:: Missed COBRA Qualifying Events Cause Forfeiture Of Stop Loss Coverage
In Fenner, this court held that if the same medical coverage continues automatically after termination, no qualifying event occurs. 25 F. Supp. 2d at 873 (citing Mansfield v. Chicago Park Dist. Group Plan, 997 F. Supp. 1053 (N.D. Ill. 1998). But, if the health plan requires the employee to take any action to continue her coverage, and absent this action the employee’s coverage would lapse, then the qualifying event is termination of the employment and the employer must give the employee a COBRA notice. Id. at 874 (citing Mansfield, 997 F. Supp at 1053).
Majestic Star Casino, LLC v. Trustmark Ins. Co., 2009 U.S. Dist. LEXIS 93911 (N.D. Ill. Oct. 8, 2009)
The district court’s opinion in Majestic v. Trustmark addresses numerous aspects of a controvery between an employer on the one hand and its stop loss carrier and MGU on the other.
Though not dispositive of the case, the opinion does cover a broad swath of issues than can arise in the stop loss reimbursement setting, some of which I hope to discuss further in additional posts. In this post, I will note the facts that cost the employer stop loss coverage on several claims based upon discontinuities in the plan language and that in the stop loss policy.
Reading For Content
One of the first things that I noticed about ERISA years ago was that, though ERISA places a premium on the written plan, few people really read the plan. Odd, but true. Plan administration and plan language will often fail to cohere in meaningful respects – and, when additional documents are added to the mix, such as ASA’s or stop loss policies, the divergence only gets worse. When the element of administrative practice is examined vis a vis the document potpourri, inconsistencies will abound. And so it was in this case.
Here we have plan language that states:
If you are absent from work due to an occupation/non-occupational disability, you may continue coverage for ninety (90) days, following the date of the leave, if you pay any required contributions toward the cost of coverage. Coverage under this provision runs concurrently with coverage continued under COBRA.
Plan Language Versus Administrative Practice
Evidently, the employer thought, and the plan was administered, as if the qualifying event occurred on the 91st day. The Court noted this point, stating:
Majestic further argues that its health plan language reflects the company’s intent to extend full coverage to employees for the first 90 days of an approved leave, and that any other interpretation would render the leave provision meaningless. While Majestic may have had every intention of extending normal health care coverage to its employees on approved leave, the language of its health plans fails to do this.
Yet, the plan language failed to comport with administrative practice here. Regardless of the intent, and evidently the administrative practice, conferring a 90 day leave period pre-COBRA, the plan language failed to describe the intended result.
Costs Of Contradiction
The contradiction was summarized in this excerpt:
The relevant provision states that an employee may continue coverage if she takes affirmative steps (paying any required contributions). Thus, continued coverage is conditional, not automatic, and if an employee does not elect to extend coverage and pay the required contributions, normal coverage will end following the date of the leave. Although Majestic’s corporate director for compensation and benefits . . . stated in an affidavit that employees utilizing continuation of coverage “did not have to do anything new in order to continue coverage,” it is the terms of the plan that control here, not Majestic’s interpretation or implementation of the plan.
If the mistake were simply a more generous administrative practice versus the plan language, no worries. Unfortunately, the language of the stop loss policy also had to be taken into account.
That language read as follows:
Losses under the Plan shall not include, and the Company [Trustmark] shall not be liable for, any of the following: . . . [T]his Contract shall exclude any amounts Paid for Covered Persons . . . who do not receive a valid COBRA extension offer within the 30 days immediately following a COBRA qualifying event . . . .
Stop Loss Carrier Entitled To Strict Construction Of Plan Language
The issue now broadens to what the stop loss carrier was entitled to presume.
On this point, the Court observes:
Although Majestic’s corporate director for compensation and benefits, Sally Ramirez (”Ramirez”), stated in an affidavit that employees utilizing continuation of coverage “did not have to do anything new in order to continue coverage,” it is the terms of the plan that control here, not Majestic’s interpretation or implementation of the plan.
Majestic and Trustmark entered into the stop loss agreement based on the language of Majestic’s health plan. Majestic cannot avoid the delayed COBRA notice exclusion from the stop loss policy by not following its health plan’s express terms.
The Qualifying Event Analysis
Under the leave of absence provision of Majestic’s health plan, the qualifying event for purposes of COBRA was the first day of leave.
Thus:
. . . the COBRA notice clock began to run on that day. Accordingly, since Majestic failed to send COBRA notices until after the 91st day of leave, it was in breach of the delayed COBRA notice exclusion of the stop loss contract. Consequently, Trustmark’s motion for partial summary judgment on the limited issue of liability under the COBRA exclusion is granted and Majestic’s motion is denied.
Note: The bottom line here – no matter how generous the plan’s administrative practice, the stop loss carrier will be able to assert a strict construction of the plan in defense of its reimbursement coverage exclusions. As I have often observed, the triangulation of plan language, plan administration and historical administrative practice will never converge on a single point.
ERISA Preemption - Never raised as an issue to my knowledge – checked the documents on Pacer and on a quick scan, saw nothing indicating this form of argument. Cf. Kyle v. Pacific - times have changed on this issue I think. (I do agree that ERISA preemption should not apply to employer versus carrier disputes.)
Follow up - This case is an interesting case to watch. There are experienced lawyers on both sides of this case and additional issues will likely be fully vetted in the course of the litigation. In fact, I just noted one issue here among several addressed in this decision on cross motions for summary judgment. The full opinion is posted on erisaboard.com.
