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Employer Defeats COBRA Claims of Employee Offered Subsidized Coverage in Severance Agreement

EBIA  

EBIA  

Thorson v. Aviall Servs., Inc., 2018 WL 1426971 (N.D. Tex. 2018)

The mother of a deceased employee sued her son’s former employer and benefits administrator, alleging breach of a severance agreement and numerous COBRA violations. As part of a corporate restructuring, the employer and employee had entered into a severance agreement providing for the employer to continue the employee’s health plan coverage at the active employee rate during the severance period if he elected COBRA. The benefits administrator apparently sent the employee a COBRA election notice but, upon a claim of nonreceipt, mailed him a second notice and temporarily reinstated his coverage. While a signed COBRA election form was found on the employee’s computer, the employer claimed it never received the employee’s election. Nevertheless, the employer deducted COBRA premiums from the employee’s severance payments, causing the mother to argue that the employer had waived the severance agreement’s COBRA election requirement by collecting premiums from the severance payments. She also argued that the employee’s COBRA election notice was untimely, and that the employer failed to act on his election, never sent a bill for COBRA premiums or a notice of lapsed coverage, and failed to send his COBRA notices by email as verbally requested.

Explaining that employers are not required to ensure that COBRA notices are actually received, the court concluded that the employer and benefits administrator had provided undisputed evidence that they had mailed two COBRA election notices to an address the employee had confirmed was correct, and that the employee had not elected COBRA coverage. A dispute remained, however, as to whether the premium deductions constituted a waiver of the severance agreement’s COBRA election requirement, so the court allowed that claim to proceed.

EBIA Comment: A properly provided COBRA election notice goes a long way toward defeating COBRA claims, but being able to prove the notice was sent is crucial. Furthermore, a severance agreement is not a substitute for COBRA compliance, and employers must ensure timely notification to the plan administrator of the COBRA qualifying event and timely provision of a COBRA notice to the employee (and related qualified beneficiaries, if applicable). For more information, see EBIA’s COBRA manual at Sections VII.M (“Special Issues: Severance Agreements and Severance Pay”) and XVIII.J (“Sending the Election Notice and Proving It Was Sent”). You may also be interested in our upcoming webinar “Learning the Ropes: An Introduction to COBRA Continuation Coverage” (live on 7/19/2018).

Contributing Editors: EBIA Staff.

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