A recent federal court decision from the Eastern District of Wisconsin dealt with a situation of an employer who failed to provide a former employee proper COBRA notices and failed to accept a premium payment for the COBRA coverage. The employer had sent the required COBRA notice when the employee terminated employment but had not sent the employee and spouse the initial COBRA notice required when the employee and his spouse first became covered under the plan. When the employee sent a COBRA premium later than its due date, the employer refused to accept the payment and cancelled the coverage. The employee sued the employer claiming various COBRA violations.

The employer had an employee benefits liability insurance policy with Travelers Insurance and the employer tried to get Travelers to pay for defending the action. Travelers declined on the grounds that the policy excluded a loss for which the employer “is liable because of liability imposed on a fiduciary by [ERISA].”

The court determined that the COBRA notice violations would constitute violations by the plan administrator who is an ERISA fiduciary. Because a core duty of the fiduciary is to disclose appropriate information, the employer’s failure to advise the employee of the initial COBRA notice would result in liability imposed on the fiduciary under ERISA. The court also concluded that the plan administrator would be acting as a fiduciary in refusing to accept the COBRA premium payment. Therefore, despite having an employee benefits liability insurance policy in place, the employer found itself without coverage.

The lesson for employers: Review your insurance policies and riders — fidelity bonds, fiduciary liability coverage, directors and officers liability coverage, and employee benefits errors and omissions coverage. Get advice from an experienced consultant or attorney to make sure you have the coverage you need and want – and thought you had.