Brown v. Neely Truck Line, Inc.
(United States District Court for the Middle District of Alabama,
Eastern Division, LEXIS 5185)
Earl Brown had been an employee of Neely Truck Line for a number of
years, and he and his wife, Linda, were covered by the Neely health plan. Linda suffered
from diabetes, a condition which was covered by the Neely plan (Blue Cross and Blue
Shield of Alabama). Linda incurred claims related to her diabetes between December 1990
and June 1991. When she presented these claims to Blue Cross, she was told that the
plan had been canceled in December 1990. (Blue Cross requested that the Browns reimburse
it for claims already paid after December 1990. The unpaid Blue Cross claims were not
a matter of dispute in this lawsuit.) Neely Truck Line implemented a new health plan,
effective July 1, 1991, through Principal Mutual Life Insurance Company. The Principal
Mutual plan did not contain a pre-existing condition limitation, and it began paying
Linda’s claims that were incurred after the July 1 effective date.
On September 6, 1991, Earl terminated his employment with Neely and
went to work for All State Packaging. The Browns were both covered (after a 90-day waiting
period) by All State’s health plan under Benefit Trust Life Insurance Company.
The All State health plan did contain a pre-existing condition limitation and did not
cover Linda’s expenses related to her diabetes. In the 15 month period following
Earl’s termination from Neely, Linda’s claims totaled approximately $25,000.
DISTRICT COURT RULING
The court determined that Neely was responsible for notifying Earl
and Linda Brown of their right to continuation coverage under COBRA no later than September
20, 1991, 14 days after Earl’s termination. Both sides disputed whether or not
the notice had actually been sent. The court stated, however, that the burden of proof
rested with the employer. Therefore, it was up to Neely to implement and maintain procedures
that could substantiate its claims to having properly notified the Browns.
In its opinion, the court suggested that Neely mail COBRA notices
via certified mail or certificate of mailing (the method recommended by COBRA Compliance
Systems, Inc). This type of documentation, along with a copy of the notice that Neely
claimed to have sent, would have provided the court with the proof it needed to decide
in Neely’s favor. (The court discussed the presumption of receipt: “...a
letter properly addressed, stamped, and mailed was received by the individual to whom
the letter was addressed....Mere denial of receipt is insufficient to rebut the presumption.”)
The court ordered Neely to reimburse the Browns for Linda’s
uncovered medical expenses, minus the cost of premiums that the Browns would have paid
under COBRA. The court also assessed penalties against Neely for its notice failure
in the amount of $10 per day each for Earl and Linda Brown. The penalty was assessed
for Earl from September 20, 1991 (the last date on which Neely could have sent the Qualifying
Event notice), to the date on which he was covered by the All State plan. The penalty
for the notice failure on behalf of Linda was calculated from September 20, 1991, to
the date on which All State began covering her pre-existing condition (approximately
15 months later). The penalties added an estimated $5,000 to Neely’s costs. The
court added 6.41 percent interest to each penalty it assessed.