An Alabama district court, in Howard v. Ivy Creek of Tallapoosa, LLC, has held that an employer could not avoid liability for failing to provide a COBRA election notice to a plan participant at the correct address merely because it had contracted with a third-party administrator (“TPA”) to provide COBRA notices.
Law. Under COBRA, when a qualifying event occurs, such as termination of employment, an employer must notify its group health plan administrator within 30 days of the occurrence of the qualifying event. Once the plan administrator is notified, the administrator must notify the employee of his or her COBRA continuation rights within 14 days. When the employer is the plan administrator, it has 44 days to complete this process.
Courts generally recognize that a “good faith” effort to send an election notice to an employee satisfies an employer’s COBRA obligations. However, employers bear the burden of demonstrating that this good faith effort was made. An employer’s obligation may be satisfied with evidence from the plan administrator of adequate standard office procedures for generating and mailing COBRA notices.
Background. In Howard, a terminated employee sued her employer and the TPA for its self-funded group health plan for failing to provide a COBRA election notice at her last known address. Following her termination, the employer sent a letter to the employee’s current address to notify her that her medical coverage had lapsed and that she would be receiving COBRA information under separate cover. That same day, the employer mailed to the employee’s current address a COBRA election notice for dental coverage, but not medical coverage, because the group health plan’s TPA was contractually responsible for providing COBRA election notices.
The employer subsequently instructed the TPA to send the employee a COBRA election notice for the medical coverage. However, the TPA’s COBRA election notice was mailed to the employee’s former address because, according to the TPA, the employer failed to provide it with notice of the employee’s address change. The TPA’s election notice was returned as undeliverable, and the TPA notified neither the employee nor the employer.
A few months later, the employee contacted the employer to inquire about the missing COBRA election notice and the process for reinstating her medical coverage. Instead of responding to the employee, the employer contacted the TPA and discovered that the COBRA election notice had been returned. After receiving no response from the employer, the employee sued both the employer and the TPA seeking statutory penalties, payment of accrued medical bills and premiums, and attorneys’ fees. All parties requested that the court decide the matter without a trial.
District Court. As an initial matter, the district court concluded that the matter could not be resolved without a trial because it was necessary to determine whether the address to which the TPA sent the COBRA election notice was her last known address. In reaching this conclusion, the court noted that: (i) the employee claimed that she had twice informed the employer of her new address; (ii) the employer’s computer system contained medical records listing the employee’s new address; and (iii) the employee had received employment-related documents containing her former address but had failed to raise the issue with the employer.
On the substantive level, the district court rejected the employer’s argument that it had made a good faith effort to provide the employee with a COBRA election notice by instructing the TPA to send the notice to the employee’s last known address. In particular, the court determined that delegating the task of sending the notice to the TPA did not insulate the employer from liability for failing to provide the employee’s updated address to the TPA. Finding that the delegation did not relieve the employer of liability, the district court allowed the case to proceed to trial for a determination of whether the employer acted in good faith to notify the employee of her COBRA election rights.
In contrast, the court dismissed the employee’s claims against the TPA. The court observed that there was no dispute that the TPA had provided proper notice to the employee, and that the reason the TPA had sent the notice to the employee’s former address was because it was never notified that the employee had changed the address. The court noted that under the relevant administrative services agreement, the employer was responsible for notifying the TPA of address changes.
The court ultimately concluded that liability for sending the notice to the incorrect address should be assessed against the employer as the ERISA plan sponsor and plan administrator rather than the TPA. In reaching this conclusion, the court rejected the employee’s assertion that the TPA violated its fiduciary duties by not informing the employer that the notice had been returned.
Employer Takeaway. Howard serves as a reminder of the importance for ERISA group health plan sponsors of establishing and following procedures for timely providing COBRA notices to qualified beneficiaries using a method calculated to ensure receipt. For plans that engage TPAs to administer COBRA responsibilities, it is critical for employers/plan sponsors to maintain a system of sharing relevant information, such as employees’ current addresses, with their TPAs.