Benefits

$1.3M Settlement in COBRA/ARRA Class Action Now Final

On April 23, a federal district court in Alabama gave final approval to a settlement agreement under which an employer and plan administrator will pay $1.3 million to a group of former employees who alleged they never received COBRA election or premium subsidy information after their involuntary termination of employment.  The case is Hornsby v. Macon County Greyhound Park, Inc., 2013 WL 1747539 (M.D. Ala., April 23, 2013).

Generally, the employees alleged in a class action lawsuit that Macon County Greyhound Park, Inc. (a.k.a. Victoryland) and its affiliate McGregor Enterprises:

  1. were “well aware” of their COBRA notice obligation, but only provided notices to employees who specifically requested them — however, those notices did not include premium subsidy information;
  2. knowingly and intentionally failed to notify terminated employees of their COBRA eligibility between Sept. 1, 2008, and May 31, 2010;
  3. evaded their premium subsidy obligation by failing to pay 65 percent of the COBRA premium for eligible individuals and failing to deduct that amount from quarterly payroll tax as a credit against what was owed to the IRS; and
  4. committed fiduciary breaches by collecting premiums when they had no intention of submitting them to the insurer, and failing to disclose this act to the plaintiffs.

The lawsuit contended that as a result of those actions, hundreds of former employees were without insurance coverage and were not given the opportunity to make informed health coverage decisions.

A plan administrator that violates COBRA’s notice requirements may, in a court’s discretion, be liable for up to $110 a day from the notice failure date. Also, a court may award attorney’s fees to a party in an ERISA suit, in the court’s discretion.

In agreeing to settle, the employer and plan administrator admitted no wrongdoing. However, they are paying a hefty price as a result of the legal challenge — a $1.3 million settlement, out of which $350,000 is to be distributed to an estimated 248 class members, and $950,000 will go to pay for administrative costs and legal fees.

One of the best ways to avoid facing litigation over alleged COBRA violations is to ensure that the COBRA notice program is running smoothly. This includes following COBRA’s specific timing and content requirements. For example, a COBRA notice should incorporate roughly 15 elements, The full list of elements, as well as other administrative tips on COBRA notices, can be found in Mandated Health Benefits — the COBRA Guide, at http://hrcomplianceexpert.com