Summary Plan Descriptions (“SPD”) under ERISA are required to be given to plan participants, and they provide plan participants with the most important summary of plan terms they need to know regarding their ERISA governed plans.  ERISA requires SPDs to “be written in a manner calculated to be understood by the average plan participant.”  However, plans will sometime issue numerous plan modifications which can add up quickly and require plan participants to read a series of plan modifications in addition to the original SPD in order to determine their available benefits, rights, and obligations.  To further complicate matters, benefit determinations may often be made by two separate entities.  A Plan Administrator may make an initial appeal decision, and a Plan Director or committee may make a second-level appeal decision.   While these tactics may appear to valid despite the confusion they create, a recent Ninth Circuit Court of Appeal decision clarified that an SPD must not only be accurate but also comprehensive, and entities deciding first-level appeals are fiduciaries and cannot avoid liability for misrepresentations even if second-level appeals are made by a separate entity.

In King v. Blue Cross and Blue Shield of Illinois UPS, No. 15-55880 (Ninth Cir. Sep. 8, 2017), Linda King, the wife of a retired UPS employee, participated in a welfare retiree-benefit plan sponsored and administered by Blue Cross and Blue Shield of Illinois (“Blue Cross”).  After suffering from an infection requiring immediate surgery and lengthy care, Mrs. King filed a claim under the plan for medical benefits.  Blue Cross subsequently denied her claim for benefits claiming the plan had a $500,000 lifetime benefit maximum and would not cover most of her medical expenses.   The plan that covered retirees of UPS was governed by a SPD that was issued in 2006 and a series of 12 material modification summaries describing amendments to the plan that were adopted since 2006.  This required Mrs. King to read the 2006 SPD and the summaries of plan modifications in order to determine the current language for each benefit provision.  Also, Blue Cross claimed some of the provisions applied to the employee plan but did not apply to the retiree plan, although the language in the SPD and modification summaries did not make this clear.

While the SPD mentioned a $1 million lifetime maximum, a subsequent material modification in 2010 limited the lifetime maximum to $500,000.  Later, yet another material modification eliminated the lifetime benefit cap, though it was unclear if the cap applied only to the employee plan or if it included the retiree plan.  After Mrs. King incurred almost $950,000 in medical bills, Blue Cross sent her an explanation of benefits stating it would only pay a small fraction of her medical bills because she already reached the $500,000 lifetime benefit maximum.   Mrs. King filed her first-level appeal with Blue Cross explaining that, among other things, she was previously assured by Blue Cross that her health benefits had no limit.  After her appeal was denied by Blue Cross, Mrs. King filed a secondary appeal, this time submitting her appeal to the entity designated by the policy to review secondary appeals, UPS Claims Review Committee (“CRC”).  The CRC subsequently denied Mrs. King’s secondary appeal emphasizing that the lifetime maximum was limited to $500,000.  Mrs. King filed a lawsuit alleging that both Blue Cross and CRC breached their fiduciary duties in violation of ERISA by failing to reasonably appraise the average plan participant that the lifetime benefit maximum applies to the retiree plan.  The district court granted summary judgment to Blue Cross and CRC, and Mrs. King appealed (Mrs. King died while the suit was pending).

On appeal, the Ninth Circuit reversed the decision of the district court.  After determining that lifetime benefit maximums are not barred in retiree-only plans, the Ninth Circuit Court concluded that the SPD, as amended by the subsequent modifications, violates ERISA’s statutory and regulatory disclosure requirements because it did not reasonably apprise the average plan participant that the lifetime benefit maximum continued to apply to the retiree plan.  The Ninth Circuit criticized the SPD and modification summaries because all of the material modifications would need to be read in conjunction with the SPD to determine available benefits instead of either an amended SPD, cumulative summaries of material modifications, or a comprehensive table of contents being issued allowing participants to verify which SPD terms were amended by the modifications being issued.  The Court also criticized improper placement of provisions and font size in the SPD and material modifications.

Blue Cross argued that it did not qualify as a fiduciary under ERISA, since UPS retained the exclusive right and discretion to interpret the terms and conditions of the plan.  The Court noted that this argument rested on a misunderstanding of the fiduciary designation in ERISA which includes any person who exercises any discretionary authority or control respecting management or administration of a plan.  Since Blue Cross processes and pays claims to plan participants and conducts a first-level appeal for benefit denials, it is required to interpret the plan to determine whether to pay claims a or uphold benefit denials, and any one of these abilities confers fiduciary status under ERISA.  It is certain that on remand, Mrs. King (via her estate) will argue that the lifetime cap is not enforceable.  The Court’s opinion suggests that this is a viable theory because of the problems with the SPD.

While many ERISA governed plans may be confusing, plan participants should be able to rely upon plan administrators to provide them with accurate information concerning their ERISA benefit plan.  This case further confirms that entities rendering decisions on the provision of plan benefits need to assure that plan documents and modifications thereto are easily understood by the average plan participant and cannot escape liability for providing confusing modifications or misinformation by attempting to layer the decision-making responsibility.