Lloyd v. Harrington Benefit Services
(United States District Court, Northern District of Mississippi, Civil No.1:05CV28-JAD (N.D. Miss. 2006))
An increasingly common practice for employers with benefit plan waiting periods is to help pay for the COBRA
coverage of their new hires. This practice does not always guarantee continuous coverage, as one employee
recently learned.
Clifton Lloyd resigned from Westlake Chemical in May to go to work for Cubicon. Harrington Benefit Services
(HBS) administered Westlake’s plan, including COBRA. Cubicon had a 60-day waiting period but agreed to pay
for the Lloyd family’s COBRA coverage during that time. Lloyd submitted the COBRA paperwork to his Cubicon
supervisor and assumed he would take care of all the details.
He assumed wrong.
Cubicon never sent the election form to HBS, and HBS later sent the Lloyds a notice in August, stating that no
COBRA coverage had been elected. The Lloyds denied receiving the letter, and when they submitted claims
during that time frame, HBS continued to pay for them, even after Lloyd elected Cubicon coverage. All told, the
incorrectly paid claims totaled almost $15,000.
In March of the next year, Westlake rehired Lloyd and when he re-enrolled, HBS discovered its payment error.
HBS successfully recovered about $10,000 of the claims from the Lloyds’ medical providers. This resulted in
those providers seeking reimbursement from the Lloyds, which prompted the Lloyds to sue HBS.
The Lloyds made two basic arguments:
- HBS' confirmation of coverage constituted a material misrepresentation of the facts on which the Lloyds
relied; as a result, HBS had no right to seek reimbursement when it later detected the error.
- HBS effectively waived its right to deny coverage when it paid for the medical claims.
The Court disagreed with both arguments. A plan has the right to correct its coverage mistakes to the extent
possible.
This case emphasizes the importance of being vigilant about terminations of coverage. While the employer’s
plan prevailed against the employees, there would have been no lawsuit if coverage had been terminated promptly
and appropriately. This case also underscores the rule that COBRA elections are ultimately the sole responsibility
of each qualified beneficiary.