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In Kenseth v. Dean Health Plan, Inc., 2013 U.S. App. LEXIS 12083 (7th Cir. 2013) (“Kenseth II”), (decided June 13, 2013), the Seventh Circuit examined the circumstances under which a monetary remedy may be available under the equitable remedies provisions of ERISA’s civil enforcement scheme.

In 1987, the plaintiff Deborah Kenseth underwent a gastric banding procedure to facilitate weight loss, an operation, which was covered under the terms of her then-existing group health plan.  Eighteen years later, after suffering various complications from her earlier gastric surgery, and while insured under a different group health plan issued by the defendant, the plaintiff decided to treat her complications with corrective surgery.  Since her current group coverage excluded “surgical treatment or hospitalization for the treatment of morbid obesity” (although no longer obese), as well as excluding [“s]ervices and/or supplies related to a non-covered benefit or service . . . ,” the plaintiff contacted the group plan’s customer service department to determine whether her corrective surgery would be covered.  The plaintiff was advised that the procedure would be covered, and based upon that representation, the plaintiff underwent the corrective surgery and likewise received further treatment for complications from the surgery, including a post-operative infection.  On the day after the surgery performed, the plan denied coverage for the corrective procedure, along with all of the follow-up care, based upon a benefit exclusion in the then-existing plan for services related to a non-covered service, i.e. surgical care for the treatment of morbid obesity.

After exhausting her administrative remedies, there followed a complex course of litigation involving two separate summary judgments in favor of the health care plan, based upon the trial court’s refusal to grant monetary relief for the plaintiff’s equitable remedy claim against the plan for breach of fiduciary duty, as well as two separate appeals to the Seventh Circuit, the first of which is found at 610 F.3d 452 (7th Cir. 2010) (“Kenseth I”).

The plaintiff’s second appeal (Kenseth II) arose from the second summary judgment rendered in favor of the defendant-plan, following remand from the first appeal to determine whether or not the plaintiff was seeking “any form of equitable relief that is authorized by 29 U.S.C. § 1132(a)(3), . . .”  See 610 F.3d 483.  The district court, in rendering its second summary judgment in favor of the plan, held that the “make whole” relief that the plaintiff was pursuing under a theory of breach of fiduciary duty was not “appropriate equitable relief” under § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3) since the relief sought was largely monetary in nature.

During the briefing of the second appeal, the Supreme Court decided the case of Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), which held, inter alia, that the mere monetary characteristic of the relief sought did not necessarily disqualify the claim as one for equitable relief.  See 131 S. Ct. at 1880.  (The fact that “relief takes the form of a monetary payment does not remove it from the category of traditionally equitable relief” such as those of a “surcharge” against the plan administrator for breach of a fiduciary duty.)

Following the “surcharge remedy” decisions from the Fourth and Fifth Circuits in McCravy v. Metropolitan Life Ins. Co., 690 F.3d 176, 181 (4th Cir. 2012) and Geralds v. Entergy Servs., Inc., 709 F.3d 448, 450 (5th Cir. 2013), the Seventh Circuit held that the plaintiff may be able to recover a monetary surcharge against the plan for administrative errors constituting breach of fiduciary duties which included:  (1) The use of ambiguous language in the plan documents regarding the circumstances under which benefits for a procedure would be paid or denied; (2) inviting plan participants to contact the plan’s customer service representative with questions about coverage for a particular procedure without also warning them that the response of the customer service representative would not bind the plan on coverage matters; and (3) failing to advise plan participants about alternative means of obtaining a definitive determination about coverage for the planned procedure prior to its performance.

In discussing the potential liability of the plan for the aforementioned breaches of fiduciary duties, including providing the plaintiff/participant with erroneous information about her coverage question, the Seventh Circuit noted that while a plan sponsor, administrator or other fiduciary “has an affirmative obligation to provide accurate and complete information when a beneficiary inquires about her insurance coverage.  (See Kenseth II at p.51, citing Kenseth I, 610 F.3d at 468; Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574, 590 (7th Cir. 2000)), nevertheless “a fiduciary will not be held liable for negligent misrepresentation made by an plan agent to a participant so long as the plan documents themselves are clear and the fiduciary has taken reasonable steps to avoid such errors.  (See Kenseth I, 610 F.3d at 470.)  Here, however, the court had concluded that the plan language was ambiguous concerning coverage for the plaintiff’s corrective surgery, and plan witnesses had conceded that the defendant “did not train its customer service representatives to warn callers that they could not rely on the advice given when they called to inquire whether a procedure would be covered.”  (See Kenseth I, 610 F.3d at 477-79.)

Regarding the causation element for the plaintiff’s alleged damages, being another requisite for relief under Cigna, the court noted that the “harm” element of Cigna was facially satisfied in Kenseth’s case since she:

“did not seek alternative 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.  Kenseth could not seek insurance retroactively or negotiate with other providers for services that had already been performed.”

 The court stopped short, however, of finding for the plaintiff as a matter of law on her second appeal, but instead again remanded the case to the district court to determine whether the defendant breached its fiduciary duty to the plaintiff, whether that breach was the cause of any harm alleged by the plaintiff, and, if so, what forms of equitable relief were appropriate to the circumstances presented by the case.

The concurring opinion in Kenseth II cautioned that the majority opinion may be painting Cigna’s allowance of monetary relief under the rubric of equity with too broad a brush, stating that while “Cigna makes it clear that a monetary payment may qualify as ‘an appropriate equitable remedy’ when a fiduciary is involved . . . Cigna did not hold that monetary damages are an appropriate equitable remedy in all instances.”  (See Kenseth II, at p.71.)

Simply labeling a claim for monetary damages as a plea for a “surcharge,” the concurring opinion stated, does not result in a blanket expansion of equitable remedies beyond the more traditional forms of relief “such as restitution, equitable estoppel, or a constructive trust.”  (See Kenseth II at p.73, Circuit Judge Manion, concurring.)