A recent court case highlights two crucial issues in administering COBRA continuation coverage: (1) a plan administrator has the sole legal obligation to prove compliance with COBRA’s notice rules — it cannot pass the buck to third-party administrators; and (2) lack of sufficient evidence on COBRA notice procedures can be a costly mistake.
Recently, an employer/plan administrator’s missteps — including attempts to “mislead” a federal district court — cost it $22,700 in statutory penalties, plus attorney’s fees and costs. Ryan Boddicker was an employee with Esurance Insurance Services, Inc. He was active military duty for one year and later began suffering from post-traumatic stress disorder (PTSD).
A third-party vendor, Ceridian, maintains Esurance's personnel records, including employee addresses. Boddicker stated that while on active duty he maintained a post office box, but in April 2007, he canceled that box and used his apartment’s street address — and, most key, he made that change in the Ceridian system. He returned to work at Esurance, but due to his PTSD began taking intermittent family and medical leave until it ran out in Nov. 5, 2007.
Esurance considered Boddicker to have resigned on that date. Esurance uses another third-party vendor, COBRAServ, to send COBRA notices to eligible individuals. After Boddicker’s termination of employment, COBRAServ mailed a COBRA election notice dated Nov. 29, 2007, to his PO Box — not his street address. Consequently, Boddicker did not receive that notice. Instead, he received a COBRA notice in March 2009 — well after the 44-day period from the qualifying event date within which to send a COBRA election notice, and after he sued Esurance, as the plan administrator, for COBRA notice violations.
Esurance made several arguments to support its contention that the notice was properly sent to Boddicker’s last known mailing address as required by COBRA — including details on Ceridian’s recordkeeping system. However, a federal district court in South Dakota rejected these arguments and noted that a key missing component was an explanation of how COBRAServ obtained employee addresses. Among other things, Esurance contended that COBRAServ obtains its addresses through a Ceridian database, but the court pointed out other, conflicting evidence from Esurance in rejecting this contention.
Furthermore, earlier proceedings under which Esurance initially gave the court “false information” that Ceridian was the plan administrator lessened the amount of weight given some of Esurance’s evidence. In finding Esurance liable for COBRA notice violations, the court emphasized that, “Even though Esurance uses COBRAServ to physically send out its COBRA notices, because Esurance is its own COBRA plan administrator, it maintains the ultimate responsibility to prove that an adequate system existed which sent Boddicker his COBRA notice.”
Esurance failed in meeting this responsibility by presenting “no reliable, first-hand evidence” about the COBRAServ process, according to the court, which further noted Esurance’s testimony about the process was based upon assumptions and came from Esurance employees who neither work for COBRAServ nor manage COBRAServ's system in their roles at Esurance. Furthermore, the court held that Boddicker proved even when Esurance knew his correct address, it “still allowed COBRAServ” to send the COBRA notice to the PO Box, and “never followed up” with COBRAServ about the matter.
This foreknowledge hurt Esurance in the penalty phase, where a court can consider whether an individual was prejudiced and/or the administrator acted in bad faith in assessing COBRA notice penalties. The court found that Esurance acted in bad faith due to its lack of follow-up and its “multiple attempts to mislead the court” — including Esurance’s initial contention that Ceridian was the plan administrator.
The court also found that Boddicker was prejudiced by Esurance’s actions because he had been “anxious” about whether he would be able to afford his treatment (ultimately, his medical expenses were paid by veteran’s disability benefits). “Uncertainty and anxiety over medical payments is prejudicial for anyone, but is particularly prejudicial for someone suffering from PTSD,” the court noted. Accordingly, the court assessed Esurance a total COBRA notice penalty of $22,700, plus attorney’s fees and costs to be determined in subsequent proceedings.
The case is Boddicker v. Esurance Ins. Services, Inc., 2011 WL 6372863 (D.S.D., Dec. 20, 2011). More information will be found in Mandated Health Benefits — The COBRA Guide.