The courtroom has become a very unforgiving place for employers who fail to strictly abide by COBRA’s notice requirements.
Fines for non-compliance can be pretty steep. The feds can fine an employer up to $110 per day for each and every notice that was supposed to go out to prospective beneficiaries but didn’t.
In addition, a group health plan can be sued for COBRA violations, and courts have been known to award attorney’s fees in connection with these suits.
And if you think having a TPA handle your COBRA administration will shield you from having to pay non-compliance penalties, think again. A court recently awarded statutory penalties of $2,500 to each of 741 former employees of Visteon, an automotive supplier, who failed to receive their COBRA election notices due to a mistake on the part of the company’s TPA. The total cost to Visteon was $1.8 million.
As bad as all that sounds, this may be the most troublesome aspect of COBRA litigation: An employee doesn’t even have to be harmed by an employer’s COBRA mistake to be allowed to sue for damages.
Despite lack of notice, employee remained insured
That fact was just reiterated in the case of Fleck v. WILMAC Corp.
Lindsay Fleck was a physical therapist for one of WILMAC’s nursing rehabilitation centers.
During her time at the rehab center, Fleck underwent ankle surgery and was approved for FMLA leave to recover.
After her recovery, WILMAC determined her ankle injury prevented her from being able to perform the essential functions of her job — even with an accommodation. As a result, she was terminated.
The company promised to send Fleck a COBRA election notice shortly after her termination. But the notice didn’t arrive in her mailbox for nine months.
During this time, however, an administrative glitch kept her group health insurance active. So Fleck was never without WILMAC’s sponsored health insurance. It was not terminated until 10 months following her firing.
By that time Fleck already had an individual policy, which she had purchased shortly after her termination. She’d assumed her group coverage was terminated in the month following her firing.
After receiving her COBRA election notice nine months following her termination, she sued, claiming WILMAC had infringed upon her rights under COBRA.
WILMAC tried to get the case thrown out, but it was unsuccessful.
The company gave the court three reasons why her case should be shot down:
- Since Fleck’s insurance was never terminated, she didn’t suffer any damages
- The clerical error, which caused her group coverage to last so long, was fixed within 30 days of being discovered, and
- Fleck took out an individual health insurance policy shortly after her termination, which would’ve made her ineligible for COBRA benefits.
Court presented three reminders about COBRA
The court wasn’t swayed by any of the arguments.
In its ruling that the case could proceed to trial (in which it appears WILMAC will be forced to settle or pay the per-day fine — and then some), the court pointed out three specific rules under COBRA law:
- COBRA liability can exist even if an individual isn’t harmed — failing to provide a COBRA notice is enough to trigger litigation
- The clock starts running on the amount of time an employer has to present a COBRA election notice to an employee on the qualifying event date (i.e., the date Fleck was terminated) and not the date a clerical error is discovered, and
- Obtaining individual coverage isn’t enough to render a person ineligible for COBRA benefits, only coverage obtained through an employer group health plan can terminate COBRA eligibility.
The DOL is very specific about how long an employer has to provide the COBRA election notice to individuals after they’ve experienced a qualifying event (e.g., termination or reduction in work hours).
Following a qualifying event, an employer has 30 days to notify its health insurance plan administrator of an employee’s COBRA eligibility.
After that, the plan administrator has another 14 days to issue the COBRA election notice.
And as you can see, courts are not lenient toward employers who fail to abide by these requirements — no matter the reason.
Cite: Fleck v. WILMAC Corp.