Conflicting Treatment of Conflicts Between Insurance Plan and Plan Summaries
Heffner v. Blue Cross & Blue Shield of Alabama, Inc., No. 09-11768, 2010 WL 661364 (11th Cir. Feb. 25, 2010).
Observation
In Heffner the insured was enrolled in a plan where the insurance application (the original "Plan" document) provided for a $200.00 deductible per year. Subsequently, plan administrator/underwriter Blue Cross issued a summary plan description (SPD) to the insured which contained "no deductible" language. Blue Cross contended the difference in the SPD was simply a scrivener's error. In the Eleventh Circuit in order to benefit from more favorable SPD terms, plan participants much show reliance on (or prejudice from) the new SPD. The insured in Heffner could not demonstrate such reliance so the district court's grant of summary judgment was affirmed.
Analysis
There's conflicting positions among the circuits on how to treat coverage when there is an inconsistency between the Plan and a subsequent SPD. The majority-including the First, Fourth, Eighth, and Tenth Circuits-follow the approach used by the Eleventh Circuit in Heffner and require actual reliance on the new SPD terms. Additionally, although the majority of Seventh Circuit precedent has held that a policyholder must show actual reliance (or prejudice), one Seventh Circuit case holds that the SPD controls whether or not the policyholder relied on it. The Third, Fifth, Sixth, and Ninth Circuits do not require a plan participant to show either reliance or prejudice in order to enforce the terms of an SPD over the terms of a Plan. However, the underlying facts matter and at least in the Sixth Circuit one court ruled against a policyholder because she could not show any reliance, as the SPD arrived in the mail after she filed her lawsuit. The Second Circuit Court of Appeals has established its own "likely prejudice" standard which presumes prejudice if the plan participant makes a showing that he or she would likely be harmed by a disparity between the SPD and the Plan. This standard seeks to mitigate the hardship that a rule requiring detrimental reliance might impose on some, especially on the estate of a deceased participant.
Implication
The venue of the dispute may make all the difference when there is a discrepancy between a Plan and a SPD. In those instances where a Plan can either file suit first, or transfer a case to another jurisdiction, it should consider doing so-as location clearly matters when it comes to Plan/SPD conflicts. Interestingly, Heffner also has implications for class certification. Heffner originally filed a class action. In 2006, the Eleventh Circuit held that the lower court's certification of the class was in error, as each plaintiff had to prove reliance on the "no deductible" term of each SPD in order to succeed on a claim. That ruling was consistent with many other decisions holding that common issues do not predominate as to causes of action requiring proof of reliance, mitigating the risk of class action exposure for insurers from Plan/SPD conflicts.
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