No COBRA penalties awarded against good faith employer

A recent court case shows how an employer’s prompt efforts to fix its past COBRA failures saved it from more than $55,000 in penalties for failing to provide COBRA election notices. (These election notices give employees and dependents who lose health insurance due to a qualifying event, the opportunity to continue coverage for a limited time by self-paying.) When the employer discovered that some of its former employees were not provided with COBRA election notices, it promptly contacted those individuals, provided the late COBRA election notices, allowed the individuals to retroactively elect COBRA coverage and offered to negotiate payment plans for those who could not pay all the premiums at once. When a group of those former employees sued, seeking $55,220 in penalties for the late COBRA notices, the trial court refused to award any penalties against the employer, noting the employer’s diligent and good faith efforts to correct its COBRA errors as soon as it discovered them. On appeal, the Seventh Circuit agreed with the lower court, noting that the individuals who didn’t receive COBRA notices were ultimately unharmed by the failure and that there was no evidence the employer acted in bad faith (Gomez v. St. Vincent Health, Inc., 7th Cir, Aug. 2011).

Tips: It is common in COBRA cases for the court to examine the employer’s behavior and determine penalties based on what the court believes the employer’s motives were. If the court is convinced that the COBRA failure was an honest and unintentional mistake and that the employer did everything it could to rectify the situation, the court will often award only minimal, or no penalties. If you discover a COBRA violation, how you should go about fixing it will depend on the circumstances, such as how long ago the violation occurred, whether your plan is insured or self-insured, and many other factors, so be sure to contact Vigilant for assistance. For an overview of COBRA requirements, see our Legal Guide, “COBRA Qualifying Events and Notice Schedule” (1658).