Provide COBRA Notice So You Don’t Have to Hope for Leniency
Posted on Mar 20, 2014 on Legal Updates, News, Tips of the Month by
Employers who offer group health insurance and employ twenty or more employees must allow terminated employees, spouses, and beneficiaries the opportunity to continue their coverage at the group rate. The Consolidated Omnibus Budget Reconciliation Act (COBRA) mandates this and requires employers to provide such notice to employees, spouses, and beneficiaries after a qualifying event, like termination, with notice of their right to elect such coverage. Failure to do so can result in penalties of up to $110 per day. Mistakes can be costly, but there may be hope according to a recent case decided by the Second Circuit Court.
In Zann Kwan v. The Andalex Group, LLC, a former employee brought several claims including discrimination, retaliation, and hostile work environment. A year after the suit was filed the employee’s attorney raised the issue of COBRA notice not having been provided upon termination. It happened the employer had sent the paperwork to its plan administrator who had forgotten to send the notice. When notified of this oversight, the plan administrator sent the COBRA notice to the former employee and several months later sent information about a less expensive plan. The former employee had tried to gain information on the two plans and the differences but was unable to reach the proper people. The former employee went for nineteen months without coverage, during which time, she claimed, she and her spouse paid for medical bills and postponed treatments. The former employee added a COBRA claim to her case.
The Court stated that in order to prevail on the COBRA claim, the former employee must provide evidence on certain factors including “bad faith or intentional conduct on the part of the administrator, the length of the delay, the number of requests made and documents withheld, and the existence of any prejudice to the participant or beneficiary.” The former employee could not show strong evidence on any of the factors. The Court concluded the plan administrator had not acted in bad faith or intentionally. The former employee only incurred several hundred dollars in medical bills which was less than she would have paid had she made the COBRA election, and there was no evidence she would have made the election. The Court dismissed this claim.
This case is good news for employers in the Second Circuit and shows leniency toward employers who unintentionally fail to provide COBRA notice. However, this case is only binding in the Second Circuit (meaning this case could be decided differently in another circuit) and it involved a claim raised very late in the lawsuit which may have encouraged the dismissal. Additionally, timely notice would have avoided this issue and saved a lot in attorney’s fees.
Brody and Associates regularly advises management on complying with state and federal employment laws. If we can be of assistance in this area, please contact us at firstname.lastname@example.org or 203.965.0560.