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INSIGHT: A New Target of ERISA Class Actions—COBRA Notices

June 5, 2020, 8:01 AM

COBRA continuation coverage has been around for decades, but there’s been a recent proliferation of class action lawsuits targeting technical deficiencies in COBRA election notices.

When an employee loses coverage under a group health plan as a result of a termination or a reduction in hours for reasons other than gross misconduct, or as a result of another qualifying event, the employee may be entitled to COBRA continuation coverage.

These lawsuits generally assert that the COBRA election notices failed to include all of the information required by the COBRA notice regulations and deviate from the Department of Labor’s model election notice.

In light of the current economic climate and growing number of COBRA lawsuits, now is an appropriate time for employers re-evaluate their COBRA compliance.

Targeted Deficiencies

The specific allegations include:

  • The notice was not written in a manner calculated to be understood by the average participant.
  • The notice fails to provide the contact information of the party responsible for administering the benefits.
  • The notice fails to explain how to enroll in COBRA coverage, includes conflicting information, or does not contain an election form.
  • The notice does not provide all of the required “explanatory information” about the coverage such as the portability of group health coverage, access to individual health coverage, special enrollment, and termination date.
  • The notice fails to describe the consequences of delayed or non-payment and/or does not provide the address to which payments should be sent.

Some lawsuits also allege that COBRA notices are deficient because the required information was provided in multiple notices or included other extraneous language.

Common Defenses

Defendants targeted in COBRA lawsuits raise the following defenses:

  • No Standing: Defendants argue the plaintiffs lack standing because the alleged notice deficiencies are merely an “informational” or “technical” injury that does not establish an injury-in-fact. Defendants also argue a lack of a causal connection between the alleged deficiencies and the plaintiffs’ failure to elect continuation coverage.
  • Substantial Compliance: As the DOL explains in its final rules implementing the COBRA notice requirements, COBRA notices are intended to assist participants in understanding how to exercise their COBRA rights and elect coverage. Faced with technical arguments about their notices, defendants invoke the substantial compliance doctrine and argue that their notices are drafted to be understandable to the average participant.
  • Model Notice Not Mandatory: The COBRA notice regulations state that the “[u]se of the model notice is not mandatory” and that the notices should be modified to fit the applicable facts and circumstances. Defendants argue that courts should look to the COBRA notice regulations—not the DOL’s model notice—in evaluating their notices.
  • Class Certification: To avoid a standing challenge, plaintiffs allege that they were injured because the notice’s deficiencies caused them not to obtain continuation coverage. While such allegations may help avoid a motion to dismiss, to certify a class, the plaintiff must satisfy the commonality requirements of Federal Rule 23. This is more difficult when individualized proof is required to show that each class member suffered a similar injury.

Additional Risks for Employers to Consider

Even if an employer engages a third-party administrator to handle COBRA compliance, it could still be subject to statutory penalties if the election process is not handled properly. While such penalties may be insubstantial when dealing with a single participant, they can grow exponentially if the alleged deficiency affects many participants.

Employers should also keep in mind that COBRA lawsuits can result in significant litigation costs, even if they are confident they will ultimately prevail.

Other Recent Developments

On May 1, the DOL revised its model notices and issued a set of Frequently Asked Questions to help employers better understand COBRA’s notice requirements.

Because recent lawsuits have targeted COBRA notices that do not mirror the model notices, employers should closely review the revised model notices.

Tips for Employers to Mitigate Their Risk

Below are some additional steps employers can take to mitigate their risk of being targeted with a COBRA lawsuit:

  • Periodically review their election notices to ensure they are sufficiently detailed.
  • Compare their notices to the model notices and evaluate the reasons for any material differences.
  • Evaluate the propriety of including information in the notice beyond what is required.
  • Timely notify the group health plan of any qualifying events to ensure eligible participants are timely apprised of their COBRA rights, including eligibility, duration of coverage, and terms of payment.
  • Timely notify participants when COBRA coverage ends before the expected duration and respond to individuals seeking coverage who are not eligible.

Periodically review service agreements with third-party administrators to ensure they contain adequate indemnification language and ensure the administrators are aware of recent legal developments.

A Bloomberg Law Professional Perspective article with more detailed analysis of these issues is available here.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Nancy G. Ross is a partner in Mayer Brown’s Chicago office and co-chair of the ERISA Litigation practice. She focuses her practice primarily on the area of employee benefits class action litigation and counseling under the ERISA.

Richard E. Nowak is a Litigation & Dispute Resolution partner in Mayer Brown’s Chicago office. He is an experienced trial attorney in state and federal court and also represents clients in arbitrations, mediations, and governmental and internal investigations.

The authors wish to thank their colleagues Elaine Liu and Michelle N. Webster for their assistance on this legal update.