Employer Has Burden to Prove It Sent Cobra Notice

The 8th Circuit Court of Appeals has ruled that the Employer/plan administrator has the burden of proving that a COBRA notice had gone to a particular individual, in spite of the fact that the administrator provided detailed evidence of its overall system for such notification.  The Consolidated Omnibus Budget Reconciliation Act ("COBRA") requires the administrators of covered group health plans to notify terminated employees that they have the option of continuing their benefits after their employment ends.  Failure to notify could result in substantial liability for the Employer.

Facts

Dakotacare Administrative Services acted as the plan administrator for the group health care plan for Big D Oil Co. Kelly Crotty was an employee of Big D Oil until 1993, when the store at which she was employed was closed.  Because that incident was a “qualifying event” for purposes of COBRA, Crotty was entitled to notice of her rights with respect to continuing her health care coverage.

In December 1993, Crotty received a letter from Dakotacare, informing her that the period for exercising options to extend her coverage had expired.  She contended that this was the first time she learned of her option to continue her health benefits.  After receiving the expiration notice, Crotty attempted to retroactively regain her health care coverage to pay for surgery which she had undergone subsequent to her employment termination.  When Dakotacare rejected that attempt, Crotty filed a lawsuit claiming that she lost the opportunity to extend her health care insurance when Dakotacare failed to provide the required COBRA notification.

The lower court granted summary judgment for Dakotacare, holding that the company made a “good faith effort” to notify Crotty, even though Crotty alleged that she did not receive an original notice letter.

Dakotacare offered evidence of an audit report indicating that a computerized system had generated a notice letter to Crotty around the time of her employment termination.  It provided further evidence of its notification methods, which included the fact that the computer-generated letters are placed by hand into pre-addressed envelopes that were generated by a separate computer program, and then were mailed with the necessary postage.

Ruling

On appeal, the 8th Circuit reversed the decision and ruled in Crotty’s favor, holding that Dakotacare did not prove that it had provided appropriate notice of Crotty’s right to extend her health care insurance.  (Emphasis added)  The appeals court based its decision on the fact that, while Dakotacare offered evidence about its system for developing and sending notification letters, it did not provide any evidence that the system had been followed for this particular employee notice.

The Court said that COBRA does not require any particular system for delivering notices (such as return receipt) but the plan administrator must be able to show that the system was followed for a particular employee notice.  Some examples given by the court to prove that a notice was sent include a photocopy of the envelope sent, an individualized report generated at the time of mailing, or an affidavit from the employee who recalled mailing the notice.

Employer Advice

Clint Davis of HR-OneSource, states substantial liability can result from failure to send COBRA notices to qualifying employees, it is vital that an employer or its contracted plan administrator be able to show that it made a good faith effort to take steps reasonably calculated to provide the former employee with the required notice.

A specific system is not required but the Employer/administrator must be able to show that the company’s system was followed for the particular employee in question.  It is recommended that the Employer/administrator should:

• have a written policy that specifies the procedure for timely mailing or hand-delivery of notices;

• maintain copies of the actual notices sent (or the form used to generate actual notices at the relevant time);

• maintain evidence of mailing such as certificates of mailing; and

• 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.

Mr. Davis emphasized that the Employer bears the ultimate responsibility to make sure the notice has been sent.

If you have any questions regarding this ruling, or any other human resources topic, you can contact Clint Davis at (515) 221-1718 or davisc@hr-onesource.com.