Federal Court Finds Employer on the Hook for TPA’s Misdirected COBRA Notice

On September 22, 2022, in Howard v. Ivy Creek of Tallapoosa, LLC et al., the US District Court for the Middle District of Alabama ruled that a delegation of COBRA notice obligations to a third-party administrator (TPA) did not absolve the employer of COBRA notice liability. The plaintiff, Pamela Howard, sued her former employer Ivy Creek of Tallapoosa (Ivy Creek) and Ivy Creek’s COBRA TPA, UMR Inc., alleging failure to provide a COBRA election notice. Howard brought a second claim against Ivy Creek under ERISA for failure to provide requested plan documents.

Ivy Creek maintained a self-insured medical plan for which it served as both plan sponsor and plan administrator. UMR was the TPA for the plan under an administrative service agreement with Ivy Creek, which included the responsibility of handling claims and issuing COBRA continuation notices. Howard worked for Ivy Creek as a nursing assistant from March 2015 until March 2019, when she suffered a debilitating aneurysm. In June 2019, Ivy Creek notified Howard by letter that she had been terminated after exhausting her medical leave. The letter also indicated that she would be provided COBRA election notices for continuation of her dental and medical coverages. Howard was timely provided the COBRA election notice for dental coverage but not for her medical coverage. The medical coverage COBRA election notice was mailed by UMR to Howard’s former residential address. The notice was returned to UMR as undeliverable, but UMR did not alert Ivy Creek of the delivery problem. Several months later, Howard sent requests to Ivy Creek for information on her medical COBRA continuation rights. She also requested plan documents through her legal counsel. These requests were ignored, and the lawsuit followed.

In addressing the COBRA claim, the court began with the premise that a plan administrator (typically, the employer) must be able to prove a good faith effort was made to provide the COBRA election notice, although proof of receipt is not required. Howard claimed Ivy Creek and UMR violated COBRA by failing to mail her election notice to her last-known address — the same address to which Ivy Creek mailed the employment termination letter and dental COBRA election notice. Ivy Creek disclaimed liability because it contracted with UMR to provide medical COBRA election notices. The court found such delegation of a ministerial task does not absolve Ivy Creek of COBRA liability as the plan administrator.

As to UMR, the court found its failure to provide Howard with the medical COBRA election notice was a direct result of Ivy Creek’s failure to notify UMR of Ms. Howard’s updated address. Under the administrative services agreement, Ivy Creek was responsible for notifying UMR of address changes. Moreover, the court found UMR owed no fiduciary duty to Howard and held no liability under the COBRA statute, even though it may have breached its contractual agreement with Ivy Creek by not communicating that the notice was returned as undeliverable.

In addressing the claim for failure to provide plan documents, the court began with the premise that ERISA requires plan administrators to disclose certain plan documents upon “the written request of any participant or beneficiary.” A plan administrator who fails to make a required disclosure to a participant or beneficiary within 30 days may be liable for penalties up to $110 per day. Participants include former employees with “a colorable claim to vested benefits.” The court found that Howard, a former employee who alleges she would have received COBRA coverage but for her employer’s failure to provide the required notice, was an ERISA participant entitled to plan documents.

The Howard case serves as another important reminder for employers to review their COBRA notice procedures, whether that means internal procedures or those followed by a TPA. If a former employee (or other COBRA-qualified beneficiary) sues for failure to offer COBRA coverage, most courts have held that the plan administrator (typically, the employer) has the burden of proving a good faith effort was made to provide the election notice. To that end, employers should adopt reliable procedures for ensuring TPAs are timely notified of employee address changes. This case also serves as a good reminder for ERISA plan administrators to have adequate procedures in place to respond to plan document requests timely and completely.

Howard v. Ivy Creek of Tallapoosa, LLC et al. »