Court Reviews Requirements for Providing Adequate Notice of COBRA Rights

The U.S. District Court for the Eastern District of Michigan, in Green vs. FCA US, LLC, has ruled that a terminated employee could proceed with his claim against his former employer based on its failure to provide adequate notice of his right to health care continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).  

Background. In Green, the plaintiff (i.e., a terminated employee) claimed that the COBRA notice sent to him by his former employer after his termination was deficient because:

  1. The notice did not provide the name and contact information of the plan administrator; and
  2. The notice was not drafted in a manner calculated to be understood by the average plan participant, because it contained unnecessary and confusing information which said that filing an application with incomplete information “is a fraudulent act” that may result in civil or criminal penalties. 

The employer responded to the lawsuit by filing a motion to dismiss both claims based on a lack of standing and failure to state a claim.

Law. Under COBRA, an employer that sponsors a group health insurance plan must send a notice offering employees and qualified beneficiaries the opportunity to continue their health insurance coverage, at group rates but at their own expense, for at least 18 months after the occurrence of a “qualifying event.” The notice of their right to enroll in continued health insurance coverage must be sent within a specified time period after the qualifying event (such as a termination of employment). 

COBRA’s notice requirements are set forth in regulations promulgated by the Department of Labor, which provide that the notice shall contain specified information and “shall be written in a manner calculated to be understood by the average plan participant.” Among other things, the required information includes the name of the plan under which continuation coverage is available and the name, address and telephone number of the party responsible for the administration of COBRA continuation coverage.

District Court. The court began by reviewing the plaintiff’s claim that the former employer’s COBRA notice had failed to provide the names and contact information of the plan administrator.  The court noted that the plaintiff’s complaint had not alleged any injury resulting from the failure to provide this information. Although the plaintiff attempted to argue that he suffered an “informational injury”, the court dismissed this claim, determining that the plaintiff had failed to allege any “actual consequences or real risk of harm” as a result of this lack of information.

The court, however, declined to dismiss the plaintiff’s second claim that the COBRA notice was not drafted to be understood by the average plan participant. Although the court acknowledged that it was a “close call,” it ultimately determined that the plaintiff did state a viable claim because the notice was not legally accurate when it said that providing incomplete information on an application is a “fraudulent act.” Therefore, the court concluded that because the plaintiffs’ allegation was based upon a misstatement of the law, the plaintiffs had reasonably alleged that the COBRA notice was not written in a way that could be understood by an average plan participant.