By Gwen Cofield

Employers and plan administrators should frequently review their Consolidated Omnibus Budget Reconciliation Act (COBRA) procedures to ensure initial and election notices are distributed on a timely basis. Systemwide notice failures can lead to costly class action litigation.

A class action lawsuit was recently brought against an employer that allegedly failed to provide COBRA initial and election notices for 3 years despite the employer being aware of its obligations under COBRA. The lawsuit is currently only at the pleading stage, so the court has not yet issued any rulings. The case is Novick v. Shipcom Wireless, Inc., Case 4:16-cv-01020 (S.D. Tex., April 15, 2016).

Facts of the case

Justin Novick was employed by Shipcom Wireless, Inc., from May 2014 until March 2015, and participated in the company’s group health plan. When his employment ended, Novick allegedly did not receive a COBRA election notice even after his attorney informed Shipcom’s legal counsel about the notice failure.

As a result of the notice failure, Novick brought a class action lawsuit against Shipcom on behalf of the following class: All employees of Shipcom who elected health coverage provided by Shipcom together with their spouses and other covered dependents who were plan participants or beneficiaries at any time from March 2013 to the present. The complaint alleges that enough common questions of law and fact exist between the class members to warrant a class action lawsuit.

In the complaint, Novick alleged that Shipcom was aware of its COBRA obligation but, as plan sponsor, failed to provide COBRA coverage to its employees who had lost coverage as a result of a qualifying event. Additionally, Novick also alleged that as plan administrator, Shipcom failed to provide initial COBRA notices and COBRA election notices.

To remedy the alleged notice failure, Novick sought on behalf of the class:

1. An injunction:
   • Requiring Shipcom to amend the plan to comply with COBRA;
   • Requiring Shipcom to allow qualified beneficiaries to elect COBRA coverage retroactive to their eligibility date; and
   • Appointing an independent administrator to bring the plan into compliance with COBRA.
2. An order requiring Shipcom to:
   • Provide covered employees and spouses with initial COBRA notices;
   • Provide to each current employee and each qualified beneficiary during the past 2 years a notice of his or her right to notify the Shipcom plan administrator of certain qualifying events (such as divorce);
   • Provide COBRA election notices to qualified beneficiaries who incurred qualifying events during the last 2 years;
   • Reimburse qualified beneficiaries for premiums paid to obtain alternative coverage; and
   • Reimburse him (Novick) and other qualified beneficiaries for unreimbursed medical expenses (this order would be against the plan as well).
3. Statutory penalties against Shipcom and the plan for the failure to provide summary plan descriptions (SPDs) and COBRA initial and election notices.
4. Attorneys’ fees and costs; and any other relief as the court deems appropriate.

Implications

COBRA requires that covered employees and their covered spouses receive an initial COBRA notice at the commencement of plan coverage. This notice is typically provided in an SPD or a separate notice sent to the employee shortly after enrollment in the plan. There is no obligation to send an initial COBRA notice to nonspousal dependents.

COBRA provides that a termination of employment or reduction in hours that results in a loss of coverage is a qualifying event entitling a qualified beneficiary to up to 18 months of COBRA coverage. An employer has up to 30 days to notify a plan administrator of a qualifying event. In turn, the plan administrator has 14 days from the date of that notice to send a COBRA election notice. A plan administrator that fails to meet COBRA’s notice requirements may be subject to statutory penalties of up to $110 per day.

Class action litigation resulting from COBRA administration errors is uncommon. However, systemwide flaws in COBRA procedures can affect large numbers of qualified beneficiaries, which could lead to a class action. Employers and plan administrators should periodically audit their COBRA procedures to ensure all notices are distributed on a timely basis.