With all of the changes to COBRA, due to the ARRA extension and questions about the subsidy for COBRA participants, it is important to keep in mind that accuracy of information is still significant. Plan administrators should keep in mind that the $110/day penalty should still focus the mind when dealing with COBRA content of notices and timing of distribution.
In a recent a bankruptcy case, an employee terminated his employment and the employer sent a COBRA notice four months late, with a termination date (qualifying event date) that corresponded with a later termination date. The employer asserted that claims denied during those four months were denied in error, and that the employee's actual qualifying event date was the later date. Because the employee was in bankruptcy, the issue was presented to a bankruptcy court. The court awarded $13,000 in penalties to the employee because of the intentional "misstatement" of the qualifying event date in the COBRA notice. The Court found that *even though the employee's claims were paid* by the health insurance carrier, damages were still warranted because the dating of the notice was not merely a clerical error and was not made in good faith. The equities may have played a role here in that, to the court, the "misstatement" appeared intentional by the company to protect the company.
DOL COBRA regulations require the election notice to identify the qualifying event and the date that coverage will terminate unless COBRA is elected, but not the specific date of the qualifying event. If the qualifying event date is provided in the notice, however, it must accurately reflect the actual qualifying event date. In this case, the penalties covered the 120 days between the actual qualifying event date and the one erroneously reported on the notice.
This decision is a gentle reminder to plan administrators that information provided to COBRA-eligible participants should be timely and accurate. Even though the participant might not actually be prejudiced by the receipt of incorrect information, it can still give rise to penalties under the regulatory framework.
In re Olick, (2009 WL 5214583)
