National Companies Health Plan v. St. Joseph’s Hospital
(United States Court of Appeals for the Eleventh Circuit, LEXIS 7811)
At the time of Robert Hersh’s termination of employment from
National Distributing, he and his family were covered under National’s group health
plan. They were also covered under the plan at St. Joseph’s Hospital, where Mrs.
Hersh was employed. Claims were coordinated between the two plans.
Mrs. Hersh was pregnant at the time of Robert’s termination.
With a complicated birth expected, Mr. Hersh sought to maintain coverage under both
health plans. When National offered COBRA to the Hershes, they elected and began paying
premiums. When Mrs. Hersh gave birth to premature twins, several hundred thousand
dollars in claims resulted. National attempted to cancel the COBRA coverage
based on the Hershes’ other coverage with St. Joseph’s Hospital. The Hershes
filed suit, claiming they relied on National’s assurance to them that they would
be allowed to continue coverage under COBRA.
Not only did the court order National to provide COBRA coverage, it
ordered the company to provide COBRA for 36 months. Though the statute would have only
required 18 months, the COBRA notice that was provided to the Hershes listed the maximum
coverage period as 36 months. The court stated the Hershes relied upon this incorrect
wording, as well as National’s representation to them that it (National) would
provide the coverage. Using principles of equitable estoppel, the court found that the
Hershes relied upon National’s assurance to their detriment and thus were entitled
to the coverage.
Of additional importance was the court’s citing of outdated
information in National’s COBRA notice. The COBRA statute had been amended,
prior to the Hershes’ Qualifying Event, regarding when COBRA coverage may be terminated
prior to the end of the maximum coverage period. National’s notice did not contain
the new wording. The court stated the importance of immediately updating all notice
and plan information upon a change in the COBRA law. Further, the court stated that
the employer was required to know all ERISA requirements and “to
determine employee’s rights to continuation coverage and notify them of these
rights.”
In all, the award to the Hershes amounted to nearly $1 million.
Approximately $200,000 of the award was for damages, and another $60,000 for the Hershes’
attorney fees. When citing the reason for awarding damages and attorney fees,
the court stated that plan sponsors (usually employers) need to be aware there is more
to lose in these lawsuits than the cost of claims.