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No COBRA Claim for Same Sex Spouse
In an unpublished opinion, the 3rd Circuit U.S. Court of Appeals chose to
affirm the prior rejection by a lower court on ERISA claims by a same sex
spouse. This case, Sacchi v. Lucian, 2016 WL 3249761 (3rd. Cir. June 13, 2016)
originated prior to the U.S. Supreme Court’s decision to legalize same sex
marriage nationwide. The facts are as follows:
Stephen J. Simoni was an employee of Meridian Health Systems, Inc. Simoni was
covered by his employer’s group health plan; however, he did not elect coverage
for his same sex spouse John Sacchi. Simoni was terminated from Meridian on Oct
18, 2010 and approximately a year later, Sacchi suffered a stroke. Sacchi
alleged that neither he nor Simoni had received a COBRA election notice.
Furthermore he claimed that through their legal counsel in Dec 2011 they
requested the election notice from Meridian, however were ignored.
Ceridian Benefits Services, Inc. – Meridians third-party administrator, sent
a COBRA notice to Simoni and “his eligible dependents” in early 2012, which
informed Simoni he was entitled to COBRA coverage effective Nov 10, 2010. Sacchi
contended that at that time, Simoni specifically requested open enrollment forms
in order to enroll Sacchi as his benefits-eligible spouse for 2011 and 2012,
with a termination date of April 30, 2012. Sacchi claimed that the fact that
Meridian at first only sent forms for single coverage, was a blatant move to
keep him from being added. However, when Meridian finally sent the open
enrollment forms, Simoni never returned them.
Simoni then filed suit against Meridian, its plan and a company official, as
well as the TPA for COBRA notice violations. Additionally, Simoni moved to have
Sacchi added as a plaintiff, however the court rejected his motion because
Sacchi did not have standing to sue under ERISA. Simoni therefore turned around
and filed suit against the same defendants in state court and that case was sent
to federal court based on ERISA preemption. The lower court determined that
ERISA does not allow an individual to sue merely because they “could” be an
eligible beneficiary. Without having been enrolled by the plan participant in
the first place, they have no standing. Sacchi appealed, however in the end, the
3rd Circuit agreed with the Lower Court’s decision.
In this author’s opinion, this case is a reminder that the term “spouse”
applies to both same and opposite sex spouses now that the U.S. Supreme Court
has made it’s decision. However, in this case, it wasn’t about whether the
employer discriminated against a same sex spouse – it was about a failure on the
part of a plan participant to properly enroll the spouse in the first place.
Mistakes Happen
Plan administrators and employers should be prepared to face the prospect of
handling errors in the context of COBRA compliance. Let’s face it – mistakes do
happen. Analyzing common errors and their possible corrections ahead of time in
order to minimize exposure to damages and penalties can prove to be a smart
move. Considering the fact that penalties for COBRA errors are regularly imposed
by courts, it would be wise to take a look at some common violations and their
possible remedies.
Failure to provide timely COBRA notices is probably the most common error
made by plan administrators and employers. If the failure involves the initial
notice, the violation can usually be “undone” to the best possible degree by
immediately sending the notice to the affected individuals. However, it can be
more complicated than that. Remember, an employer has 30 days to notify the plan
administrator of a qualifying event. At that point the plan administrator must
send the election notice to the covered employee, spouse and dependents within
14 days of receiving the employer's notification. If the employer and plan
administrator are the same, there is a combined 44-day timeline to distribute
the election notice. So in the case that an employer failed to notify the plan
administrator of a divorce, for example, because he/she did not receive the
initial notice on time, what would be an appropriate remedy? At the very least,
sending out the initial notice even if it is late would be a good start.
Another notorious error often made involves misstated premium amounts. If the
premium payment was initially quoted too low, it may be prudent to either leave
it alone for the duration, or ask for the difference going forward. Asking for
the back payments retroactively could be asking for trouble. But what if the
payment amount quoted was too high? It could be argued that because of this
error, an individual chose not to elect COBRA and was thereby harmed. In order
to remedy this situation it would seem wise to refund the difference to those
individuals that have paid too much, but perhaps more importantly, re-notify
those who did elect. Working out additional timeframes for the latter to pay the
retroactive premiums would probably be advisable as well.
Once an error is identified, it is of utmost importance to respond quickly
and fairly. From a legal standpoint, making an individual “whole again” is often
the key. In other words, if the individuals were not necessarily harmed by the
violation and remain in the same position they would have been in had the error
not occurred, the legal repercussions may be mitigated. Courts realize that the
Employee Retirement Income Security Act of 1974 is quite complex; therefore,
they can take into account whether an honest mistake should justify imposing
penalties, as well as whether the plan administrator took proper action to
rectify the situation once the error was caught. In this author’s opinion,
implementing steps to make sure errors do not occur in the first place goes
without saying, Be proactive by reviewing your COBRA administrative processes
regularly and make sure proper training is updated to ensure compliance.
However, because it is human to err, acting in good faith to rectify errors once
they are found, is the best defense.
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