ERISA Fiduciary May Have Affirmative Duty To Communicate Facts To Plan Beneficiaries
- A representative of Dean Health Plan told a plan beneficiary that the surgery she described as occurring at the “bottom of the esophagus” would be covered by the plan. During her conversation with the Dean representative, however, beneficiary Deborah Kenseth did not disclose that the surgery was related to complications arising from a years-earlier surgical treatment for gross obesity known as vertical banded gastroplasty. The Dean plan did not cover surgery for obesity, or related treatments. Dean subsequently determined that the surgery was outside the plan, and denied coverage.
- Kenseth brought suit under ERISA and Wisconsin state law, alleging that Dean breached its fiduciary duty because the plan was unclear as to coverage and also as to obtain a binding coverage determination. Dean, Kenseth also alleged, was collaterally estopped from denying benefits because the Dean representative had told her the procedure was covered. Kenseth also claimed that Dean violated Wisconsin law prohibited denial of coverage for pre-existing conditions.
- After the district court granted summary judgment for Dean, Kenseth appealed. The Seventh Circuit Court of Appeals, in Kenseth v. Dean Health Plan, Inc., — F.3d —, 2010 WL 2557767 (7th Cir. June 28, 2010), affirmed in part, vacated in part, and remanded.
- Dean prevailed on the collateral estoppel issue because Kenseth had (inadvertently, she said) failed to tell the Dean customer service representative that the “esophagus” surgery was related to her earlier (uncovered) surgery for obesity treatment. This was a material fact that Dean was unaware of, and therefore estoppel did not apply.
Dean also prevailed on the pre-existing condition claim, since the Dean plan exclusion focused on the type of benefit, and not on the fact of whether it was or was not pre-existing.
The breach of fiduciary duty claim, however, was remanded for further proceedings. Dean, the court said, was a plan fiduciary because of its status as a claims administrator with discretionary powers to determine a plan participant’s benefits coverage. Because of this, the plan owed participants — including Kenseth — duties of loyalty and reasonable care. These duties include the duty to disclose all material information, and such a duty to disclose has both a negative aspect not to misrepresent facts, as well as a positive aspect to communicate material facts. The Seventh Circuit said, based on the facts before it, that a fact finder could determine that Dean had a duty to advise Kenseth that she was not entitled to rely on advice received from customer service representatives, and also how she could obtain a binding coverage determination from Dean. An additional question on remand would be to determine whether Kenseth had a claim for equitable damages – since, although Kenseth’s claims appeared to be legal, the issue had not been briefed and she may be able to identify her entitled to a form of equitable damages.