including the recovery of the medical expenses. Citing two other post-Amara decisions – Gearlds v. Entergy Servs., Inc., 709 F.3d 448, 450 (5th Cir. 2013), and McCravy v. Metropolitan Life Ins., 690 F.3d 176, 181 (4th Cir. 2012) – the panel holds that the combination of circumstances that presented here might support a monetary award. Each of these cases presented situations where a participant arguably lulled into reliance on acts (or omissions) by benefit plans that turned out to be in error. Citing these cases and Amara, the panel holds:
“We can now comfortably say that if Kenseth is able to demonstrate a breach of fiduciary duty as we set forth in our first opinion, and if she can show that the breach caused her damages, she may seek an appropriate equitable remedy including make-whole relief in the form of money damages.”
The panel also holds that, assuming that Kenseth remained a participant in the plan (the record on appeal was not supplemented on this issue, and remained unclear), she could also obtain other injunctive relief to reform Dean’s practices and documents to prevent future occurrences of such misfortunes.
Having addressed the prospective availability of relief, the panel then turned to the merits of the case. The district court thought that Kenseth could not prove that the alleged breach of fiduciary duty caused her any injury. In particular, the district court held that Kenseth could not show that she would have done things differently had she been duly and timely informed that her procedure was not covered by the plan.
The panel reverses, holding that there was evidence in the record that Kenseth may not have incurred the $77,000 in medical expenses had she been properly warned.
“But Kenseth had, in fact, produced evidence that she would not have proceeded with the surgery had she known that Dean would not pay for it. She also produced evidence that, although surgery was the best option to permanently correct her problems, other viable alternatives were available. Specifically, Kenseth testified that if the customer service representative had told her the procedure would not have been covered, she would have considered other alternatives, checked to see if her husband’s policy would cover the surgery, and returned to Dr. Huepenbecker to explore other options. . . . .
“Kenseth did not explore other options because Dean gave her every reason to believe that it would cover the option that her Dean-affiliated doctor considered the best treatment. She did not seek alternate insurance, attempt to find a hospital that might perform the surgery for a lower cost, or seek out other doctors or opinions. Instead, she took an irreversible course of action in reliance on the approval given to her by Dean’s customer service representative, a reliance that Dean invited with its directive in the Certificate for participants to call with questions regarding coverage. The surgery could not be undone, the cost un-incurred.”
Concurring in the judgment, Judge Manion would hold that while the case had to be remanded in light of Amara, the panel majority was incorrect to imply that monetary damages were a proper form of relief under ERISA § 502(a)(3):
“That was not Cigna‘s holding. Rather, Cigna noted that surcharge is one type of equitable remedy which may be appropriate in certain situations, including, possibly, the facts of that case, where the breach of trust affected the amount of money contributed to the beneficiaries’ retirement accounts initially, and then paid out eventually. And “surcharge” is not simply the moniker given to any monetary payment for an equitable harm-if it were, then there would be no need for other equitable remedies, such as restitution, equitable estoppel, or a constructive trust.”