Forewarned Is Forearmed: Why Companies Need to Review Their COBRA Notices to Avoid Growing Class Action Trend

Even before the current pandemic crisis, we have noticed a growing trend in the filing of class action lawsuits challenging, under the Consolidated Omnibus Budget Reconciliation Act (COBRA), notices required to be issued by covered employers regarding continuation health care coverage available to employees and their beneficiaries under a variety of circumstances, including involuntary or voluntary job loss. We believe that trend will only accelerate in the wake of COVID-19 and resulting employment layoffs. In other words, employers who don’t review their COBRA notices and procedures face the peril of class action lawsuits alleging improper notice of terminated employees’ right to keep their current health care coverage.

Federal COBRA regulations require that an employer provide employees and qualified beneficiaries with a notice of the right to continue plan coverage “written in a manner calculated to be understood by the average plan participant.” 29 C.F.R. § 2590.606-4(b)(4). Among other requirements, the notice must explain the process to elect continued coverage, state when and where to make payments, include employment hiring and termination dates under the plan, and identify the plan administrator’s name, address, and phone number. The Department of Labor (DOL) provides a model notice that is compliant with COBRA guidelines. However, many companies create their own COBRA notice, leaving employers vulnerable to arguments by plaintiffs’ counsel that the employer’s notice is not consistent with the statutory requirements or the DOL model.

COBRA provides for statutory penalties of up to $110 per day per violation for notice violations, creating potential significant exposure to an employer if the COBRA notice is found legally deficient and has been issued to a large, nationwide workforce. The availability of statutory penalties forms the basis of more than a dozen lawsuits filed against Fortune 500 employers challenging alleged improper or inadequate notices. These lawsuits share similar claims that the defective notices cause plaintiffs to lose health care coverage, thereby incurring significant medical expenses. Here are just a few examples:

A Spanish-speaking housekeeper at a large chain hotel alleged that the company’s COBRA notice was inadequate because she could not understand the English-only notice.
A soft drink manufacturer allegedly sent multiple notices, all of which were allegedly deficient because the notices did not identify the plan or COBRA claims administrator, did not provide details on how to enroll in COBRA, and did not enclose a physical enrollment form.
Other companies’ notices allegedly did not include all required explanatory information, such as how a legal guardian can elect to continued coverage on behalf of a minor child or how a spouse may elect it.
In addition, allegations include deficient or overly complicated instructions for access to the COBRA program resulting in missed deadlines, loss of coverage, and out-of-pocket medical expenses.

Many of these lawsuits survived motions to dismiss, and at least one has been certified as a class action. Most were settled.

Substantial compliance with the COBRA notice requirements is a defense to pending lawsuits and may help limit potential liability if and when a class action is filed. Even though companies’ human resources departments are grappling with a number of serious issues during the current pandemic crisis, companies would still do well to take time to closely review their COBRA notices, and have counsel review them, before sending them to recently terminated employees.