HMO Found Liable for Coverage Information Gap

June 30, 2010 ( – A benefit plan fiduciary violated its responsibilities under the Employee Retirement Income Security Act (ERISA) by not warning members contacting its call center that they could not rely on coverage determinations by customer service representatives. 

That was a key finding by a federal appellate court in a suit filed by an employee of a Wisconsin library equipment distributor who challenged a benefits denial by her health maintenance organization (HMO) that left her facing a $77,974 medical bill for the costs of surgery to correct complications of an earlier stomach-stapling procedure and two hospital stays. 

The 7th U.S. Circuit Court of Appeals threw out a ruling by U.S. District Judge Barbara B. Crabb of the United States District Court for the Western District of Wisconsin that was in favor of the HMO, Dean Health Plan, with instructions to further consider plaintiff Deborah Kenseth’s claims. 

Circuit Judge Ilana Diamond Rovner, writing for the appellate court, declared that Dean was open to ERISA liability by not only providing plan members with explanatory documents that were murky to lay people, but by suggesting members considering a medical procedure contact its customer service representatives without warning them they could not rely on the Dean representatives’ information about whether the procedure being considered was covered under the plan.  

“The facts support a finding that Dean breached its fiduciary duty to Kenseth by providing her with a summary of her insurance benefits that was less than clear as to coverage for her surgery, by inviting her to call its customer service representative with questions about coverage but failing to inform her that whatever the customer service representative told her did not bind Dean, and by failing to advise her what alternative channel she could pursue in order to obtain a definitive determination of coverage in advance of her surgery,” Rovner asserted.  

Post-Operative Complications  

According to Rovner’s 65-page decision, Kenseth underwent a stomach stapling procedure in an effort to help her deal with obesity in 1987, years before becoming employed at Highsmith, Inc., of Ft. Atkinson, Wisconsin, and joining the Dean plan. She joined Highsmith in May 1996.  

Starting in 2001, Rovner recounted, Kenseth began suffering complications from the procedure including severe acid reflux, which kept her awake at night and caused her to vomit repeatedly during the day, erosion of the esophagus, several bouts of pneumonia, and severe hair loss. Kenseth was advised to consider corrective surgery and contacted the Dean call center to inquire whether it would be covered under the plan. A Dean representative said it would be covered with a $300 copayment.  

After the second procedure, Rovner said Dean later advised Kenseth the claim would be denied because it was related to the 1987 surgery, which it said would not have been covered under the plan terms as laid out in the Group Member Certificate and Benefit Summary.  

Kenseth then filed her lawsuit asserting that Dean breached its fiduciary obligation because the certificate setting out her insurance benefits was unclear about coverage for her 2005 surgery and misleading as to the process she should follow in order to determine whether that surgery would be covered, and that Dean failed to provide her with a procedure (other than contacting customer service) through which she could obtain authoritative preapproval of her surgery. 

In the resulting lower court ruling, Crabb reasoned that only if the average person could not read the plan documents and determine for herself whether a particular medical condition or service is covered does the insurer have a duty to provide another means for the insured to ascertain coverage.  

In Kenseth’s case, “no reasonable person reading the plan would have difficulty determining that the plan would not cover plaintiff’s 2005 surgery,” Crabb declared. 

An Arms-Length Relationship? 

Explaining the appellate court’s decision to send the case back to Crabb for additional hearings, Rovner asserted that benefit plan fiduciaries were obligated to provide members accurate information about their benefits and exclusions.  After all, the appellate judges contended, the need for benefit plan members like Kenseth for accurate coverage information on which they can rely is undeniable.  

“[W]here one is seeking medical treatment on a nonemergency basis, there is a logical need to know in advance whether his or her insurer will cover that treatment and to plan accordingly,” wrote Rovner. “Upon learning that his or her insurer will not cover a particular treatment, one may elect to pursue an alternative treatment which will be covered, to obtain different coverage (e.g., through one’s spouse) which will cover the treatment, or, if there is no coverage available, forego or delay treatment or seek treatment in a less costly setting.” 

Rovner added: “Many, if not most, laypersons will have difficulty ascertaining which benefit provisions apply to their medical conditions and treatment and in construing multiple, independent provisions of the plan together.  Even those who feel confident in their own construction of the plan are likely to want confirmation from the insurer that they have understood the plan terms correctly. They will do exactly what Dean encouraged its participants to do: call customer service.” 

The appellate panel rebuffed Dean’s argument on appeal that it should not be held liable. 

“Dean’s insistence that Kenseth could have found out everything she needed to know simply by reading the Certificate rather than relying upon what she was told by Dean’s customer service representative treats its relationship with her as an arm’s-length, buyer-beware sort of relationship,” Rovner declared. “It assumes that any layperson should be able to confidently construe the myriad benefit provisions and exclusions set forth in the Certificate and apply those to her own medical situation. And it assumes that she will not take literally the Certificate’s invitation to call Dean’s customer service line to resolve any coverage matters about which she is unsure. But this was not an arm’s-length relationship. Dean was a fiduciary, and in that capacity it owed Kenseth a duty to administer the plan solely in her interest, not its own.” 

The 7th Circuit ruling is here