An employer/plan administrator continues to get an expensive lesson on the risks of having both inadequate COBRA notice procedures and poor explanations of how those procedures work. An “inefficient, unwieldy” notice process — coupled with evasive and contradictory answers from employees on why a qualified beneficiary did not receive a COBRA election notice — led a federal district court in Alabama to deem the notice failure as intentional. Initially, the court assessed the employer/plan administrator more than $83,000 in penalties and legal costs. Subsequently, this amount rose to more than $126,000 after the qualified beneficiary successfully protested the amount of her attorney’s fee award. The case is Evans v. Books-A-Million, Civil Action No. CV-07-S-2172-S (N.D. Ala., Oct. 29, 2012) and 2012 WL 5954118 (N.D. Ala., Nov. 28 2012).
‘Unwieldy’ Process, Evasive Answers
Books-A-Million offered group health and dental coverage to its employees through Blue Cross/Blue Shield of Alabama. BAM was both the plan sponsor and plan administrator. In what the court described as an “unwieldy” process, a benefits staffer had to manually cross-reference three different lists in order to determine employees who should be notified of their COBRA rights.
Tondalaya Evans’ employment with BAM terminated on March 27, 2007 — at that time, she only had dental coverage. She continued to receive that coverage until May 30, 2007: two months after her employment ended. Sometime after her termination, Evans called BAM and said she had not yet received her COBRA notice. She later sued the company for COBRA notice claims and other employment law claims.
The court noted that, during the trial BAM employees offered contradictory accounts of what happened after Evans called BAM to inquire about her notice. “BAM’s inability to produce even a scintilla of evidence that the notice was ever mailed” — along with “contradictions and evasions and disingenuous answers” from BAM’s employees — led the court to conclude that BAM intentionally withheld Evans’ COBRA notice.
High Statutory Penalty Assessed
A plan administrator that violates COBRA’s notice requirements may, in a court’s discretion, be liable for up to $110 a day from the notice failure date. The court held that the penalty period began on May 11, 2007, and ended Sept. 27, 2008 — a total of 506 days. The court then found that a higher penalty amount of $75 per day — for a total of $37,950 — was justified in this case because of BAM’s bad faith and intentional withholding of the COBRA notice even after “multiple opportunities to correct its error.”
Initially, the court awarded more than $45,100 in attorney’s fees and costs, noting that: (1) BAM acted in bad faith; (2) as a “as a large, national company,” BAM would be able to satisfy a fee award; and (3) attorney’s fees would deter others from acting in bad faith and with the same disregard as exhibited by the three BAM employees, and for employers of BAM’s size, the statutory penalty may not be enough to elicit strict adherence to COBRA’s standards.
Evans could have been awarded almost $84,400 in attorneys fees (excluding costs); however, the court cut that amount in half for procedural reasons related to how it interpreted her damage requests. However, Evans provided clarification in a motion to alter or amend the court’s opinion on the attorney’s fees award. The court granted that request on Nov. 28; therefore, an amended judgment will be entered, bringing Evan’s total award for attorney’s fees and costs to almost $87,300.
More details on this case can be found in Thompson’s electronic research library, hrcomplianceexpert.com.
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