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Published Opinion: 871 F.3d 730 (9th Cir. 2017):
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Case Number:
United States Court of Appeals for the Ninth Circuit, 15-55880

Date of Opinion:
September 9, 2017

Defendants may not enforce a $500,000 lifetime cap on benefits and Mr. King is longer responsible for approximately $1 million in medical bills.

Gary King, as personal representative of Linda King.

Blue Cross and Blue Shield of Illinois; United Parcel Service of America Inc., UPS Health and Welfare Benefit Plan for Retired Employees

Facts and Background:
Linda King, whose husband was a retired United Parcel Service of America, Inc. (UPS) employee, participated in a welfare benefit plan administered by Blue Cross and Blue Shield of Illinois for UPS and the UPS Health and Welfare Plan for Retired Employees. The plan was governed by the Employment Retirement Income Security Act of 1974 (ERISA). In November 2012, Mrs. King suffered a back infection that required immediate surgery and extensive post-surgery rehabilitative care. After initially approving her treatment as medically necessary, defendants denied her claim for benefits because Mrs. King exceeded her plan’s $500,000 lifetime benefit maximum. In May 2013, Mrs. King sued defendants for breaching her retiree plan contract and their fiduciary duties in violation of ERISA.

Plaintiff contended that the plan was drafted in a manner that a average plan participant would not be able to ascertain that there was a $500,000 lifetime cap on health benefits. Because the plan violated ERISA’s notice requirements, the lifetime cap on benefits was unenforceable. Plaintiff further argued that defendants breached their fiduciary duties by failing to comply with ERISA’s notice requirementsand enforcing the lifetime cap. In December 2014, Mrs. King died and her husband Gary substituted in as plaintiff.

The district court disagreed and granted summary judgment to defendants, ruling that: (1) the plan administrator did not abuse its discretion by interpreting the retiree plan to include a lifetime benefit maximum; (2) the reasonable expectations doctrine does not apply to self-funded welfare benefit plans; (3) the Affordable Care Act (ACA) did not amend ERISA to ban lifetime benefit caps for retiree-only plans; and (4) defendants did not breach their fiduciary duties to Mrs. King.

Plaintiff appealed to the Ninth Circuit Court of Appeals, which held that although ERISA, as amended by the ACA, does not ban lifetime benefit maximums for certain retiree-only plans, defendants nonetheless violated ERISA’s statutory and regulatory disclosure requirements by providing a faulty summary of material modifications describing changes to the lifetime benefit maximum prior to Mrs. King’s illness. Under ERISA, a summary plan description (SPD) and any summaries of material modifications must “be written in a manner calculated to be understood by the average plan participant.” Here, prior to 2010, the retiree plan had a $500,000 lifetime maximum, while UPS’s employee plan had a $1 million lifetime maximum. A “Summary of Modifications” to the SPD issued in September 2010 indicated that the lifetime benefit cap was being eliminated failed clearly to differentiate between the employee plan, for which the cap was being eliminated, and the retiree plan, for which it was not being eliminated. Confusing language and formatting made it unclear that the lifetime benefit maximum still applied to the retiree plan. This lack of clarity was critical to Mrs. King, who could have obtained health insurance to cover the cost of her medical care through her own employment. The faulty summary of material modifications violated ERISA’s statutory and regulatory disclosure requirements.

Accordingly, the court of appeals reversed a judgment and held in favor of Mr. and Mrs.
King. The court ruled that a lack of clarity in a statement of modifications to a retiree
health plan violated the disclosure requirements of the Employment Retirement Income
Security Act of 1974 (ERISA).