In Sanders vs. Temenos, Inc. the U.S. District Court for the Southern District of Florida determined that an employer was not liable for a failure to provide a COBRA notice because its former employee was not financially harmed by the omission.
Facts. An employee was terminated for not fulfilling the duties of his job. At the time, the employee was suffering from gout and depression and his wife was suffering from cancer. The employee sued the employer on many counts, one of which was a failure to provide the COBRA election notice explaining the availability of continuation coverage. The employer conceded that it did not provide a COBRA notice. However, it said it was not liable to the employee because it did provide 10 months of free health care coverage and the employee’s only medical expense was the treatment his wife received for her cancer in Finland at a cost of $4,000.
Law. Employers must generally provide COBRA election notices to former employees and other qualified beneficiaries within 44 days of a qualifying event. (COBRA qualifying events include loss of coverage due to: termination of employment; reduction in hours; death of the employee; divorce or separation from the employee; the employee’s becoming covered by Medicare; and ceasing to be a dependent child under the plan’s terms.) Failure to provide the COBRA election notice within this time period can subject employers to a penalty of up to $110 per day, at the discretion of the court, as well as the cost of medical expenses incurred by the qualified beneficiary.
Court Decision. The court agreed with the employer, stating that regardless of any COBRA violation, the employee is not entitled to COBRA’s statutory penalties because the free health insurance that was provided to him following his termination put him in a better position than he would have otherwise been in had no COBRA violation occurred. According to the court, the value of the extended free health care coverage far outweighed his claimed damages from the lack of a COBRA notice. Had the employee elected COBRA coverage, the total amount in premiums he would have paid over the relevant time period would have exceeded $20,000. As the employee claimed only $4,000 in uncovered medical expenses since his termination, the value of the free health insurance far outweighed the benefit of electing COBRA.
It then stated that “[S]ince the purpose of the civil enforcement provisions of COBRA is, above all, to put plaintiffs in the same [financial] position they would have been in but for the violation… imposing a civil penalty here would not fulfill that purpose.”
Employer Takeaway. The employer got lucky in this case. The employee should have, at the least, been notified that he had the chance to elect between 10 months of free health care coverage and 18 months of COBRA continuation coverage. Also, the employer was fortunate that the total cost of medical expenses incurred during what would have been the 18-month COBRA continuation period did not exceed COBRA premium costs.
Finally, even if the employee did not suffer financially from the failure to provide the legally-required COBRA notice, the court could have imposed the statutory penalty on the employer simply for its failure to establish a COBRA notification process that ensures that all qualified beneficiaries receive the proper COBRA notices.