Fiduciary Must Communicate Material Facts to Plan's Beneficiaries
KENSETH v. DEAN HEALTH PLAN (June 28, 2010)
In 1987, Deborah Kenseth decided to do something about her serious weight problem. She underwent a surgical procedure known as vertical banded gastroplasty (“VBG”) and shed 120 pounds. Kenseth joined Highsmith, Inc., a library furniture and supply distributor, in 1996. Kenseth elected to participate in the Dean Health Plan through her employer. The plan did not cover surgical treatment for gross obesity such as VBG. It also generally excluded any services "related to" a non-covered service. Several years later, Kenseth began to experience complications arising from the VBG. In 2004, she had a surgical procedure to address one of those complications. Notwithstanding the plan language, Dean paid for the procedure. The procedure, however, was not totally successful. Her physician recommended a gastric bypass procedure as a long-term solution to her situation. After the surgery was scheduled, the physician's office provided standard instructions to Kenseth. Included in the instructions was a direction to call her insurance company to check on coverage. Kenseth did just that. Kenseth described the procedure to the Dean customer service agent as one dealing with the "bottom of the esophagus." She did not disclose, she says unintentionally, that the procedure was related to her 1987 VBG surgery. The plan representative told her that the procedure would be covered. The day after the surgery, Dean made its initial decision to deny coverage. Its rationale was that the procedure addressed a complication arising from, and therefore related to, the VBG, a non-covered service. Kenseth unsuccessfully challenged Dean's decision internally. She then brought suit under ERISA and state law. She asserted that: a) Dean breached its fiduciary obligation because the plan was unclear both as to coverage and as to how she could determine coverage and because Dean failed to provide a pre-approval authorization procedure, b) Dean was collaterally estopped from denying benefits because of the representative's "approval," and c) Dean violated Wisconsin law on an insurer's ability to deny coverage for pre-existing conditions. Judge Crabb (W.D. Wis.) granted summary judgment to Dean on all counts. Kenseth appeals.
In their opinion (as amended), Judges Manion, Rovner, and Tinder affirmed in part, vacated in part, and remanded. First, the Court affirmed summary judgment on collateral estoppel. Kenseth failed to advise the Dean customer service agent of the connection between the procedure and her earlier surgery, even if unintentionally. Equitable estoppel should not be applied when the party being estopped is unaware of a material fact. Second, the Court also affirmed with respect to the state statutory argument. The Wisconsin statute deals with pre-existing conditions. The exclusion on which Dean relies focuses on the nature of the benefit, not whether it was pre-existing. Third, the Court addressed the breach of fiduciary duty claim. Such a claim requires a plan fiduciary, a breach, and harm. Dean is a plan fiduciary, not because it is the customer service agent's employer, but because it is a claims administrator with discretionary authority to assess a plan participant's entitlement to benefits. Thus, it owes the plan participants duties of loyalty and reasonable care. One core duty to beneficiaries is the duty to disclose all material information. That duty has a negative component (not to mislead or misrepresent) but also has an affirmative component (to communicate material facts). Here, on the record before the Court, it concluded that a fact finder could determine the Dean had a duty to a) advise callers to its customer service line that they were not entitled to rely on any advice recieved, and b) inform callers how to obtain a binding determination of coverage. Dean could have avoided that liability by providing plan beneficiaries with a clear and unambiguous statement of benefits. Although the Court concluded that Dean's statement of benefits was clear that a procedure like the VBG was not covered, it concluded that the "related to" exclusion was not clear. In addition to the fact that the language itself was not clear, the Court also referred to the fact that Dean had already paid for a procedure to address a complication of the original surgery. Finally, the Court had no difficulty in finding an injury caused by Dean's breach of its fiduciary duty. Having found a breach and an injury, the Court turned to the remedy. It emphasized that Kenseth's claim was not a denial of benefits claim under section 1132(a)(1)(B) nor was it a representative action under section 1109 (a). Instead, it was an individual action under section 1132 (a)(3). But that section allows only equitable relief, not damages. The Court remanded to allow Kenseth an opportunity to identify, if possible, an appropriate form of equitable relief.
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Jay Hayden died in 1985. His will established the Jay E. Hayden Foundation and named Robert Cochonour as executor. Between 1985 and 2001, Cochonour allegedly embezzled from both the Foundation and from accounts belonging to Hayden's mother and his mother’s friend. Cochonour apparently had the cooperation of First Neighbor Bank in carrying out his misdeeds. By 2002, Cochonour admitted that he had stolen some money and had resigned his state court judgeship. The trustees of the Foundation were aware that it no longer had any assets but there was no record of what happened. For several years, Cochonour and the bank took steps to prevent the plaintiffs from learning additional facts. Eventually, in May of 2008, plaintiffs brought a RICO action against the bank, two law firms, and several associated individuals. Judge Reagan (S.D. Ill.) granted defendants' motion to dismiss on statute of limitations grounds. Plaintiffs appeal.