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Using a vendor for your COBRA compliance does not mean you are safe from claims. The employer bears ultimate responsibility for complying with COBRA. It appears that Pepsico and Lockheed may be about to learn this lesson.  Both were sued recently in Hillsborough County for failure to send proper COBRA election notices after employees terminated employment. In both cases, the COBRA notices at issue appear to be from a third party COBRA administrator. The plaintiffs allege that the COBRA notices did not contain all of the items required under the COBRA notice regulations such as the address for mailing payments, the name of the plan administrator, and when the COBRA coverage would terminate.

The damages in these cases could be very large. Both cases seek class action status. The plaintiffs claim that due to the deficient notices, they were prevented from obtaining health coverage through COBRA.  They also claim they had to obtain other coverage at an increased cost and/or incurred medical expenses that should have been covered by COBRA coverage. The plaintiffs seek a wide array of damages including repayment of these expenses (essentially finding the employer to be self-insured as a result of the deficient notices) as well as statutory penalties of $110/day for each class member who received a defective COBRA notice (the plaintiff in Pepsico was sent the improper notice over 300 days ago and counting) and their attorneys’ fees/costs. In addition to the monetary items above, the plaintiffs are seeking injunctive relief barring the company from using the defective notice as well as any other relief in the court’s discretion. For reference, Suntrust settled a similar case in 2017 for almost $400,000. Sharon Quinn Dixon’s blog on that case is here.

Even though many aspects of benefit plan administration have become routine, these cases are reminders that employers should periodically review their benefits plans and procedures for compliance. Employers should confirm that the content requirements of the COBRA notice regulations are satisfied in their own COBRA notices even if they use a vendor for these notices. If your notice fails on a “technicality” or perhaps even a substantive requirement, get it fixed now before your COBRA notice becomes the subject of a lawsuit.  Also, you should review your processes for sending notices to make sure notices are sent on time to the right address (and be prepared to demonstrate adequate procedures to ensure delivery). These types of issues are common fodder for litigation.

If you use a vendor to administer COBRA, make sure that your agreement provides appropriate representations and indemnity from your vendor. Look out for limits on any indemnity provisions. However, as plan administrator, you as the employer – not the vendor – are ultimately responsible for your benefit plan compliance.