COBRA-Related Litigation Trend: Advanced Preparation Is the Anti-Venom

Brownstein Hyatt Farber Schreck

Over the past two years, there has been a steady uptick of class action litigation alledging deficiencies in the notices that employers are required to provide under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to inform individuals of their right to elect health care continuation coverage following the occurrence of certain events resulting in the loss of coverage under their employer’s group health plan. Employees have brought these class action lawsuits against employers, plan administrators and third-party administrators.

These lawsuits all center on allegations that the COBRA election notices do not meet the applicable legal requirements and deviate from the model COBRA form provided by the U.S. Department of Labor. In some instances, plaintiffs argue that such deficiencies and deviations confused and misled them to such an extent that they failed to elect to continue their health coverage. Additionally, plaintiffs have brought these lawsuits as class actions, seeking the maximum statutory fine of $110 per participant per day that the deficient notice went uncorrected. This leads to plaintiffs requesting substantial sums from the above-referenced defendants.

COBRA Election Notice Requirements 

These lawsuits have centered on the required COBRA election notices. COBRA election notices must contain, under federal regulations, numerous pieces of information, including, but not limited to: 

  • identification of a qualifying event that triggers the ability to continue coverage; 
  • identification of beneficiaries who are eligible to continue coverage; 
  • an explanation of the plan procedures to continue coverage; 
  • an explanation of the consequences of failing to continue coverage; 
  • a description of the cost of the payment required to continue coverage; and
  • a description of the due date of the payment to continue coverage, etc. 

DOL Model COBRA Notice. The U.S. Department of Labor created, and has periodically updated, a model COBRA notice, which is intended to help plans comply with the COBRA notice requirements under the applicable regulations. 

The model COBRA election notice is not perfect for every plan and most group health plans add additional information to the model notice in order to reflect the idiosyncracies of the specific plan. Deviation from the model notice, however, may create liability to plans and lead to lawsuits based upon allegedly deficient COBRA notices. Thus, choosing to deviate from the COBRA model or choosing to strictly use the model is a double-edged sword—sticking too closely to the model could lead to plan-specific information being omitted from participants, and deviating too far from the model could lead to omitting standardized language that includes necessary information required by the regulations. Plaintiffs’ lawyers have picked up on these difficulties and have brought suits over allegedly deficient COBRA notices. 

How We Are Uniquely Positioned to Help Clients Mitigate the Possibility of Lawsuits or Defend Against Such Lawsuits 

Given the apparent increasing number of class action lawsuits involving COBRA notices, Brownstein Hyatt Farber Schreck, LLP’s legal team can assist in mitigating the possibility of these lawsuits and, if needed, defend against such lawsuits. Our legal team can help in the following ways:

  1. Review of COBRA Notices: Our team can review plan administrators’ COBRA notices to ensure that they comply with the statutes and regulations governing the notice requirements. Our team can assist in perfecting these notices, which will reduce the chances that the plan and its administrators will be liable for any COBRA violations, which could, in turn, lessen the likelihood of a lawsuit being brought. 
  2. Review of Third-Party Administrator Contracts: Many third-party administrator contracts, including COBRA administrator contracts, include indemnification clauses for the plan. Our team has determined that, in many instances, plaintiffs attempt to sue the plan, even though the plan uses a third-party administrator to send out COBRA notices. Our team can review your third-party administration contracts to ensure that the contract properly indemnifies the plan and plan sponsor for the actions of the third-party administrator.
  3. Litigation Defense: While we believe the best defense is addressing compliance issues before any lawsuit is ever filed, it sometimes fails to prevent a lawsuit—especially where the goal is to achieve a settlement amount. Our team of litigators can assist in negotiating settlements and, when necessary, defending your plan against allegations of deficient COBRA notices. We have successfully litigated a variety of cases involving the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and related regulations.
  4. Mitigation: Our team includes public policy experts who can provide strategic advice on seeking input from policymakers, including the U.S. Department of Labor, and other experts on what is adequate notice under COBRA. This guidance will help to mitigate plaintiffs’ claims and may include an amicus brief, sub-regulatory or informal guidance.
  5. Addressing Ongoing Administration Issues: Our team members are trusted advisors and regularly counsel clients on the complexities of COBRA administration, including when the third-party administrator seeks guidance from the employer. We expect COBRA administration to become more complex over the next few years as group health plans navigate the future termination of the temporary extension of certain time frames and deadlines for participant actions during the COVID‑19 national emergency. (For more information about the COVID-19-related extensions, see our May 6, 2020 Client Alert.)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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