District Court Dismisses Employees' COBRA Election Notice Claims, Save One (Involving COVID-19)

Practical Law Legal Update w-040-5911 (Approx. 7 pages)

District Court Dismisses Employees' COBRA Election Notice Claims, Save One (Involving COVID-19)

by Practical Law Employee Benefits & Executive Compensation

Two Election Notices Allegedly Violated DOL's COBRA Notice Regulations

The plaintiffs in this litigation were former employees who experienced COBRA qualifying events in February 2019, March 2020, and June 2020. After termination, the employees received two notices from the employer regarding COBRA coverage—one titled "COBRA Enrollment Notice" and a second titled "Important Information About Your COBRA Continuation Coverage." The employees alleged that the first notice failed to comply with the Department of Labor's (DOL's) regulatory requirements for COBRA election notices (for example, that such notices identify the plan administrator) (see Standard Document, COBRA Election Notice and COBRA Toolkit). The employees asserted that the employer then attempted to cure these shortcomings in its second notices, which nonetheless had the same deficiencies and were also confusing to the employees. As a result of the allegedly noncompliant COBRA election notices, the employees argued that they were unable to enroll in COBRA and therefore did not have coverage for their medical expenses.

The employees sued the employer for:

Notice penalties under the Employee Retirement Income Security Act of 1974 (ERISA) (ERISA § 502(c)(1) (29 U.S.C. § 1132(c)(1)); see Practice Note, ERISA Litigation: Penalties for Failing to Provide Documents and ERISA Litigation Toolkit).
In the alternative, benefits under ERISA (ERISA § 502(a)(1)(B) (29 U.S.C. § 1132(a)(1)(B)); see Practice Note, ERISA Litigation: Causes of Action and Remedies Under ERISA Section 502 for Benefit and Fiduciary Breach Claims).

The employer asked the court to dismiss the claims.

Rulings for Employees Regarding Standing and Statutes of Limitations

On threshold issues, the district court held that the employees had standing to sue and that their claims were not time-barred.

Employees Had Standing to Sue

The court rejected the employer's argument that the employees lacked standing to sue. In doing so, the court reasoned that the employees sufficiently demonstrated standing by asserting that the deficient COBRA notices led to the tangible injuries of being unable to enroll in COBRA, losing health insurance, and incurring medical expenses that were not covered.

The court also concluded that the employees' alleged injuries were fairly traceable to the employer's alleged conduct. The court reasoned that the employees alleged that the notices were at least part of the reason they did not obtain COBRA, and nothing in the allegations indicated that a third party's actions caused the employees' injuries.

Employees' Claims Were Not Time-Barred

The court also rejected the employer's argument that the employees' claims were barred by the applicable statute of limitations. Because ERISA does not provide a specific statute of limitations, the court looked to the most analogous limitations period under state law (see Practice Note, ERISA Litigation: Statutes of Limitation and ERISA Litigation: Chart of Most Analogous Statutes of Limitation Under State Law).

Regarding the employees' ERISA notice penalties claim, the employer argued that a two-year limitations period under Illinois law (that is, for claims involving insurance providers) applied. The employees argued that the ten-year limitations period for breach of contract claims applied. Agreeing with the employer, the court characterized the employees' claim as one involving a regulatory requirement for insurance plan sponsors for the benefit of individuals who might lose coverage. As a result, it was analogous to a claim against an insurance provider concerning the renewal of insurance—for which a two-year limitations period applied under Illinois law.

However, the parties also disputed when the COBRA notice claim accrued under federal common law (see Practice Notes, ERISA Litigation: Statutes of Limitation: When Claims Accrue; Clear Repudiation Rule and ERISA Litigation: Preemption of State Laws: Overview and State Laws (A to C): Federal Common Law and ERISA Preemption). The employer argued that the claim accrued no later than 45 days after the employees' termination, because that was the employer's deadline for providing the employees COBRA election notices. Relying on an Eleventh Circuit decision involving a COBRA notice, the district court held that the claim accrued when the employees knew or should have known that they were not provided proper notice. According to the court, neither expiration of the notice period nor the employees' knowledge that they were no longer covered under the employer's health plan gave the employees reason to know their COBRA notice rights had been violated. Because the employees had not alleged facts relating to when they knew or should have known their rights had been violated, the district court denied the employer's request to dismiss the claim as time-barred.

Regarding the employees' ERISA benefits claim, the district court held that:

Illinois' ten-year limitations period for breach of contract claims applied.
The claim accrued, at the earliest, when the COBRA notice period expired.
The employees brought their claim within ten years of the earliest possible accrual date.

Accordingly, the court also denied the request to dismiss this claim as time-barred.

Court Rejects Most of Employees' Arguments for Why Notices Were Deficient

The employer was more successful, however, in arguing that the employees' claims should be dismissed for failure to state a claim (that is, under the federal rules of civil procedure (FRCP)). The employees argued that the employer's COBRA notice failed to comply with the DOL's regulations in five ways—almost all of which the court rejected.

First, the employees alleged that the notices failed to identify the plan administrator. As the court noted, however, the notices contained contact information for a benefits support center that was responsible for administering COBRA. The court reasoned that the employees did not allege that the benefits support center was the incorrect administrator.

Second, the employees alleged that the employer's COBRA election notices failed to adequately describe procedures for electing COBRA (a regulatory requirement) because the notices did not include a physical election form that is part of the DOL's model COBRA notices. Rather, the employer's notices included a general phone number, operated by a third party, that individuals could call to receive benefits information. The court concluded that:

The DOL's regulations do not require notices to include a physical election form.
The employees failed to allege that calling the phone number resulted in an inadequate explanation of the COBRA procedures.

Third, the court rejected the employees' conclusory allegation that the employer's notices were not "written in a manner to be understood by the average plan participant" (29 C.F.R. § 2590.606-4(b)(4)).

Fourth, the employees argued that the notices failed to identify the address to which COBRA payments should be sent. Because the employer argued that it provided payment address information in its second COBRA notices, this claim turned on whether it was acceptable to provide COBRA election notices in more than one document. The court disagreed with the employees' argument that the employer was required to include all of the required information in one notice. Though acknowledging that the DOL's model COBRA election notice consists of one document, the court reasoned that neither COBRA nor its implementing regulations prohibit providing the required information in multiple notices.

Regarding the lone surviving claim, one of the employees, who was terminated in June 2020 (toward the start of the COVID-19 pandemic), alleged that the employer's election notice contained an incorrect enrollment deadline. In particular, the employee claimed the stated deadline did not reflect the government's extension of enrollment deadlines during COVID-19 (see Practice Note, COVID-19 Compliance for Health and Welfare Plans: Extended Deadlines for Certain Health and Welfare Plan Requirements). The court held that this allegation was sufficient to state a COBRA notice claim. The court added that the employer's defense (that is, that it had made a good faith effort to comply with the regulations), was ineffective at this early stage of the litigation.

Employees Failed to State a Claim for ERISA Benefits

The district court also dismissed the employees' ERISA benefits claim—in which the employees sought to recover plan benefits and a declaration clarifying their right to these benefits. The court concluded that the employees failed to allege:

Any details concerning the employer's health plan.
How the employer's allegedly deficient notices relate to plan benefits.
What benefits were due to them or what rights they were entitled to enforce under the plan.

As a result, the court held that the employees adequately claimed that the employer failed to provide one employee the correct enrollment deadline. All the other claims (including for ERISA benefits) were dismissed.

Practical Impact

In recent years, we've seen significant class action litigation alleging (as in this case) that plan COBRA notices failed to include all information required under the DOL's COBRA regulations or were otherwise technically noncompliant. In addition to the notice deficiencies alleged in this litigation, some employee/plaintiffs have alleged deficiencies involving the interaction of Medicare and COBRA. Although several of the employees' claims in this case were dismissed, the litigation itself is a reminder to employer/plan sponsors to review their COBRA notices (which are commonly furnished by a plan's third-party administrator (TPA)) for compliance.

Regarding the surviving COVID-19-related claim, earlier this year the tri-agencies provided guidance (including examples) concerning the interaction of COBRA's election deadlines and the end of the COVID-19 national emergency (NE). For more information, see Article, COVID-19 Public Health Emergency (PHE) and National Emergency (NE) Wind-Down: Health and Welfare Plan Compliance Issues: Examples Addressing End of COVID-19 NE.

District Court Dismisses Employees' COBRA Election Notice Claims, Save One (Involving COVID-19) | Practical Law