Kidder v. H & B MARINE, INC., Civ. A. No. 88-2892

• Decision Date: 23 March 1990
• Docket Number: 88-3636.,Civ. A. No. 88-2892
• Citation: 734 F. Supp. 724
• Court: U.S. District Court — Eastern District of Louisiana
• Parties: Oreste KIDDER and Thelma Kidder v. H & B MARINE, INC., et al.

734 F. Supp. 724

Oreste KIDDER and Thelma Kidder v. H & B MARINE, INC., et al.

Civ. A. Nos. 88-2892, 88-3636.

United States District Court, E.D. Louisiana.

March 23, 1990.

COPYRIGHT MATERIAL OMITTED

William Rutledge, Lafayette, La., for plaintiffs.

Jack M. Alltmont, New Orleans, La., for defendants.

BEER, District Judge.

Plaintiffs, Oreste and Thelma Kidder, assert that defendants violated the Comprehensive Omnibus Budget Reconciliation Act of 1985 ("COBRA"), Pub.L. No. 99-272, 100 Stat. 222 (1986) (codified at 29 U.S.C. 1161-68) (Supp. IV. 1986), by failing to provide them with COBRA continuation coverage under a group health plan.¹

Rather than receiving COBRA continuation coverage, plaintiffs were provided with conversion to an individual plan after Mr. Kidder left his employment with defendant H & B Construction, Inc. ("HB Construction"). After Mrs. Kidder was subsequently hospitalized, plaintiffs received the maximum recovery under that individual policy. Plaintiffs now seek the differential between the medical insurance benefits they received under the individual conversion policy, and the benefits they would have received if they had continued coverage under the group plan. Plaintiffs also seek an award for attorneys fees, asserting that defendants violation of COBRA was deliberate.

Besides HB Construction, the principle defendants are Blue Cross and Blue Shield of Louisiana Multiple Employer Group Insurance Trust ("BC Trust"), of whom HB Construction was a participating employer; and Blue Cross and Blue Shield of Louisiana, the underwriter of HB Construction's group health plan ("Blue Cross").² HB Construction and Blue Cross filed cross-claims against one another.³

In order to prevail, plaintiffs must first show that COBRA applies to HB Construction's group health plan. Second, plaintiffs must prove who among the defendants violated a lawful duty under COBRA to advise them of their right to a continuation of group coverage, or to provide that coverage.

Trial in this matter was held on January 18, 1990. This court makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1. Before the two companies merged in 1986, HB Construction and HB Marine were owned by the same four principles, who each owned 25% of each company. The two companies have had the same office manager since 1983. They had separate P.O. Boxes and separate telephone numbers, but they operated out of the same office and the same person answered the phone for each of them.

2. HB Marine conducts marine work on water, like pile-driving. HB Construction does work on land, like levy work and excavation.

3. It was the practice of HB Marine and HB Construction to exchange employees as work demands required. When a transfer was made, there was no change in the insurance benefits provided for the employee.

4. Plaintiff Oreste Kidder began working for HB Marine in 1983 as a dredge captain. Subsequently, he was transferred to the payroll of HB Construction, where he remained until his termination in 1987. The only changes that resulted in the transfer for Kidder was the color of his paycheck, and the company name on it. His job responsibilities were unchanged, and he had the same boss, Emmet Buras.

5. While there is some dispute over whether HB Construction employed on average 20 or more employees on a typical day in 1986, there is no dispute that HB Marine and HB Construction combined employed on average more than 20 employees on a typical business day in 1986.

6. HB Marine and HB Construction merged on June 30, 1986, principally for tax purposes.

7. On September 2, 1986, Emmet Buras, on behalf of HB Construction, signed a Participating Employer Application ("Application") with BC Trust, which became effective on September 1, 1986. HB Construction was the only employer listed on the Application. Buras indicated on the Application that HB Construction employed 19 people, 18 of which were to be enrolled in the group health plan.

8. Blue Cross underwrote the policy for HB Construction based upon this Application, as well as an employees' census that indicated that HB Construction employed 17 people.

9. At the time the Application was signed, neither BC Trust nor Blue Cross was informed of the merger that had recently occurred between HB Construction and HB Marine, or of the practice of exchanging employees between the two companies as work demands required.

10. Pursuant to HB Construction's Application, a Blue Cross and Blue Shield Multiple Employe Group Insurance Trust ("Trust Agreement") was subsequently executed by which HB Construction was accepted as a Participating Employer in BC Trust.

11. At no time after acceptance of HB Construction as a Participating Employer, did either BC Trust or Blue Cross give any information or instruction to HB Construction regarding COBRA and the conditions under which an employee can elect COBRA continuation coverage.

12. BC Trust subsequently received premium statements from HB Construction that showed that HB Construction had more than 20 employees, and Blue Cross via BC Trust accepted premiums for more than 20 employees in those instances.

13. Kidder was terminated from employment with HB Construction on February 13, 1987. Kidder was listed on HB Construction's payroll at the time of his termination. He was also listed as covered under HB Construction's group health plan monthly roll from the date the plan was purchased until February of 1987.

14. At the time of his termination, Kidder was informed by his boss at HB Construction, Emmet Buras, and the independent insurance agent who sold the policy to HB Construction, that he could not continue under the group plan.

15. Neither Kidder nor anyone at HB Construction contacted BC Trust or Blue Cross immediately prior to or following Kidder's termination to inquire whether he was eligible for COBRA continuation coverage.

16. Kidder's termination of Blue Cross group coverage was effective March 1, 1987. On the group plan roll for that month, which was submitted to BC Trust, Eva Bowers, office manager of HB Construction, struck through Kidder's name on the roll, and noted "cancelled" beside his name. No explanation was given by Bowers on the roll as to why Kidder was cancelled.

17. Kidder was provided with conversion coverage by Blue Cross effective March 1, 1987. His conversion application was prepared by HB Construction personnel.

18. Despite signing an application for a conversion policy, and statements to the contrary previously made by HB Construction personnel to him, Kidder believed at that time that he was still enrolled on the group plan. Kidder apparently got this impression from talking with Eva Bowers, who he testified told him that he was still under the group plan. Although Bowers refutes ever telling Kidder that he was still under the group plan after his termination, this court finds credible Kidder's testimony that his understanding was to the contrary.

19. Several months after Kidder was terminated from HB Construction, and obtained the conversion policy from Blue Cross, his wife, Thelma Kidder, was hospitalized, resulting in medical costs totalling over $25,000 for plaintiffs.

20. Kidder made a claim pursuant to his individual conversion policy, and Blue Cross paid to him $10,041.25, the highest payment Kidder's conversion policy required.

21. The parties stipulated before trial that if plaintiffs prevail, they would be entitled to receive $23,890.24, which represents the differential between plaintiffs' benefits under the individual policy, and their former group health plan.

CONCLUSIONS OF LAW

COBRA applies.

Defendants contend that COBRA does not apply for two reasons, both of which are unpersuasive.

Blue Cross first contends that HB Construction's group health insurance purchase was not a "plan" subject to COBRA since HB Construction neither maintained nor controlled the plan. Rather, it made a "bare purchase" of insurance, and the trust was a mere conduit of premium payments. Taggert Corp. v. Life & Health Benefits Admin., 617 F.2d 1208, 1211 (5th Cir.1980), cert. denied, 450 U.S. 1030, 101 S.Ct. 1739, 68 L.Ed.2d 225 (1980); see also, Clark v. Golden Rule Ins. Co., 737 F.Supp. 376 (W.D.La.1989) (employer who participated in multiple employer trust did not "establish or maintain" the health plan, and thus the plan was not governed under ERISA).

This contention must be rejected, based on the fact that HB Construction paid a portion of the premiums for its employees. COBRA defines a "group health plan" as:

an employee welfare benefit plan providing medical care ... to participants or beneficiaries directly or through insurance, reimbursement, or otherwise.

29 U.S.C. 1167(1) (emphasis added). ERISA defines an "employee welfare benefit plan" as:

any plan, fund or program ... established or maintained by an employer ... to the extent that such plan, fund or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment....

29 U.S.C. 1002(1) (emphasis added). The Department of Labor, which administers ERISA, has promulgated final regulations regarding what constitutes an "employee welfare benefit plan". Those regulations provide that for purposes of group health insurance, the term "employee welfare benefit plan" does not include group insurance where (1) no contributions are made by the employer, (2) participation in the program is voluntary, (3) the functions of the employer are limited to allowing the insurer to publicize the program and facilitate dues payment by payroll deductions, and (4) the employer receives no consideration in connection with the program. 25 C.F.R. 2510.3-1(j), p. 335 (1988) (emphasis added).⁴ Therefore, since HB Construction, as a...