In a dispute involving an alleged failure to provide a COBRA election notice to a participant at the correct address, a district court addressed the respective liabilities of a self-funded health plan’s TPA and its employer/plan sponsor for providing COBRA notices (Howard v. Ivy Creek Of Tallapoosa, LLC, (M.D. Ala. Sept. 22, 2022)). The court concluded that the employer could not disclaim liability for providing a notice to a plan participant at the correct address merely because it had contracted with the TPA to provide COBRA notices.

COBRA Notice Claim Involving Employee’s Last Known Address

The employee-plaintiff in this case suffered a brain aneurysm in March 2019 that resulted in her taking medical leave, being hospitalized, and undergoing surgery. A few months later, the employer informed the employee that it was terminating her employment due to having exhausted her medical leave. Around this time, an HR representative for the employer also mailed the employee a letter indicating that:

  • Her coverage under the employer’s self-funded health plan had expired due to nonpayment of premiums.
  • She would be receiving information about electing COBRA in separate correspondence.

(See Practice Note, COBRA Overview: COBRA Notice Requirements and Standard Document, COBRA Election Notice.)

The employer sent this letter to the employee at her current address, where she had lived since moving to the address more than three years earlier. (The employer had obtained the employee’s current address from medical records in its computer system.) The employer also sent the employee a letter to her current address regarding electing COBRA for the employee’s dental coverage (though not for her health coverage).

The employer instructed the TPA for its health plan to send the employee a COBRA election notice concerning her health coverage. However, this notice was sent to the employee’s former address because, the TPA asserted, it had not been informed of the employee’s change of address. The notice was returned to the TPA with a “no longer at this address” note, but the TPA did not inform the employer of this fact.

A few months later, the employee informed the employer that she had not yet received a COBRA notice and asked about reinstating her health coverage. Instead of responding, the employer contacted the TPA and learned that the COBRA notice had been returned.

In January 2020, the employee requested governing plan documents regarding her COBRA benefits. Before the employer provided the plan documents, the employee sued the employer and TPA under ERISA, including claims for:

(For more information, see ERISA Litigation Toolkit.)

The employee and employer asked the court to rule on their claims without a trial (known as summary judgment).

COBRA Notice Violations

The district court concluded that:

  • The employee’s COBRA notice claim could not be decided at the summary judgment stage.
  • A trial would be necessary to determine whether the former address to which the plan’s TPA had sent the employee’s COBRA election notice was her last known address.

In reaching this conclusion, the court noted:

  • The employee claimed that she had twice informed the employer of her new address.
  • The employer’s computer system contained medical records listing the employee’s new address (indicating that the employer was aware of her new address).
  • The employee received employment-related documents containing her former address but failed to raise the issue with the employer.

The court rejected the employer’s argument that it had made a good faith effort to provide the employee a COBRA election notice by instructing its TPA to send the notice to the employee’s last known address. In the court’s view, delegating the task of sending the notice did not insulate the employer from liability for failing to provide the employee’s updated address to the TPA.

TPA Was Not Liable for Alleged COBRA Notice Violation

However, the court rejected the employee’s COBRA notice claim against the TPA. The court concluded that there was no dispute that the TPA had provided proper notice to the employee. The TPA had merely sent the notice to the employee’s former address rather than to her residence address, because it had not been notified that the employee had changed addresses. The court reasoned that the employee’s COBRA notice claim was largely directed at the employer who, under the plan’s administrative services agreement (ASA), was responsible for notifying the TPA of address changes.

The court concluded that liability for that notice not going to the employee’s correct (that is, the last known) address was analyzed against the employer—as the ERISA plan sponsor and plan administrator. In reaching this conclusion, the court rejected the employee’s argument that the TPA violated fiduciary duties owed to the employee by not informing the employer that the notice was returned. In support of her argument, the employee had pointed to language in the ASA requiring the TPA to provide periodic reports to the employer. According to the court, however, this language did not create a fiduciary duty that would be owed to the employee.

The court also rejected the employee’s argument that the TPA was a necessary party to equitable relief the court might grant. In the TPA’s absence, the court could still award statutory penalties and equitable relief against the employer and, if necessary, require the employer to instruct the TPA to process the employee’s claims.

Failure to Provide Requested Plan Documents

The employee’s plan documents claim also could not be resolved at the summary judgment stage. Under ERISA, as background, plan administrators can be liable for failing or refusing to provide certain plan-related documents requested by participants. ERISA’s definition of “participant” includes former employees who have either:

  • A reasonable expectation of returning to covered employment.
  • A “colorable claim” to vested benefits.

(See Practice Note, ERISA Litigation: Penalties for Failing to Provide Documents: Former Employees.)

The district court rejected the employer’s defense that:

  • It did not provide the requested documents because the TPA had indicated that the employee was no longer eligible for COBRA.
  • As a result, the employee was no longer a participant for ERISA purposes.

In the court’s view, the employee had a colorable claim for benefits because she claimed to be entitled to a COBRA election notice due to a qualifying event. The court observed that the employee’s success on her plan documents claim was somewhat tied to her success on the COBRA notice violation claim.

Practical Impact

This litigation demonstrates the need for COBRA procedures designed to ensure that employer/plan sponsors and their TPAs have current mailing addresses for plan participants. In this case, the court indicated that the employee’s old address had been ported over to the TPA from the plan’s TPA system. As the court pointed out, however, the employer could have reviewed the new TPA’s portal information and provided all its employees’ addresses—including that of the employee-plaintiff. This case is also a reminder that an employer’s ASA with its TPA to provide COBRA notices will not absolve the employer of liability for providing notices when an employer’s and TPA’s interests become adversarial (as they did here) in the litigation context.