Benefits and Compensation

Employer Faces State-law Claims After False Promise Causes Beneficiary to Skip COBRA Coverage

A former employee left with more than $13,000 in unpaid medical bills after his employer retroactively terminated his employment and health benefits can sue for state-law claims, a federal district court ruled. The individual alleged that while he was hospitalized, the employer said his expenses would be covered. Thus, he did not elect COBRA coverage. But the employer back dated his employment and coverage termination to two days before his hospital admission. When the former employee sued in state court, the employer contended that the case invoked ERISA. However, the court concluded that his financial losses were based on being a “victim of misrepresentation” under state law — not on recovering ERISA benefits. The case is Toomajanian v. Insight Global, Inc., 2014 WL 3650232 (D. Mass., July 24, 2014).

Facts of the Case

Russell Toomajanian was employed by Insight Global. He was hospitalized April 4, 2010 through April 8, 2010. While at the hospital, he received a telephone call from an IG employee telling him that his employment was being terminated. During the call, Toomajanian asked about the status of his health coverage. The response was that his insurance would remain in place during his hospital stay and would be available, to the extent of the coverage, to pay hospital and other medical costs.

Relying on those assurances, Toomajanian decided to forgo paying for COBRA coverage. However, IG recorded his last day of employment as April 2, 2010, two days before his hospital admission. His health coverage was also cancelled on that date, leaving Toomajanian with $13,318 in unpaid medical bills.

Toomajanian sued IG, and the current proceedings involved whether the case should be heard in state or federal court. Toomajanian had initially filed in state court, alleging claims such as promissory estoppel, misrepresentation and breach of contract. (To sustain a claim of misrepresentation, a plaintiff must show a false statement of material fact made to induce the plaintiff to act, together with reliance on the false statement by the plaintiff to the plaintiff’s detriment.) IG had the case removed to federal court based on ERISA preemption and sought dismissal, arguing that Toomajanian had failed to allege an exhaustion of administrative remedies.

In response, Toomajanian moved for a remand to state court, arguing that ERISA was inapplicable because his lawsuit did not allege that a plan was improperly administered, and did not involve an analysis of plan benefits. Instead, the dispute arose “solely from conduct of his former employer.” After the court agreed and remanded the case back to state court, IG filed a motion for reconsideration.

However, the court concluded that any liability of IG stemmed not from ERISA, but from its capacity as a tortfeasor. The court noted that Toomajanian was not looking to recover benefits allegedly due him under the ERISA plan — adding that he could not in any case because his losses were incurred after “being ejected” from the plan. Furthermore, Toomajanian’s financial harm — his out-of-pocket medical bills — was not defined by or limited to plan benefits he would have been entitled to had he remained an employee.

“Rather, the losses of a victim of misrepresentation are measured under the relevant Massachusetts tort law by the financial harm caused by his reliance on the underlying misrepresentation,” according to the court. Therefore, it denied IG’s motion.