In a coverage denial dispute involving a dependent-child's heart surgery, a federal district court has concluded that a claimant's COBRA claim was not subject to a self-funded health plan's arbitration provision (Desselle v. Ivy Creek Healthcare LLC, (M.D. Ala. Dec. 2, 2019)). As a result, the COBRA claim will be litigated in federal court.

The employee-plaintiff in this case was a covered participant under her employer's self-funded health plan. The employee was terminated in August 2018, just a few weeks before her son (a covered dependent under the plan) was scheduled to have heart surgery. After her termination but before the son's surgery date, the employee was informed that her health coverage had been terminated. Although the employee elected COBRA coverage shortly after her son's surgery, she was informed by the hospital that her coverage was still inactive (see COBRA Toolkit). Later, the employee learned that her employer had not processed her COBRA election and was denying coverage under its plan.

The employee sued her employer under ERISA, asserting claims for:

As a condition of enrolling in her employer's health plan, the employee had agreed to a binding arbitration clause under which "any disagreement other than a claim for benefits under Section 502(a) of ERISA" would be settled by arbitration. The employee and her employer agreed that the mandatory arbitration clause was enforceable and that it governed the employee's Section 510 benefits interference and retaliation claims. However, the parties disagreed regarding whether the clause also governed the employee's COBRA-based benefits claim.

Citing the plan's arbitration clause, the employer sought to stay the proceedings and compel arbitration of the COBRA claim.

The district court held that the employee's COBRA claim, which was brought under ERISA Section 502(a) (ERISA's civil enforcement provision), was expressly excepted from the plan's arbitration clause. In doing so, the court observed that although the plan's arbitration clause was governed by the Federal Arbitration Act, the parties could agree to limit the issues subject to arbitration.

Noting that COBRA is an amendment to ERISA, the court rejected the employer's argument that the COBRA claim was not a claim under ERISA Section 502(a). The court reasoned that whereas the employee's ERISA Section 510 claims sought to enforce rights, her COBRA claim alleged a denial of benefits and was necessarily brought under Section 502(a). The court added that ERISA Section 502(a) does not distinguish between claims to recover benefits wrongfully denied during employment versus those denied after termination.

In addition, the court concluded that even if the plan's arbitration clause was ambiguous, this ambiguity – under longstanding contract interpretation principles – must be construed against the drafting party. As a result, the arbitration clause, which the court characterized as an adhesion contract, had to be construed against the employer (as drafter).

Therefore, the court granted the employer's motion to compel arbitration only as to the interference and retaliation claims, and not regarding the employee's COBRA claim for benefits. The court held that the COBRA claim would proceed before the court.

Although recent cases have addressed the enforceability of arbitration clauses generally, another line of cases (including this decision) have addressed the scope of benefit claims that must be arbitrated. This employer might have avoided litigation about what claims are and are not subject to arbitration (and having to litigate the employee's COBRA claim) with a more broadly worded arbitration clause.

Notably, under the DOL's claim procedures, a plan cannot require mandatory arbitration of appeals of group health plan benefit denials unless:

(29 C.F.R. § 2560.503-1(c)(3); see Practice Note, Internal Claims and Appeals Under the ACA.)

For sample summary plan description (SPD) language regarding arbitration in the retirement plans context, see Standard Clause, SPD Language, Arbitration of Disputes for Retirement Plans. Also, for analysis of recent case law involving whether arbitration provisions are enforceable in retirement plan disputes, see Practice Note, Arbitration Provisions for Retirement Plans: Recent Case Law.