In Kenseth v. Dean Health Plan, Inc., No. 11-1560, 2013 WL 2991466 (7th Cir. June 13, 2013) (“Kenseth II”), the plaintiff had undergone gastric banding in 1987 which, 18 years later in 2005, caused severe acid reflux and other complications. Plaintiff’s doctor recommended that she have another procedure to remedy the problems caused by the prior surgery. The plan at issue, insured by the defendant, excluded coverage for surgical treatment of morbid obesity and services related to a non-covered benefit. However, the plan certificate instructed participants to call a phone number if they were unsure whether a service will be provided. The certificate did not state that information provided at that phone number was not binding nor did the customer service agent advise the plaintiff of that fact when informing her that the procedure would be covered.

The case had previously reached the Seventh Circuit once before, in Kenseth v. Dean Health Plan, Inc., 610 F.3d 452 (7th Cir. 2010) (“Kenseth I”). In Kenseth I, the Seventh Circuit had vacated a determination that the insurer had not breached its fiduciary duty to the plaintiff by finding that the facts suggested that the insurer had failed to take reasonable steps to allow participants to obtain accurate and complete information because the plan was ambiguous as to whether the plaintiff’s surgery was covered and the only method provided by the plan certificate to obtain a determination was to call customer service without any warning that any information provided was non-binding.

On remand, the district court again granted summary judgment in favor of the insurer. After the plaintiff appealed again, but before the appeal was briefed, the Supreme Court reached its decision in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), which readers of this blog will recall expanded upon the remedies under ERISA § 502(a)(3), including allowing for the possibility of receiving monetary relief, such as surcharge.

Turning to the question of whether the insurer could be surcharged under Section 502(a)(3), the Seventh Circuit noted that Amara indicated that surcharge could be allowed upon a showing of actual harm, but that such harm could take the form of either detrimental reliance or from the loss of a right protected by ERISA or its trust law antecedent. The district court held that plaintiff could not prove that the insurer’s actions harmed her because it determined that the appropriate “make-whole remedy” would be to put the plaintiff back in the position that she would have been in had she been provided the correct information. The district court held there was an absence of evidence that plaintiff had any alternatives but to immediately undergo the procedure regardless of the coverage determination, she was no worse off by the incorrect information.

The Seventh Circuit disagreed, noting that plaintiff testified that had she known that the second procedure would not be covered, she would probably not have undergone the procedure and would instead have explored other treatment options. Plaintiff’s doctors also testified that plaintiff could have continued receiving the treatments that she had been receiving and delayed the surgery to a later date. As a result, the court said it was not willing to impose the burden on plaintiff to prove that other treatments would have been effective, thereby eliminating the need to immediately have the surgery, when the insurer gave her no reason to explore those other options by leading her to believe that her surgery would be covered. The court found that because the plaintiff had created a genuine issue of fact as to whether she had suffered harm as a result of the incorrect information that she received, i.e. by undergoing the surgery when she otherwise would not have, and remanded to the district court to determine the amount of any loss resulting from that misinformation.

The Seventh Circuit then turned to the plaintiff’s request that judgment be entered in her favor on the insurer’s liability for a breach of a fiduciary duty. The district court had declined to reach that question based upon its now-reversed determination that plaintiff could not prove that she had suffered any harm if a breach occurred. On this question, the Seventh Circuit relied on its holding in Kenseth I, that an insurer has an affirmative obligation to provide accurate and complete information when a participant inquires about coverage, but that a fiduciary will not be held liable so long as the plan documents are clear and the fiduciary has taken reasonable steps to avoid error.

Reaffirming its holding from Kenseth I that the plan was ambiguous as to whether plaintiff’s second procedure was covered, the court noted that the fact that the plan certificate invited participants to call customer service with questions regarding coverage without a warning that they could not rely on the answers received could have the effect of lulling participants into believing that they could rely upon the advice that they received. The court thus remanded to the district court to determine whether the insurer’s practice was consistent with its fiduciary obligations.

However, the court certainly seemed to indicate that it believed that the plaintiff should prevail on this point, noting that the district court should reconsider its denial of a fee award to the plaintiff because the plaintiff may have obtained “some degree of success on the merits,” the standard set by the Supreme Court in Hardt v. Reliance Std. Life Ins. Co., 560 U.S. 242 (2010). The reason that the Seventh Circuit determined that plaintiff had obtained some degree of success was that “she has won partial summary judgment on her breach of fiduciary duty claim and may yet obtain significant equitable relief on that claim on remand.” 2013 WL 2991466 at *22. Of course, the Seventh Circuit did not actually issue a finding of liability for breach of fiduciary duty, but this statement certainly suggests that there is only one possible outcome at the district court.

This case represents an important reminder to all plan sponsors and insurers that it is critical to be as clear as possible in outlining benefits and exclusions in ERISA plans and to be equally clear in providing how coverage determinations can be made and whether or not any particular representation, such as a determination over the phone, can be relied upon by a participant. Post-Amara, any incorrect information that participants receivemay be actionable under ERISA § 502(a)(3).