A former employee, Kathy Crotty, of Big D Oil Company, filed a suit claiming that she was never notified of her right to elect COBRA when she was terminated. The administrator, Dakotacare Administrative Services, argued that they had sent her a notice at the she was terminated. The district court ruled, without a trial, in favor of the administrator finding that it had complied with COBRA’s notice requirements.
On appeal, the Eighth Circuit of the United States Court of Appeals has ruled that although the administrator (1) produced an audit report that indicated its computerized tracking system had generated a notice, (2) presented testimony as to its procedures for mailing notifications, the administrator did not present evidence to prove that the system had been followed for this particular employee notice. The Eighth Circuit pointed out that the administrator did not present any evidence that the notice was printed out, placed in a properly addressed envelope, or sent through the mail. The Eighth Circuit held that the administrator failed to show that it made a good faith effort to take steps reasonable calculated to provide the former employee with the required notice.
The law does not require that an administrator prove the COBRA notification was received by the employee. But it must prove that it has sent the notice by means reasonably calculated to reach the recipient. The Eighth Circuit held that COBRA administrators carry the burden of proof that a COBRA notice was mailed to an employee and must provide something that indicated that its mailing system was reliable and that the system was followed in respect to the person in question. While Dakotacare provided proof that it had a system for sending the notice, there was insufficient evidence that they placed the letter in the mail, no person recalled seeing or mailing the notification letters. It contrasted Dakotacare’s evidence with that presented in other cases where the administrator had provided, for example, a copy of the envelope addressed to the recipient, a report that was stamped with the date that the notice was mailed (proof of mailing from the post office) and an affidavit from an employee who recalled mailing the letter.
Plan Administrators must be able to prove what was mailed and to whom. Whatever method of delivery is used, the administrator should have (i) a written policy that specifies the procedure for timely mailing, (ii) maintain copies of the actual notices sent, (iii) maintain evidence of mailing and (iv) be able to provide testimony that the procedure was followed by individuals with personal knowledge of the administrator’s procedures and practices at the relevant time.
Penalties for non-compliance, although not mentioned in this case, are $110 per day statutory penalty under ERISA for failure to provide COBRA initial and election notices. Also a $100 per day ($200 per for family) excise tax penalty imposed by IRS for each day of non-compliance. The non-compliance period runs from the date that the failure to comply with COBRA first occurs (date the election notice should have been sent on) and ends when the failure is corrected. In addition, former employee may sue to recover COBRA coverage allegedly due under a group health plan under ERISA 502(a)(1)(B) which permits suits by a participant or beneficiary to recover benefits due under the terms of his plan. Consequences of suits for COBRA are that courts may award damages for incurred medical expenses less COBRA premiums, award future coverage for remainder of COBRA maximum period, award equitable relief, and award conversion coverage right. In Addition, courts may award damages beyond penalties and COBRA coverage as well as interest and attorneys’ fees.
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http://www.ca8.uscourts.gov/opndir/06/08/053798P.pdf
