COBRA Notice Violations May Result in Payment of Employee’s Medical Expenses

In the first federal appellate decision to address the remedy for violations of the Consolidated Omnibus Budget Reconciliation Act’s (COBRA) notice provisions, the U.S. Court of Appeals for the Fifth Circuit held that an employer may be liable for the payment of an employee’s medical expenses.

COBRA requires employers to provide certain notices to employees of their rights to continuing healthcare coverage. This includes notice of eligibility for healthcare continuation, as well as notice of termination of coverage. In Hager v. DBS Partners, Inc., the employee failed to receive the required notice of termination, and he sued the employer, seeking reimbursement of his medical expenses.

The Employee Retirement Income Security Act (ERISA) provides civil money penalties for violations of COBRA’s notice provisions. These include awards of “up to $100 per day from the date of such [notice] failure” as well as “such other relief as [the court] deems proper.” The Fifth Circuit found that the employee’s medical expenses could constitute “such other relief.”

Thus, given the potential significant penalty that could be imposed for notice failures, employers should ensure timely and accurate compliance with COBRA’s notice requirements. To the extent that an employer relies upon a third party administrator to transmit such notices, the employer should also check to make sure the TPA is in compliance, and should also consider including indemnification and hold harmless clauses in their TPA agreements to cover potentially deficient notices or failures to provide notice.