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COBRA Notice Litigation: Cases Are Mushrooming and Settlements Are Too

Imagine something as simple as a COBRA notice that complies with law, but is not identical to the Department of Labor’s (DOL) model notice, leading to six- or seven-figure class action litigation settlements?

Companies in Florida and, more recently, in New York have seen a flurry of cases over Consolidated Omnibus Budget Reconciliation Act (COBRA) notices. (More than 10 household-name entities have been sued so far.) In these cases, a COBRA notice is provided (typically, by a third-party vendor) to covered persons experiencing a qualifying event, but the litigation is filed against the employer or plan sponsor. While the COBRA notices are not identical to the model notice (or “safe harbor”) the DOL has promulgated and omit certain confusing and cumbersome language from the model notice, they still comply with COBRA.

The cases allege the COBRA notice (usually also designed by a third-party) were missing details required by the model notice, such as the name and contact information of the plan administrator. Frequently, the identity of the plan administrator is omitted because the COBRA payments must be mailed to the third-party vendor. While these items are specified in the DOL model notice, these often are unknown or overlooked at the time the notice is given and, therefore, omitted.

In a recent case in the Southern District of New York, the plaintiff claimed the COBRA notice (sent by a third-party vendor) was deficient because: (i) multiple COBRA letters, rather than just one, were sent; (ii) the notices did not identify the plan administrator or the COBRA claims administrator; (iii) the notices did not provide details on how to enroll in COBRA or did not enclose a physical enrollment form; and (iv) only a second letter (typically sent after the participant indicates he or she elects COBRA coverage) provided the address to which payment should be sent. The district court denied a motion to dismiss, ruling that, at the pleading stage, since the COBRA notice was not identical to the DOL model notice, the plaintiff stated a claim that could proceed to discovery.

Based upon such alleged deficiencies, these cases seek statutory penalties and other damages on a class-wide basis. COBRA, which amended and supplemented ERISA, included an avenue under ERISA § 502(c)(1), 29 U.S.C. § 1132(c)(1), for qualified beneficiaries to receive up to $110 per day per person for a plan administrator’s failure to provide the required initial COBRA notice or the COBRA election notice. Further, the court has the discretion to award legal fees to the plaintiff's counsel under ERISA § 502(g)(1), 29 U.S.C. § 1132(g)(1). However, what the plaintiff’s counsel want is a common fund settlement, so they can collect a percentage of that amount as a legal fee and expense award.

The $110-per-person-per-day statutory penalties are sought on behalf of a class in these cases. Under the law, the typical ERISA statute of limitations is six years. ERISA § 413(1), 29 U.S.C. § 1113(1). The statute of limitations in Florida for COBRA notice violations is four years. Imagine a large employer that has sent out thousands of COBRA notices over a six-year period and is sued for deficient notices. This employer may face the prospect of a penalty of approximately $40,000 per year, per participant. A class of 10,000 participants over the six-year period for this employer could mean astronomical damages. While no such recovery has occurred, and no case has succeeded on the merits yet, this helps explain the settlements reached to date.

Mitigate the Risk

There are steps employers can take to mitigate the risk of being the next target for this type litigation. Simply using the DOL’s model notices often is not enough if they are incomplete or not provided timely. Employers should ensure they understand what is required, including knowing what notices are needed and when; examine their notices and administrative practices; and know the compliance soft spots to proactively protect themselves against a claim. This will frequently involve protracted discussions with the third-party vendors who handle COBRA notification for employers. Employers also should examine their service contracts with COBRA third-party administrators so that indemnity obligations are clear.

Jackson Lewis P.C. © 2020National Law Review, Volume X, Number 63

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About this Author

Principal

Stacey C.S. Cerrone is a Principal in the New Orleans, Louisiana, office of Jackson Lewis P.C. Her practice focuses on representing employers in workplace law matters, including preventive advice and counseling.

Practices

  • Employee Benefits

Admitted to Practice

  • 5th Circuit Court of Appeals, 1998
  • 6th Circuit Court of Appeals, 2014
  • Louisiana - E.D. La., 1999
  • Louisiana - M.D. La., 1998
  • Louisiana - W.D. La., 1998
  • Louisiana, 1998
504-208-1755
Suzanne Odom, Employment lawyer, Jackson Lewis
Principal

Suzanne G. Odom is a Principal in the Greenville, South Carolina, office of Jackson Lewis P.C. She focuses her practice on ERISA plans, employee benefits, and executive compensation matters.

Ms. Odom has worked extensively with all types of employer-sponsored retirement and welfare benefit plans, including pension, profit sharing, 401(k), 403(b), and 457(b) plans, ESOPs, and health, accident, disability, Section 125, flexible spending, and other welfare plans. Her clients include large and small for-profit companies across all industry sectors, non-profit corporations, and governmental entities.

As a result of Ms. Odom’s vast number of submissions and compliance matters, she has developed a close and professional working relationship with both the IRS and Department of Labor Representatives. Her practice is centered on providing her clients with solid and proactive fiduciary and business advice that assists them in avoiding the time and expense of employee benefits litigation.

Ms. Odom prides herself on her ability to think outside the box and work with clients deliver the best business solutions possible. 

864-672-8091
Principal

Howard Shapiro is a Principal in the New Orleans, Louisiana, office of Jackson Lewis P.C., and is Co-Leader of the firm’s ERISA Complex Litigation Group. Mr. Shapiro focuses his practice on the defense of large, sophisticated ERISA class actions.

Mr. Shapiro defends “bet-the-company” litigation where damages are potentially material. His cases involve the defense of Defined Benefit plans, 401(k) Plans, and 403(b) Plans. Mr. Shapiro also defends litigation involving health and welfare plan issues. His practice is nationwide, and throughout his career, Mr....

504-208-5835