Communications Workers of America, Dist. One, AFL-CIO v. NYNEX Corp.

• Decision Date: 16 March 1990
• Docket Number: D,AFL-CI,No. 696,R,696
• Citation: 898 F.2d 887
• Parties: , 12 Employee Benefits Ca 1049 COMMUNICATIONS WORKERS OF AMERICA, DISTRICT ONE,onald E. Woods, Sandra Lara, Marie Petrie, Paulette Gilliam, and John Credaroli, Plaintiffs-Appellees, v. NYNEX CORPORATION, NYNEX Medical Expense Plan, New York Telephone Company, NYNEX Service Company, and Empire City Subway Company (Limited), Defendants-Appellants. ocket 89-9077.
• Court: U.S. Court of Appeals — Second Circuit

Page 887

898 F.2d 887

58 USLW 2587, 12 Employee Benefits Ca 1049

COMMUNICATIONS WORKERS OF AMERICA, DISTRICT ONE, AFL-CIO, Ronald E. Woods, Sandra Lara, Marie Petrie, Paulette Gilliam, and John Credaroli, Plaintiffs-Appellees, v. NYNEX CORPORATION, NYNEX Medical Expense Plan, New York

Telephone Company, NYNEX Service Company, and

Empire City Subway Company (Limited),

Defendants-Appellants.

No. 696, Docket 89-9077.

United States Court of Appeals,

Second Circuit.

Argued Dec. 7, 1989.

Decided March 16, 1990.

Bettina B. Plevan, New York City (Ira M. Golub, Kevin G. Chapman, Proskauer Rose Goetz & Mendelsohn, New York City, Bernard Yaker, Elizabeth B. Flaherty, White Plains, N.Y., Saul Scheier, Beverly Gross, Michael Hertzberg, New York City, of counsel), for defendants-appellants.

Amy Gladstein (Martin Garfinkel, Gladstein, Reif & Meginniss, Gabrielle Semel, Dist. One Counsel, Communications Workers of America, District One, AFL-CIO, New York City, of counsel), for plaintiffs-appellees.

Before KAUFMAN, NEWMAN and WINTER, Circuit Judges.

WINTER, Circuit Judge:

The instant dispute arose during a strike by 40,000 members of the plaintiff Communications Workers of America, District One, AFL-CIO ("CWA" or "Union"), and 20,000 other workers against defendants NYNEX Corporation, New York Telephone Company, NYNEX Service Company, and Empire City Subway Company (Limited) (collectively "NYNEX"). The striking employees were entitled to continuation coverage of medical benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, 29 U.S.C. Secs. 1161-1168 (1982 & Supp. V 1987) ("COBRA") (amending Employee Retirement Income Security Act, 29 U.S.C. Secs. 1001-1461 (1982 & Supp. V 1987) ("ERISA")). However, NYNEX acted to frustrate this coverage. The district court issued a preliminary injunction enjoining the defendants from failing to provide COBRA coverage and from telling health care providers whether employees had paid their COBRA premium. The injunction also required the defendants to notify the striking employees that they had the right to elect to receive continuation coverage that would be retroactive. Because we agree that the evidence was sufficient to support a finding of irreparable harm and a likelihood of success on the merits, we affirm. However, we substantially modify the preliminary injunction as noted below.

BACKGROUND

NYNEX and CWA have been parties to various labor agreements for many years, the most recent one being effective from August 10, 1986 through August 5, 1989. Pursuant to these agreements and in accordance with ERISA, NYNEX maintains the NYNEX Medical Expense Plan, which provides employees and their dependents with medical insurance coverage for both in-hospital and out-of-hospital expenses, including such expenses as nursing services, prescription drugs, chiropractic services, physiotherapy, ambulance service, and doctors' home and office visits.

Negotiations between the parties over a new collective agreement having failed, a strike began at midnight on August 5, 1989. On August 28, 1989, NYNEX notified the striking employees that it intended to terminate medical coverage effective September 15, 1989. Nevertheless, the striking employees were entitled, under COBRA and the accompanying regulations, see Treas.Reg. Sec. 1.162-26, 52 Fed.Reg. 22,716 (1987) (to be codified at 26 C.F.R. pt. 1) (proposed Apr. 6, 1987), to continued medical coverage. In particular, COBRA requires that group health plans grant "qualified beneficiaries," 29 U.S.C. Sec. 1167(3), who would lose coverage because of a "qualifying event," 29 U.S.C. Sec. 1163, the opportunity to elect to receive continuation coverage under the plan for 18 months following that event. See 29 U.S.C. Sec. 1162; see generally COBRA, 29 U.S.C. Secs. 1161-1168. In the instant case, the strike constituted such a "qualifying event" because it resulted in a "reduction of hours ... of the covered employee's employment," 29 U.S.C. Sec. 1163(2).

Under COBRA, the qualified beneficiary must elect to receive continuation coverage within 60 days of the qualifying event or COBRA permits health plans to require the timely payment of a premium for such continuation coverage. See 29 U.S.C. Sec. 1162(3). However, COBRA requires a plan to "permit payment for continuation coverage during the period preceding the election to be made within 45 days of the date of the election." 29 U.S.C. Sec. 1162(3); see also Treas.Reg. Sec. 1.162-26, at Q & A-48(a), 52 Fed.Reg. 22,731 (stating that timely payment means payment made within 45 days after the election). COBRA also provides that continuation coverage will end on "[t]he date on which coverage ceases under the plan by reason of a failure to make timely payment of any premium." See 29 U.S.C. Secs. 1162(2)(C). Although we find the statutory language somewhat tautological, the parties agree that Section 1162(2)(C) provides for retroactive termination of continuation coverage as of the date of the qualifying event or notice to the employee of the event if payment is not made during the grace period. The COBRA regulations support that view in stating that continuation coverage ceases on "the first day for which timely payment is not made." Treas.Reg. Sec. 1.162-26, at Q & A-38, 52 Fed.Reg. 22,731 (emphasis added). Because payment during the grace period is in part "for" the preceding continuation coverage, the plain implication is that a failure to pay the premium voids coverage from the beginning of the continuation period.

the date of notice of such event to the beneficiary, whichever is later. See 29 U.S.C. Sec. 1165(1). Because the NYNEX letter of August 28 notified the striking employees of the impending cancellation of coverage effective September 15, 1989, the employees had 60 days after September 15, or until November 14, 1989, to make a timely election under Section 1165(1) to receive COBRA continuation coverage.

To recapitulate, the scheme established by COBRA contemplates an affirmative election that triggers continuation coverage subject to retroactive termination in the event of failure to pay within the 45-day grace period. In the instant matter, therefore, the striking employees had a two-month window, from the time that NYNEX cancelled its insurance on September 15, 1989, until November 14, 1989, in which to elect continuation coverage. That continuation coverage would be retroactive to September 16 but would also be retroactively terminated if the employee did not pay the premium by the 45th day following election.

On September 1, 1989, CobraServ National Service Center ("CobraServ"), an agent for NYNEX, sent to the striking employees a four-page notice relating to medical benefits. The first page, entitled "Important Notice," contained a notation at the top stating that "IF YOU ARE ON STRIKE BENEFITS WILL TERMINATE ON 09/15/89." It also purported to advise the workers of their continuation rights:

If you elect to continue coverage, if you pay your premium, and if you meet all other requirements explained on the enclosed information sheet, your continuation coverage period will begin on 09/16/89. Your right to elect continuation coverage expires on 11/15/89. Please read the enclosed information sheet.

The next two pages, entitled "Information Sheet To Accompany 'Continuation of Group Health Coverage Election Agreement (COBRA),' " stated that "[o]nce the election agreement is returned, the COBRA Continuation Coverage Administrator will bill the participants for any selected coverages[,]" but that "coverage will end ... if ... the participant fails to pay the required premium in a timely manner." Although the Information Sheet did not explain that coverage is retroactive, it referred the reader to the NYNEX Benefits Handbook for more information. The fourth page, the continuation agreement itself, contained an authorization to be signed by the worker:

I agree to remit the full current premium cost to CobraServ by the specified due dates, and I understand that coverage is subject to cancellation if timely remittance of premiums is not made. I further understand that CobraServ will bill monthly for any selected coverages ... and that I am responsible for timely In a small box in the lower corner of the agreement, the following appeared:

payment regardless of whether or not I have received a bill.

IMPORTANT: The amounts shown as premium rates ... will be due for the period from the date coverage(s) terminated or will terminate, to the end of the month in which we receive your completed form. Premiums are due within 45 days of this election.

The mailing and other actions by NYNEX apparently caused considerable confusion. First, the mailing that some workers received did not include the election form. Second, when workers telephoned the CobraServ office, CobraServ operators told them that they would not be listed as covered under COBRA unless they had completed the election form and the premium had been received. The Union attempted to rectify this confusion by sending a letter, dated September 9, 1989, to the striking workers detailing their rights, including the 45-day grace period, under COBRA.

Some striking workers who had elected continuation coverage nevertheless experienced difficulties in obtaining medical treatment. NYNEX took the position that, until the striking workers electing continuation coverage had actually paid the premium, they were not covered, and NYNEX so informed health care providers. CobraServ thus omitted from its weekly listing to providers of insured employees all employees who had elected continuation coverage but had not yet paid the premium. This created difficulties in obtaining medical treatment for striking workers who had elected continuation coverage but who had not yet paid the premium, even though the 45-day grace period had not expired.

On October 18, 1989, the Union brought the present action. It moved for a temporary restraining order...