Original Article Here (PDF)

Donald T. Bogan,* Stacey C.S. Cerrone** and Thomas G. Moukawsher***

In Kenseth v. Dean Health Plan, Inc., 610 F.3d 452, 49 EB Cases 1652 (7th Cir.2010), an ERISA claims administrator (empowered with discretionary authority) for a fully insured ERISA health care benefits plan (membership in the Dean Health HMO)refused to pay $78,000 in medical expenses related to plan participant Deborah Kenseth’s surgery, even though the HMO plan admitted that it had pre-authorized her treatment.After exhausting her internal appeals, Ms. Kenseth sued Dean Health Plan in federal court. Ms. Kenseth asserted three claims in her complaint, for breach of fiduciary duty under ERISA § 502(a)(3), for equitable estoppel under ERISA common law, and a claim for violation of a state insurance law that provided a time limit on exclusions for preexisting conditions. Conspicuous by its absence, the complaint did not include a §502(a)(1)(B) claim to recover benefits due under the plan.

Many people would think that Ms. Kenseth presented a sympathetic case for recovery in her lawsuit against the HMO plan; however, the Seventh Circuit Court of Appeals suggested that Ms. Kenseth may have no remedy, even though the court found that she stated a credible claim against the HMO plan for breach of fiduciary duty.Implicit in this brief description of Kenseth is the further suggestion that Ms. Kenseth’s remedies for breach of the plan contract under ERISA § 502(a)(1)(B), or for equitable estoppel, or under state law for bad faith breach of an insurance contract were also prohibited or somehow limited under ERISA.1

Kenseth is a remarkable case, but not because ERISA may deny a remedy to a seemingly worthy claimant. Rather, the case is remarkable because Kenseth provides a vehicle to explore the current state of ERISA remedies law. Recall that Congress hailed ERISA as a great consumer protection achievement when it enacted the statute in 1974.2Kenseth presents an opportunity to try to reconcile Congress’s stated purpose in adopting ERISA—to promote the interests of employees and their beneficiaries in employee benefit plans and to protect contractually defined benefits—with Supreme Court precedent that often makes ERISA plan participants worse off under ERISA than they were prior to the statute’s enactment.3

ERISA’s breach of fiduciary duty remedy under § 502(a)(3) limits a plan participant to the recovery of equitable relief—money damages (the classic example of legal relief) for breach of contract arguably are not available under § 502(a)(3).  See Great-West Life & Annuity Ins. Co., v Knudsen, 534 U.S. 204, 27 EB Cases 1065 (2002). The Seventh Circuit suggested in Kenseth that the plaintiff may have chosen to bring a breach of fiduciary duty action under ERISA § 502(a)(3), rather than a claim to recover benefits due under the terms of her ERISA plan, because she wanted to avoid the court-invented deferential standard of review applicable when plan participants challenge a discretion-empowered plan administrator’s claim denial under ERISA § 502(a)(1)(B). See Kenseth, 610 F.3d at 476. However, by making the choice to pursue a breach of fiduciary duty claim under (a)(3), and not a breach of contract claim under (a)(1)(B), the plaintiff put herself at risk  for winning the battle (prevailing on the breach of fiduciary duty claim), but losing the war (on remand, the  trial court may classify her requests for injunctive relief as really just an attempt to obtain money damages, which is likely unavailable relief under (a)(3)).

There are many underlying issues lurking in Kenseth that must go unaddressed in this short manuscript;5  for our immediate purposes, we address first, the remedies that may be available to Ms. Kenseth under her breach of fiduciary duty claim filed pursuant to ERISA § 502(a)(3); second, whether Dean  Health Plan’s breach of fiduciary duty could provide the basis of a claim to recover benefits due under ERISA § 502(a)(1)(B), while avoiding deferential review; and third, whether the same facts  that establish Dean Health’s breach of fiduciary duty also amount to a violation of an insurer’s duty of good faith and fair dealing, which could then provide the “rule of decision” and dictate the result of an ERISA § 502(a)(1)(B) claim for benefits due under the rationale of UNUM Life Ins. Co. v. Ward, 526 U.S. 358, 377, 22 EB Cases 2745 (1999). We first detail the Kenseth facts and holding, and then discuss these three remedies issues.

*Professor of Law, University of Oklahoma College of Law: donbogan@ou.edu.
**Proskauer, 650 Poydras St., Suite 1800, New Orleans, LA 70130-6146: scerrone@proskauer.com
***Moukawsher &Walsh LLC, 328 Mitchell St., Groton, CT 06340: tmoukawsher@mwlawgroup.com

1 Pub. L. No. 93-406, 88 Stat. 829 (1974) (codified as amended at 29 U.S.C. §§ 1001-1461, and in scattered sections of the Internal Revenue Code, 26 U.S.C.).

2 See, e.g., Catherine L. Fisk, The Last Article About the Language of ERISA Preemption? A Case Study ofthe Failure of Textualism, 33 HARVARD J. ON LEGIS. 35, 38 (1006)(“It is ironic that ERISA, which was heralded at its enactment as significant federal protective legislation, has through its preemption provision been the basis for invalidating scores of progressive state laws.”).

3 See Firestone Tire & Rubber Co v. Bruch, 489 U.S. 101, 113-14, 10 EB Cases 1873 (1989)(rejecting theplan sponsor’s argument that courts should apply a deferential standard of review in ERISA benefit casesbecause to do so would make plan participant’s worse off under ERISA then they had been prior to thelaw’s enactment, contrary to Congress’s purposes)(citing ERISA §2. Findings and declaration of policy, 29U.S.C § 1001).

4  See Metropolitan Life Ins. Co., v. Glenn, 554 U.S. 105, 43 EB Cases 2921 (2008); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 10 EB Cases 1873 (1989). In Varity Corp. v. Howe, 516 U.S. 489, 19 EB Cases 2761 (1996), the Supreme Court ruled that a plan participant could not obtain separate recoveries under both ERISA § 502(a)(3) and § 502(a)(1)(B). Dicta in the Firestone opinion, of course, has lead to the widespread application of deferential court review in § 502(a)(1)(B) claims.

5 For example, Kenseth could be utilized to critique the legal foundation for applying a deferential review standard based upon  dicta in Firestone and to ask whether Congress really intended donative trust law principles to govern claims for breach of contract presented under ERISA § 502(a)(1)(B); or to ask whether negligence in the course of advising an ERISA plan participant should establish a per se breach of fiduciary duty under ERISA, given that a fiduciary owes a higher standard of care than a mere negligence standard under the fiduciary’s duty of loyalty to act “solely in  the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries, see Kenseth, 610 F.3d at 465-66 (citing ERISA § 404(a)(1)); or whether the implied preemption of state law remedies inferred from ERISA’s civil enforcement scheme should trump the express exception to preemption in ERISA § 514 for state laws, including state remedies law, that regulate insurance. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 377, 27 EB 2921 Cases   (2002)(“Although we have yet to encounter a forced choice between the congressional policies of exclusively federal remedies and the ‘reservation of the business of insurance to the States,’ we have anticipated such a conflict, with the state insurance regulation losing out if it allows plan participants ‘to obtain remedies . . . that Congress rejected in ERISA.’”)(citations omitted).
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