Employer Can't Hide Behind TPA for COBRA Violation, Appeals Court Rules

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Employer Can't Hide Behind TPA for COBRA Violation, Appeals Court Rules
July 9, 2002 Santa Rosa, CA
$10,000 Fine for TPA's Failure to Send Initial Notification An employer could not be relieved of liability for its failure to notify a terminated employee of his COBRA rights simply because it had contracted with a TPA to furnish COBRA notices. A federal appeals court fined the employer $10,800 ($20 per day for 540 days) as a penalty for not providing the employee with notice of his right to COBRA continuation coverage. What happened: Ivory Scott, a salesman for Suncoast Beverage Sales, Inc. in Florida, sued his employer after he was terminated, alleging race discrimination and failure to receive adequate notification of his right to continue health coverage under COBRA. Suncoast fired Scott on August 8, 1997, citing poor work performance. During the termination meeting, Scott initialed a form, which stated that COBRA health insurance information had been discussed with him. Although a Suncoast employee told Scott that some COBRA information would be sent to him soon, he claimed that he never received any materials informing him of his COBRA rights. Suncoast had contracted with a third party, First Health, to send out its COBRA notifications. What the Appeals Court ruled: Although Scott did not prevail on his discrimination claim, the Eleventh Circuit Court of Appeals ruled in his favor on the COBRA claim. Suncoast asserted that its legal obligation was satisfied when it instructed the TPA to send the COBRA notice to Scott and provided it with the necessary information. But the appeals court ruled that simply hiring an agent and then instructing that agent to send the required COBRA notice is not sufficient to satisfy the legal requirements of ERISA. Courts have often held that when an employer acts in good faith to provide the required COBRA notifications, it is not necessary to prove that the notice was actually received. The employer's legal obligation is fulfilled if the notice is mailed to the last known address of the employee in a manner consistent with its normal procedure. However, this "good faith" defense does not operate in situations where the employer contracts with a third party to send the notice, unless there is evidence to show that the notices were actually sent. The court stated, "To stretch the good faith language that far would essentially permit an employer to contract away an obligation specifically assigned to it under the statute. Simply hiring an agent and then instructing that agent to send the notice is not sufficient to satisfy the statute." (Scott v. Suncoast Beverage Sales, Ltd, Eleventh Circuit Court of Appeals, Dkt. No. 01-11734, June 25, 2002. The Eleventh Circuit Court of Appeals covers Alabama, Florida and Georgia)



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