by Gwen Cofield
To have standing to sue an employer for a Consolidated Omnibus Budget Reconciliation Act (COBRA) notice violation, the individual alleging the violation must be either a participant or a beneficiary, as those terms are defined in Employee Retirement Income Security Act (ERISA). COBRA coverage is designed to continue, for a limited time, the group health coverage in place immediately before the occurrence of a qualifying event. If an individual was not covered under the plan at the time of the qualifying event, he or she is not a qualified beneficiary eligible to elect COBRA coverage.
In an unpublished opinion, the 3rd U.S. Circuit Court of Appeals—which covers Delaware, New Jersey, and Pennsylvania—affirmed a lower court’s rejection of the ERISA claims brought by a same-sex spouse who said he had ERISA beneficiary status despite never being added to a group health plan while his husband was actively employed.
The spouse had claimed that the husband had intended to enroll him as a beneficiary, but the COBRA notice and open enrollment materials were not sent on a timely basis or as requested upon the husband’s termination of employment. Thus, the employer/plan administrator’s “wrongful” conduct should have given him a reprieve.
However, a lower court said that no evidence existed that any attempt was ever made to enroll him on the plan, and the appeals court affirmed. The case is Sacchi v. Luciani, 2016 WL 3249761 (3rd. Cir., June 13, 2016). Note that the facts of this case originated before U.S. Supreme Court decisions that made same-sex marriage legal nationwide.
Facts of the case
The following facts are from the opinion by the Federal District Court of New Jersey (2015 WL 685853 (D.N.J., Feb. 18, 2015)). Stephen J. Simoni was employed by Meridian Health Systems, Inc. He was married to John Sacchi, but Simoni did not elect to cover Sacchi under Meridian’s group health plan.
On October 18, 2010, Simoni’s employment was terminated. Sacchi suffered a stroke roughly 1 year later. At that time, Sacchi alleged that neither he nor Simoni received a COBRA election notice following Simoni’s termination from employment. He claimed that in December 2011, they requested the notice through their legal counsel, but Meridian allegedly ignored their requests.
In early 2012, Ceridian Benefits Services, Inc., Meridian’s third-party administrator, sent a COBRA notice to Simoni (“and his eligible dependents,” according to the court opinion) advising him that he was entitled to COBRA coverage effective November 10, 2010.
However, Sacchi alleged that Simoni specifically informed Meridian and Ceridian at that time that he wanted the annual open enrollment materials so he could enroll Sacchi as his benefits-eligible legal spouse for plan years 2011 and 2012, terminating on April 30, 2012.
Sacchi alleged that the failure to provide those materials—and instead sending forms only providing for single coverage—was a deliberate attempt to prevent him from being added to the plan. In May 2012, after Sacchi and Simoni purportedly sent a deficiency notice, Ceridian sent Simoni’s counsel open enrollment forms so that he could choose to elect coverage for Sacchi. However, those forms were never completed and returned.
Subsequently, Simoni sued a company official, Meridian, its plan, and Ceridian for COBRA notice violations. Simoni moved to add Sacchi as a plaintiff in his lawsuit, but his motion was rejected by the court on the basis that Sacchi did not have standing to sue under ERISA.
Two months later, Sacchi sued the same defendants in state court alleging several federal claims, including COBRA notice violations, breach of fiduciary duty under ERISA, and violations of ERISA’s civil enforcement provisions. That case was removed to federal court based on ERISA preemption.
Who is an ERISA plan participant or beneficiary?
ERISA Section 3(7)-(8) defines “participant” and “beneficiary” as follows:
Only plan participants and beneficiaries can sue under ERISA’s recovery of benefits provisions (Section 502(a)(1)). Only participants, beneficiaries, and fiduciaries can sue under ERISA’s equitable relief provisions (Section 502(a)(3)).
After noting that only plan participants and beneficiaries can sue under ERISA’s recovery of benefits provisions (see box, above), the court found that Sacchi could not properly allege standing for two reasons:
- He could not allege plan participant status because his argument rested entirely on his status as an eligible dependent; that is, an alleged plan beneficiary.
- Nothing in the complaint suggested that Simoni elected to add Sacchi as a plan beneficiary at any time (including when the open enrollment materials were ultimately sent in 2012).
Sacchi tried to argue that ERISA conferred standing because he was “eligible to join the Plan,” and but for the defendants’ “wrongful conduct,” he would have been designated as a plan beneficiary.
Sacchi based this argument on a narrow exception to ERISA standing made by the 3rd Circuit in Bixler v. Central Penn. Teamsters Health & Welfare Fund. The court said that case was “clearly distinguishable,” however. Bixler was a plan participant’s widow clearly designated as a beneficiary under her deceased husband’s insurance plan, but she lost that status due to a lapse in coverage. The 3rd Circuit found that she had standing to sue because the plan administrator failed to provide her with complete and accurate information to which she was entitled under ERISA as she requested.
In contrast, Sacchi argued that he would have been a beneficiary but for the defendants’ alleged wrongdoing—the COBRA notice failure. What the lower court deemed “fatal” to the argument was that Sacchi was never made a beneficiary under the plan terms.
In conclusion, the lower court found that ERISA simply does not permit any person to sue because he or she could be an eligible beneficiary without having been so designated by the plan participant in the first instance. As such, the court held that Sacchi had no standing to sue and dismissed the claims.
Sacchi appealed, but the 3rd Circuit held that the lower court correctly found that based on the ERISA statute, Sacchi was neither a plan participant nor a beneficiary. “Moreover, Sacchi’s claim that he would have become a beneficiary under the plan but for the allegedly wrongful actions of the Defendants is belied by the fact that Simoni did not in fact elect coverage for him when given the opportunity,” the appeals court noted. Therefore, it affirmed the lower court’s decision.
COBRA provides that a termination of employment or reduction in hours that results in a loss of coverage is a qualifying event entitling a qualified beneficiary to up to 18 months of COBRA coverage. An employer has up to 30 days to notify a plan administrator of a qualifying event. In turn, the plan administrator has 14 days from the date of that notice to send a COBRA election notice.
Although the court focused on whether the plaintiff had standing to sue, it is important to note that based on the facts described by the court, it does not appear that the employee’s spouse would have been able to elect COBRA coverage in any event.
COBRA is designed to continue for up to 18 months (or longer if extended due to a second qualifying event or disability) the group health care benefits that a qualified beneficiary was receiving as of the date of the qualifying event.
In this case, the employee had elected self-only coverage and was covered as such when the qualifying event (that is, termination of employment) occurred. Because the employee’s spouse was not covered under the plan immediately prior to the qualifying event, there was no coverage for Sacchi to elect to continue.
The facts in this case took place before the U.S. Supreme Court’s decisions in United States v. Windsor and Obergefell v. Hodges. After those decisions, states are no longer permitted to restrict marriage to opposite-sex individuals.
Therefore, if a group health plan simply covers “spouses,” that term would necessarily include both opposite- and same-sex spouses. If a spouse has coverage immediately before a qualifying event, that spouse must receive an offer of COBRA coverage.
Gwen Cofield is an editorial/communications professional with more than 20 years of experience in the for-profit, non-profit and government sectors.