Killian v. Concert Health Plan, 2013 U.S.App.LEXIS 22657 (7th Cir. November 6, 2013). Most private insurance plans require pre-certification before hospital admissions; and a major cost-savings method used by insurers is to negotiate rates with “preferred” providers. The utilization of a preferred provider network encourages plan participants to utilize the services of the preferred providers or pay a higher share of the medical costs. But what happens when an insured calls his insurer to verify that a hospital is in-network or to obtain pre-approval for a hospitalization and the insurer’s customer service representative gives erroneous or misleading information. That is what happened to Susan Killiand her husband James under the most extreme of circumstances. Susan, who had been diagnosed with lung cancer that had spread to her brain needed emergency surgery. Susan’s regular physicians could not perform the surgery and recommended that she receive a second opinion from Rush University Medical Center, one of the major university-affiliated hospitals in the Chicago area. Susan’s health insurance was through her employer, Royal Management Corporation, which had contracted with Concert Health Plan Insurance Company for coverage.

When Susan and James learned that the doctors at Rush needed to perform surgery right away, James did what most consumers do – he reached into his wallet, removed his insurance card, and called the number on the card for pre-admission approval. He told the customer service representative that he was at St. Luke’s, the name the hospital was formerly known by; and while the representative could not find St. Luke’s on his list of current preferred providers, James was authorized to have his wife admitted. A second call was made to “utilization review” the same day; and James was told that it was “okay” to admit his wife. Sadly, although the surgery prolonged Susan’s life somewhat, she ultimately succumbed to her illness a few months later. What precipitated a lawsuit, though, was Concert’s refusal to reimburse the treatment at Rush as one of its preferred providers, leaving James with substantial liability for approximately $80,000 in unpaid medical bills that he believed would be covered once Concert’s representative confirmed that he could proceed with having his wife admitted at Rush. The main claim presented asserted breach of fiduciary duty, with the plaintiff maintaining that the information provided by Concert’s representative was misleading and caused the Killian family significant financial harm. Although there were other issues, including issues pertaining to standing, the U.S. Court of Appeals, hearing the matter en banc, focused on the breach of fiduciary duty claim, issuing multiple opinions from the active members of the court which both concurring and dissenting opinions.

The court first quoted from the ERISA statute, which requires that fiduciaries of employee benefit plans covered by ERISA must

discharge [their] duties … solely in the interest of the participants and beneficiaries and … with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

29 U.S.C. § 1104(a)(1)(B). The court deemed those duties “analogous to those of loyalty and care that are imposed upon a trustee under the common law.” (citation omitted). Citing its prior precedent, Kenseth v. Dean Health Plan, Inc., 610 F.3d 452 (7th Cir. 2010), a ruling that laid out the scope of ERISA’s fiduciary duties, the court explained:

[O]nce an ERISA beneficiary has requested information from an ERISA fiduciary who is aware of the beneficiary’s status and situation, the fiduciary has an obligation to convey complete and accurate information material to the beneficiary’s circumstance, even if that requires conveying information about which the beneficiary did not specifically inquire.

Id. at 466 (emphasis in original) (alteration omitted). The court added, though, that if

the plan documents are clear and the fiduciary has exercised appropriate oversight over what its agents advise plan participants and beneficiaries as to their rights under those documents, the fiduciary will not be held liable simply because a ministerial, non-fiduciary agent has given incomplete or mistaken advice to an insured.” Id. at 472. Nevertheless, if a fiduciary “suppl[ies] participants and beneficiaries with plan documents that are silent or ambiguous on a recurring topic, the fiduciary exposes itself to liability for the mistakes that plan representatives might make in answering questions on that subject.” Id.

The court found the circumstances presented in this case were comparable to those in Kenseth. The court deemed the documents unclear because the plan participant has no documentation available that would identify the composition of the preferred provider network. In lieu thereof, the participants were advised to call the number on their insurance card to verify coverage. Looking at the evidence presented related to the substance of the telephone calls, the court determined that the communications from the insurer’s representative were unclear and misleading. The court added that under the circumstances, “Concert had an affirmative obligation to inform Mr. Killian that the providers Mrs. Killian was about to see were out of network.” That obligation was imposed even if James failed to specifically ask about whether Rush was in-network since Concert was aware of his circumstances and should have fully advised him.

Judge Richard Posner authored the first concurring opinion. While he agreed with the outcome, Judge Posner disagreed with the majority’s rationale. He characterized the case as a breach of contract claim and would have applied a contract law analysis, utilizing 29 U.S.C. § 1132(a)(1)(B), which is the vehicle under ERISA for obtaining benefits due under an employee benefit plan. Under that approach, Posner found no need to even address whether there was a breach of fiduciary duty which he pointed out creates uncertainty as to a remedy since ERISA permits only the recovery of appropriate equitable relief while the plaintiff was seeking damages; i.e., for the insurer to pay his wife’s medical bills. The scope of Concert’s contractual duty, according to Posner, was to either look the hospital up in a database upon receipt of James’s call to determine whether it was in-network or advise James how to find the correct information. The failure to do so constituted a breach of its contractual obligation to furnish information. Instead of providing that information, the Concert representative did not advise James that the hospital was not in the provider network, nor did she tell him how to locate a hospital capable of providing the necessary services that was within the network. Judge Posner’s concurrence further explained that contracts have both explicit and implicit terms, which include “the duty of good-faith performance.” That duty precludes one party to the contract from taking advantage of the other or by preventing the other party from fulfilling a condition precedent to bilateral performance.

Judge Frank Easterbrook also authored an opinion in which he agreed that it would be best to utilize contract principles. Easterbrook disagreed with the finding of a breach of fiduciary duty and expressed concern that the approach taken by the majority could lead insurers to stop giving oral advice or to inform participants that no oral advice can be relied upon.

Finally, Judge Daniel Manion authored a dissenting opinion. That opinion would have found the claims moot on the ground that the Killians did not pay the Rush bills, nor was James under a legal obligation to do so since an estate had been opened and closed and the time for asserting creditors’ claims had passed. But even if the merits of the dispute were addressed, the dissent would have found the claim of breach of fiduciary duty could not be sustained because the calls made by James were for precertification of treatment and were not made to verify whether Rush was an in-network provider. The court also deemed Kenseth inapposite because that case involved a call inquiring as to whether a particular surgical treatment was covered. In this case, there was no inquiry as to whether Rush was in-network; and in fact, both the hospitalization and the surgery were covered, albeit at a non-network rate with significantly higher co-insurance payments owed by the Killians.

Discussion: The debate contained in the dueling standards is fascinating – whether trust law or contract law applies. Either road could lead to the same result, but the issue is much broader than the circumstances presented in this case. Since the U.S. is the only industrialized country with a healthcare system that relies on private for-profit health insurers, it is not at all surprising that problems like this arise. The obvious solution is to transition to a single-payer system or to at least utilize standardized insurance coverage, just as the comprehensive general liability insurance policy has been standardized regardless of issuer. Decisions such as the ones faced by James and Susan Killian often arise in extreme circumstances where clear thinking plays second fiddle to dealing with the stress of the moment. In a perfect world, the right questions are asked and the right answers are given, but claimants needing to immediately address life and death circumstances are being asked by the dissent to play the old Groucho Marx quiz show, “You Bet Your Life,” a startlingly appropriate title under the circumstances. The right answer should not depend on the claimant having to guess the secret word.

As to the main concurring opinion, a contract law approach has a significant disadvantage based on the manner in which contract law has heretofore been utilized in the context of ERISA. Courts have yet to recognize in ERISA cases any of the doctrines that courts use to mitigate harsh results that arise where one party dictates the terms of a contract to another who lacks equal bargaining power – such as the doctrine of unconscionability or the power to avoid contracts of adhesion. While the recognition in the concurring opinion of the implied covenant of good faith and fair dealing is refreshing, there is no question that different judges will have diametrically opposed views on whether an insurer has engaged in bad faith, leaving none of the certainty and simplicity that the concurring opinion touts. And by applying a contract law paradigm, terms can be written that are grossly unfair but which the courts would have to enforce even if they violate other ERISA principles such as the prescribed fiduciary duties, the prohibited transaction rules or ERISA’s anti-inurement provisions.

The concurrence is correct that the majority’s approach lacks certainty that establishes a rule that is applicable from case to case. However, the majority’s finding is limited to circumstances where the plan terms are unclear and the communications are both ambiguous and likely to create confusion and misunderstanding. One easy solution that would eliminate the dire fears expressed both by the second concurring opinion and the dissenting opinion is to require all health insurers to utilize recorded customer service lines. Such a practice is nearly ubiquitous; and Concert could have avoided years of expensive litigation had it utilized such recordings. Another easy fix is to give customer service personnel a script or a flow chart which includes and mandates notification to the insured as to whether a provider is in-network or out-of-network. Concert’s failure to adopt or utilize such straightforward practices ultimately cost it dearly, but not nearly as much as what it cost James Killian who not only lost a beloved wife, but who also incurred unplanned medical expense debt. Hopefully, the incentives and deterrents created by the opinion issued in this case will prevent another such debacle from occurring, but no doubt, the debate will continue.

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