Court OKs $1.3M Settlement in COBRA/ARRA Class Action

Although it admitted no wrongdoing, an employer and plan administrator agreed to pay a $1.3 million settlement to a group of former employees who alleged they never received COBRA election or premium subsidy information after their involuntary termination of employment in 2010. In addition to COBRA and premium subsidy notice claims, they also sued the employer and plan administrator for ERISA fiduciary breaches for allegedly withholding health plan premiums from paychecks but never remitting them to the insurer. On Jan. 16, a federal district court in Alabama gave preliminary approval to the settlement agreement and the settlement class. The case is Hornsby v. Macon County Greyhound Park, Inc., 2013 WL 173003 (M.D. Ala. Jan. 16, 2013).

Notice and Premium Subsidy Recap

Under COBRA, 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.

A federal law established a 65-percent COBRA premium subsidy for up to 15 months of COBRA premiums paid by “assistance-eligible individuals” who lost group health plan coverage due to a covered employee’s involuntary termination from employment between Sept. 1, 2008, and May 31, 2010 (the American Recovery and Reinvestment Act of 2009, Pub. L. 111-5, as amended). COBRA election notices had to be modified to include information on the premium subsidy program.

Facts of the Case

Macon County Greyhound Park, Inc. (a.k.a. Victoryland) had a group health plan; McGregor Enterprises (an “affiliate” of Victoryland) was responsible for plan administration.

In January and February 2010, Victoryland involuntarily terminated 1,625 employees; however, the company failed to notify terminated covered employees of their COBRA and ARRA rights. Also, certain terminated employees received paychecks under which premiums were withheld but were not remitted to the insurer or refunded to the employees.

A group of employees instituted a class action lawsuit against Victoryland and McGregor, alleging COBRA and ERISA violations for failing to provide notice of COBRA and ARRA rights, and breaches of fiduciary duty.They sought compensatory damages, including, but not limited to, statutory penalties of up to $110 a day and other statutory enhancements, including attorney’s fees and injunctive relief.

The Settlement

In October 2012, a settlement agreement was approved under which Victoryland and McGregor agreed to pay $1.3 million ($350,000 to be distributed to class members, and $950,000 to pay for administrative costs and legal fees). Victoryland and McGregor denied any wrongdoing but agreed to the settlement due to the time, burdens, expenses and uncertainties of continued litigation. Each class member will receive approximately $1,331.45, with representative plaintiffs receiving an additional $2,200 for their services as class representatives.

With the court’s preliminary approval of the settlement, the next procedural step is a “fairness” hearing on April 23 that will resolve whether the settlement meets legal requirements and is “fair, reasonable, and adequate.”

More details on this case can be found in Mandated Health Benefits — the COBRA Guide, at http://hrcomplianceexpert.com.