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The Wagner Law Group Description 

The Wagner Law Group, A Professional Corporation, is a nationally recognized ERISA & employee benefits, estate planning, employment, labor & human resources practice. 

 

Established in 1996, The Wagner Law Group has 23 attorneys engaged exclusively in employee benefits, estate planning and employment law. Seven of our attorneys are AV rated by Martindale-Hubbell as having very high to preeminent legal abilities and ethical standards. The firm is among the largest ERISA boutiques in the country. Our practice is national in scope, with clients in more than 40 states and several foreign countries.

 

 

Contact Info

The Wagner Law Group

 

  Integrity | Excellence

  

Massachusetts Office 

Tel: (617) 357-5200 

Fax: (617) 357-5250 

99 Summer Street 

13th Floor

Boston, MA 02110


Florida Office 

Tel: (561) 293-3590
Fax: (561) 293-3591
7108 Fairway Drive
Suite 125
Palm Beach Gardens, FL 33418

   

San Francisco Office

Tel: (415) 625-0002

Fax: (415) 358-8300

315 Montgomery Street

Suite 904

San Francisco, CA 94104

 

www.wagnerlawgroup.com

 

 

June 13, 2013 

 State and Federal Law Alert

 

Third Circuit Upholds Penalty for Inadvertent Failure to Provide COBRA Notice

 

The United States Court of Appeals for the Third Circuit recently upheld a lower court's decision to award a former employee a statutory penalty for her former employer's failure to provide a timely COBRA election notice. The Third Circuit upheld the award even though the employer provided health coverage to the employee at no cost for a period of time after her termination and offered to retroactively reinstate coverage under COBRA. In doing so, the Third Circuit held that COBRA notices had to be provided to employees upon the occurrence of a qualifying event, regardless of whether, or when, the employee needs COBRA coverage.

 

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, as well as the cost of medical expenses incurred by the qualified beneficiary.

 

In Fama v. Design Assistance Corp., an employee who was a participant in the employer's group health plan resigned. However, her health coverage was not immediately terminated due to an administrative error. Because of this error, the plan administrator did not provide the employee with a COBRA election notice within the prescribed time period. The employer finally realized the mistake and cancelled the employee's health coverage. Almost a year after the COBRA qualifying event, the employee received her COBRA election notice.

 

The employee proceeded to sue the employer for the COBRA notice violations. A federal district court found that a violation had occurred and awarded the employee $10 per day for the period beginning when she should have received her COBRA notice until the date she finally received the notice. Unsatisfied with this award, the employee appealed to the Third Circuit, requesting that the penalty be increased to $110 per day.

 

On appeal, the employer argued that the employee, upon termination, had received the same health plan coverage she had as an employee at no cost to her, which placed her in a better position with respect to health coverage than she would have been with COBRA coverage. Therefore, the employer asserted that the employee's termination was not a qualifying event for COBRA purposes because it did not result in her losing health coverage.

 

The Third Circuit rejected the employer's claim that COBRA election notices are not required when an employee resigns if the employee continues to receive health coverage. The court explained that in the absence of a specific employer election to delay the COBRA election notice period until coverage is actually lost, the time period during which the COBRA notice must be distributed begins when the event occurs that will cause the employee to lose coverage, even if the coverage does not terminate until a later date. Consequently, the Third Circuit held that the plan, which had not elected to delay the notice, was not relieved of its obligation to provide a timely COBRA notice, even though the employee remained covered under the employer's health plan after termination.

 

However, the Third Circuit rejected the employee's request to increase the lower court's $10 per day award, finding an absence of bad faith on the employer's part because the failure was due to an inadvertent administrative error. Furthermore, the Third Circuit acknowledged that the employer's effort to retroactively reinstate the employee's coverage to the date it was actually terminated demonstrated its willingness to remedy the mistake.

 

Fama demonstrates the importance of providing COBRA election notices in strict compliance with the law. The Third Circuit's willingness to enforce COBRA's penalty provision demonstrates just how important it is for employers to follow the law in regards to the notice and reporting requirements applicable to health and welfare plans.  

 

 

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This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.