What Happens When Your Health Insurance Administrator Tells You a Procedure is Covered, but then Denies Coverage?

This is an issue that has surely plagued every employee, executive or partner in Chicago and the metropolitan area before. You have health insurance coverage through a group plan at work. The plan is administrated by an insurance company, or your employer purchases insurance coverage. All written materials you receive tell you to either get pre-authorization for coverage or to call customer support to determine if a particular procedure or treatment is covered. You do just that, and are told the surgery you need is covered, only to be stuck with an outrageous hospital and surgeon bill afterwards when the insurer tells you the plan does not include coverage for that procedure.

This exact thing happened to Deborah Kenseth. Ms. Kenseth sued Dean Health Plan, Inc. after the HMO refused to pay for her surgery that left her with $77,000 in medical bills. All materials Dean Health provided to Kenseth advised her to call customer service to determine if a procedure would be covered. Never did any written materials provided to Kenseth suggest that the customer service representatives’ statements are non-binding. After the District Court for the Western District of Wisconsin granted summary judgment for Dean Health, Kenseth appealed. The Court of Appeals for the Seventh Circuit remanded the case to the district court to determine whether the relief Kenseth sought, payment of her medical bills, was proper equitable relief under ERISA § 502(a)(3).

Just recently, the District Court granted summary judgment again to Dean Health, stating “Defendant has refused to provide her any relief after lulling her into believing that she had coverage for an expensive operation, only to reverse course after the procedure was performed, leaving her with a stack of medical bills. Many might be surprised to learn that defendant has no legal duty to make things right under those circumstances.” Kenseth v. Dean Health Plan, Inc., No. 08-1, Slip Op. at 4 (W.D. Wis. Feb. 14, 2011). The court held that the remedy Kenseth sought, to “hold her harmless for the cost of her surgery and treatment”, id. at 3, was a claim for compensatory damages not allowed under ERISA § 502(a)(3).

The Department of Labor has involved itself in this case as Amicus Curiae, or friend of the court, to argue on behalf of Ms. Kenseth alongside her own counsel. We hope to see this case taken up on appeal again to the Seventh Circuit. While many would agree with the district court that money is not an available remedy for a breach of fiduciary duty action under 502(a)(3), the line of caselaw used to support that proposition did not apply the rationale to a fiduciary making a misrepresentation to a single plan participant or beneficiary. If her argument is presented properly, Ms. Kenseth appears to have a good chance of success on appeal. If something similar has happened to you, seek the advice of an ERISA lawyer who can navigate you through the maze of ERISA.