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Two cases recently decided in federal courts in Illinois and Alabama, respectively, provide cautionary tales for employers and how they administer COBRA continuation coverage, particularly how they provide election notices following a COBRA qualifying event. In both cases, the courts determined that claims of COBRA notice violations could not be denied because the responsible employer could not demonstrate that it had properly issued COBRA election notices.
Sending COBRA Election Notice to Incorrect Address
In Howard v. Ivy Creek of Tallapoosa, LLC, the U.S. District Court for the Middle District of Alabama considered a case in which a disabled employee was terminated from active group health coverage following an extended absence due to a brain aneurysm. The employer communicated detailed plan information to the employee at her current address, but the TPA responsible for COBRA notices had only an outdated address for the former employee in its system. Even though the notice was returned to the TPA as undeliverable, the TPA never informed the employer.
The former employee sued the employer for the employee sued the employer and TPA under ERISA, including claims for:
- Failing to mail her a COBRA election notice at her last known address (that is, her residence address)
- ERISA statutory penalties for failing to provide her plan documents in response to a written request
- Equitable relief under ERISA consisting of the employee’s health premiums, outstanding medical bills, interest, and attorney’s fees
The court disagreed with the employer’s assertion that it had no liability since it had instructed the TPA to send the COBRA election notice to the employee’s last-known address in its files. The court held that the employer could not absolve itself by delegating the notice responsibility to a third party when it neglected to inform that third party of a more recent address of which the employer was aware. Moreover, the service agreement between the employer and TPA obligated the employer to notify the TPA of any changes in employees’ addresses, which the employer failed to do in this case.
This case illustrates the importance of an employer building fail-safe processes to properly exchange information relevant to COBRA notices and elections. This is especially true when an employer changes COBRA vendors, and the data migrates from one vendor to another without the employer or new vendor performing an audit to ensure the data is updated and correct. Further, it is important for an employer to review its COBRA administrative services agreement to be sure it complies with any obligations it has to the COBRA administrator.
Insufficient Evidence to Prove COBRA Election Notice Mailing
In Earl v. Jewel Food Stores, Inc., a former employee sued an employer for failing to provide timely COBRA election notices. The employer attempted to show that it had followed COBRA rules and made a good faith effort to provide a timely election notice. However, the court held that the evidence the employer offered was insufficient to demonstrate a good faith notification effort.
ERISA plan administrators must generally be able to show that a COBRA notice has been provided, but the law does not require proof of receipt. Where an employer can clearly demonstrate that it followed COBRA rules and issued a proper and timely COBRA election notice, it generally can demonstrate good faith compliance and avoid liability. In this case, however, the court noted that the employer’s evidence of having sent the disputed COBRA election notice was inadequate. The court specifically reasoned that the employer failed to show any evidence that the COBRA notice was sent by certified or first-class mail; that the employer had detailed standard COBRA notice procedures; or that the employer followed any standard procedures in this case. The court also rejected an argument the employer made that the employee did not need COBRA or could not have afforded COBRA in any event even if he had received proper COBRA notice.
This case aligns with other similar cases in which an employer argued that it has sent a proper COBRA notice following a qualifying event. In the cases where a court sided with the employer, there has been direct evidence that the employer sent the notice by first class or certified mail, or that the employer had regimented and routine notice generation and mailing procedures, and that the employer followed the standard procedures in the matter in question. Often an employer can demonstrate compliance with its internal procedures through an affidavit of the individual responsible for adhering to COBRA procedures.
Conclusion
COBRA continues to pose challenges that result in litigation – even class actions in some cases. It is important for employers to routinely examine their COBRA processes and any governing third-party vendor agreements to clearly define duties and obligations and to set procedures to periodically audit processes to ensure full compliance with COBRA election rules.
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
