Penalty for Employer Missed COBRA Notice Affirmed

Almost two years ago I blogged about a federal district court decision from Alabama that imposed a penalty of $37,950 ($75 a day) on an employer that failed to provide a COBRA notice for a dental plan to a former employee. [See below] With attorneys’ fees and costs, the employer owed a total of $83,063.45. That case has now been affirmed by the 11th Circuit Court of Appeals. (The wheels of justice can turn slowly at times.) In the process of that affirmance, the court of appeals sent back to the district court the question of whether the employer might owe an additional $2,460.67 in costs.

The appeals court decision broke no new ground on the law of COBRA violations. I mention the case so that readers will know what happened at the appeals court level. (The case also addressed Family & Medical Leave Act (FMLA) issues and could be interesting reading for employers covered under that law.)

Employers are generally aware that medical plans are subject to continuation coverage under the federal law known as COBRA.  They may forget that COBRA extends to all group health plans, including dental, vision and medical flexible spending account plans. A recent federal district court decision highlighted the risk to employers who forget those facts.

The case, Evans v. Books-A-Million, from the Northern District of Alabama involves an employee who at the time she terminated employment was covered by the group dental plan, but not the group medical plan. She obtained new employment about five months later that provided her with dental coverage and during the time she did not have dental coverage, she did not incur any dental claims.

Sometime after her termination, the former employee called the employer to say that she had not yet received her COBRA notice. The employer’s COBRA processes were complicated and the employer’s explanations and excuses for failure to provide the COBRA notice were inconsistent. The employer could not prove that the notice was ever sent. The case went to trial, presumably because other issues besides the COBRA notice for dental coverage were at stake. With respect to the COBRA notice, however, the court concluded that the plaintiff was entitled to a statutory penalty for the employer’s failure to provide the notice from the 45th day following her termination of employment (because the plan administrator had 44 days to generate and mail a COBRA notice) to the end of the 18 month COBRA continuation period, a total of 506 days. The penalty can be as much as $110 a day; the court determined to impose a penalty of $75 a day in order to penalize the employer and to deter both it and other employers from similar conduct. The penalty to the employer: $37,950 for failure to give a dental COBRA notice. On top of this, the plaintiff was awarded $42,192.50 for attorney’s fees and $2,910.87 for costs for an aggregate of $83,063.45. Those amounts would have been even higher had the plaintiff not changed her position regarding the proper length of the penalty period between the beginning of trial and the end of trial, a change in position not supported by a change in law and which the judge viewed as an inappropriate gaming of the system.

The lesson for employers: Monitor COBRA processes because a failure to provide appropriate COBRA notices can be quite expensive, even if it is just for dental coverage.

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Plaintiff’s Attorney Fees Denied — Filing Of Lawsuit Was Not Reason Why Benefits Were Granted

You already know that in ERISA cases a court may, in its discretion, award attorney fees if a party achieved “some degree of success on the merits.”

Is the mere filing of a lawsuit,  before Plaintiff’s ERISA-governed disability benefit claim is granted, sufficient to win an award attorney fees?  NO.

Here’s the case of Koloff v. MetLife Ins. Co, 2014 WL 3420990 (E. D. Cal. July 14, 2014) [PDF].

FACTS: Koloff brought suit seeking disability benefits under an ERISA-governed plan. The Court dismissed the case (without prejudice) because Koloff had failed to exhaust administrative remedies. On December 5, 2013, MetLife informed Plaintiff’s counsel it was sending payment on benefits and asked for information to the net amounts, because of the offset for Social Security benefits. On December 17, 2013, Koloff brought a second lawsuit seeking disability benefits. On December 20, 2013, MetLife sent Koloff the letter approving her disability claim.

Koloff then moved for attorney fees, contending she achieved “some success on the merits.”

DISTRICT COURT HELD:  Plaintiff’s Motion for Attorney Fees Denied.

  1. The Plaintiff’s attorney’s time records strongly suggest that “he knew of MetLife’s intention to approve the claim prior to the filing of the complaint on December 17, 2013….”  The administrative record corroborates this, noting the December 5, 2013 conversation in which MetLife advised that it was “getting a check out.”  Op. at 7.
  2. “[T]he Court finds MetLife made the decision to approve plaintiff’s long term disability benefits by December 5, 2013 and, more importantly, made clear to plaintiff’s counsel that the only thing to do was determine the net amount to be paid which would occur once counsel provided MetLife the SSDI and EDD [offset] figures.”  Op. at 8.
  3. “Because there was no dispute as to the merits of the action before the complaint was filed, Plaintiff has shown no “injury in fact.”  Op. at 8-9.
  4. Under ERISA, “fees and costs may be awarded to any party ‘who has achieved some degree of success on the merits.’”  A claimant “does not satisfy that requirement by achieving ‘trivial success on the merits’ or a ‘purely procedural victory[.]’”  Op. at 10.
  5. Plaintiff’s counsel should not get attorney fees in her first lawsuit, which was dismissed without prejudice. “[W]hen an individual fails to exhaust administrative remedies, ‘the proper remedy is dismissal without prejudice.’” The dismissal here was not analogous to a remand.  Op. at 10.
  6. “[F]ees expended during administrative processes are not recoverable.”  Op. at 12, Fn. 13
  7. “T]he Ninth Circuit has not yet determined whether the catalyst theory [for seeking attorney fees] is viable in an ERISA action in light of Buckhannon[.]”  Op. at 12.
  8. [T]he facts do not demonstrate that the suit was [a catalyst] or linked to the decision to approve plaintiff’s benefits….Plaintiff’s counsel was informed that benefits would be paid before the litigation was initiated.”  Op. at 13-14.
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