Brown v. Neely Truck Line, Inc.

• Decision Date: 17 April 1995
• Docket Number: Civ. A. No. 92-D-659-E.
• Citation: 884 F. Supp. 1534
• Parties: Earl BROWN and Linda Brown, Plaintiffs, v. NEELY TRUCK LINE, INC; Blue Cross and Blue Shield of Alabama, Defendants.
• Court: U.S. District Court — Middle District of Alabama

884 F. Supp. 1534

Earl BROWN and Linda Brown, Plaintiffs, v. NEELY TRUCK LINE, INC; Blue Cross and Blue Shield of Alabama, Defendants.

Civ. A. No. 92-D-659-E.

United States District Court, M.D. Alabama, Eastern Division.

April 14, 1995.

Order Modifying Decision April 17, 1995.

COPYRIGHT MATERIAL OMITTED

William Rufus King, Montgomery, AL, Benny Charles Hand, Jr., Auburn, AL, for plaintiffs.

George M. Boles, Birmingham, AL, for defendants.

MEMORANDUM OPINION

De MENT, District Judge.

A hearing in the above-styled action was held on January 10, 1994, in the United States District Court for the Middle District of Alabama, Eastern Division. Earl and Linda Brown (collectively the "Browns" or the "Plaintiffs") allege that Earl Brown's employer, Neely Truck Line, Inc. (hereinafter "Neely" or the "Defendant"), did not provide notice of the opportunity for continued health benefit coverage under the Employee Retirement Income Security Act (hereinafter "ERISA"), 29 U.S.C. § 1001 et seq. The Browns contend that in failing to provide the notice, Neely violated the Consolidated Omnibus Budget Reconciliation Act (hereinafter "COBRA"), 29 U.S.C. 1166.

JURISDICTION & VENUE

Jurisdiction is proper under 28 U.S.C. § 1331 because Plaintiffs allege a violation of a federal statute, 29 U.S.C. § 1166.¹ Personal jurisdiction and venue are not contested.

BACKGROUND

Plaintiffs instituted the above-styled cause in the Circuit Court of Lee County, Alabama, on May 12, 1992. Earl Brown (hereinafter "Mr. Brown") was employed by Neely for a number of years. Between December, 1990, and June, 1991, Defendant deducted a prescribed premium from Mr. Brown's paycheck for health insurance. Mr. Brown's wife, Linda Brown (hereinafter "Mrs. Brown"), was also covered under this plan.

During the time the plan was effective, Mrs. Brown suffered from diabetes and resulting complications which required medical attention. Mr. Brown contends that Neely communicated to him that Blue Cross and Blue Shield of Alabama (hereinafter "Blue Cross"), the provider of Neely's health benefit plan, would cover Mrs. Brown's needs according to the policy. Mrs. Brown sought and received the needed medical treatment. Mrs. Brown then presented her claims to Blue Cross. Blue Cross then purportedly informed Plaintiffs that the contract between it and Neely had been canceled in December, 1990, and requested that Plaintiffs reimburse it for moneys expended for Mrs. Brown's medical treatment.

Neely then acquired the services of Principal Mutual Life Insurance Company (hereinafter "Principal Mutual")² to replace Blue Cross as its health benefit plan insurer. J. Miller Affidavit, June 7, 1993.³ Soon thereafter, Principal Mutual began paying Mrs. Brown's diabetes treatment, in full, under a comprehensive medical coverage policy as the plan offered by Principal Mutual contained no "preexisting condition" exclusion provision(s).⁴ See id. The Browns were covered by the Neely plan provided by Principal Mutual from its effective date until Mr. Brown terminated his employment with Neely.

Mr. Brown terminated his employment with Neely on or about September, 6, 1991, and began employment with All State Packaging of Opelika, Alabama (hereinafter "All State"). All State provided health insurance coverage for its employees, and their spouses through Benefit Trust Life Insurance Company (hereinafter "Benefit Trust"). During a 15-month period following Earl's employment with Defendant Neely, Mrs. Brown incurred medical expenses allegedly totalling approximately twenty-five thousand dollars ($25,000). Benefit Trust declined to pay a portion of these medical expenses, as the expenses resulted from a physical condition existing prior to the effective date of coverage.⁵

Subsequently, Plaintiffs instituted the above-styled action in the Circuit Court of Lee County, Alabama, on May 12, 1992.⁶ In their complaint, Plaintiffs alleged that they were entitled to recover under the following state law theories: fraud; breach of contract; breach of fiduciary duty; conversion; and bad faith.⁷ On October 7, 1993, Plaintiffs amended their complaint to include claims of interference with ERISA rights and violations of COBRA.

Neely filed a cross complaint against Blue Cross on June 10, 1992. Neely claimed that its co-defendant breached their contract by not providing the coverage for which the parties had contracted. Neely contended that it and Blue Cross executed a contract to provide health insurance for the former's employees on or about June 12, 1988, and that the contract was believed to be in effect until Blue Cross delivered the notice of retroactive cancellation of the policy to Plaintiff. Neely asserted that Blue Cross had agreed to a deferred payment of premiums plan. Neely also claimed that immediately prior to the date of the termination notice, Blue Cross accepted a renewal premium for the period commencing July 1, 1991. At the same time, Blue Cross allegedly accepted a check for premiums for the prior policy term — December 1, 1990 to June 30, 1991.

On September 10, 1993, co-defendants and third party litigants, Neely and Blue Cross, entered a joint stipulation to dismiss, with prejudice, all of Neely's claims against Blue Cross. On the same day, the court entered an order dismissing, with prejudice, Neely's claim(s) against Blue Cross. On October 12, 1993, Plaintiffs and Blue Cross filed a joint stipulation to dismiss, with prejudice, all of Plaintiffs' claims against Blue Cross. The Browns and Blue Cross executed a pro tanto release; therefore, the Browns' claims against Neely remained.⁸

A judicial proceeding in the above-styled action was held on January 10, 1994. Plaintiffs contend that Defendant Neely violated the notice requirements of COBRA. Plaintiffs allege that their financial loss is a direct consequence of the failure of Neely to allow Mrs. Brown to elect continuation coverage after Mr. Brown's termination of employment with Neely. Plaintiffs contend that as plan sponsor and plan administrator Neely was required to apprise each qualified beneficiary, the employee and his spouse, that they may elect continuation coverage under the plan. Plaintiffs seek statutory damages and attorney's fees. Plaintiffs filed a post-trial brief on January 18, 1994. Neely filed its post-trial brief on February 4, 1994.

DISCUSSION & ANALYSIS

I. COBRA Overview

Continuation coverage under previous health care benefit plans is available to qualified beneficiaries. Spouses of covered employees are included within the definition of "qualified beneficiaries." 29 U.S.C. § 1167(3); National Companies Health Benefit Plan v. St. Joseph's Hospital of Atlanta, Inc., 929 F.2d 1558, 1567 (11th Cir.1991). In order for a qualified beneficiary to receive continuation coverage, a "qualifying event" must transpire. National Companies Health Benefit Plan, 929 F.2d at 1567. Termination of a covered employee suffices as a cognizable qualifying event so long as the termination is not the consequence of gross misconduct. Id.; 29 U.S.C. § 1163.⁹ There is no indication, and Defendants do not contend, that Mr. Brown's termination resulted from any misconduct. Therefore, at that point, the court finds that Mr. Brown and all beneficiaries realized a qualifying event.

Once, as here, it is determined that a qualifying event has occurred, COBRA requires employers to provide notice to the covered employee and all qualified beneficiaries informing them that continued health care coverage under their current plan is an option. See 29 U.S.C. § 1165(1)(A). Such notice must allow the affected person(s) 60 days to choose among the various plans for health care coverage. 29 U.S.C. § 1165(1)(B); Meadows v. Cagle's, Inc., 954 F.2d 686, 691 (11th Cir.1992).¹⁰ However, the covered employee or qualified beneficiary has no right to employer subsidization of his or her health insurance; but rather, should he or she choose to participate in the previous plan, he or she must pay his or her own insurance premiums, at a cost not to exceed 102% of the employer's cost. 29 U.S.C. § 1162(3); see also Paris v. Korbel & Brothers, Inc., 751 F.Supp. 834, 837 (N.D.Cal. 1990); Phillips v. Riverside, Inc., 796 F.Supp. 403, 406 (E.D.Ark.1992).

The United States Eleventh Circuit Court of Appeals has offered the following explanation of COBRA:

"Congress enacted COBRA because it was concerned about the fate of individuals who, after losing coverage under their employer's ERISA plan, had no group health coverage at all. Continuation coverage would afford these individuals group health coverage until they were able to secure some other coverage. Recognizing the substantial costs continuation coverage would place on employer-operated ERISA plans, and thus beneficiaries of these plans, Congress did not make continuation coverage infinite in duration. Instead, Congress, under ERISA, gave beneficiaries a maximum period of either eighteen or thirty-six months of continuation coverage, a reasonable length of time for most to secure other group health coverage.¹¹

Additionally, Congress provided for certain terminating events. One such event is the beneficiary's obtention of other group health coverage. This provision is consistent with the goals of COBRA. Some beneficiaries are able to obtain new coverage in less than eighteen or thirty-six months. When these individuals obtain their new coverage, coverage under their former ERISA plan is unnecessary. In these cases, Congress' goal has been served — the employee has group health coverage...."

National Companies, 929 F.2d at 1569-70 (footnote added).

II. COBRA Notice

The plan administrator must provide sufficient notice of COBRA rights on two distinct occasions. First, the plan administrator must provide notification of COBRA rights to covered employees and their spouses at the commencement of plan coverage. 29 U.S.C. § 1166(a)(1); Phillips, 796 F.Supp. at 406. Second, the occurrence of a qualifying...