Lincoln General Hosp. v. Blue Cross/Blue Shield of Nebraska

• Citation: 963 F.2d 1136
• Decision Date: 24 June 1992
• Docket Number: No. 91-1777,91-1777
• Parties: 15 Employee Benefits Cas. 1361 LINCOLN GENERAL HOSPITAL, Appellant, v. BLUE CROSS/BLUE SHIELD OF NEBRASKA, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 1136

963 F.2d 1136

15 Employee Benefits Cas. 1361

LINCOLN GENERAL HOSPITAL, Appellant, v. BLUE CROSS/BLUE SHIELD OF NEBRASKA, Appellee.

No. 91-1777.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 14, 1991.

Decided May 12, 1992.

Rehearing and Rehearing En Banc Denied June 24, 1992.

James Conrad Zalewski, Lincoln, Neb., argued, for appellant.

Geoffrey V. Pohl, Omaha, Neb., argued (John F. Thomas, on the brief), for appellee.

Before LAY, Chief Judge, ^* ARNOLD, Circuit Judge, ^** and STUART, ^*** Senior District Judge.

ARNOLD, Circuit Judge.

Lincoln General Hospital appeals from a grant of summary judgment in favor of Blue Cross/Blue Shield of Nebraska on the hospital's claim for payment of a bill for the treatment of Delores Phillips. The District Court ¹ held that Blue Cross did not violate the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), 29 U.S.C. §§ 1161 et seq., in administering the health plan of Mrs. Phillips's ex-husband, Roy Phillips. In addition, the Court held that Blue Cross did not violate its fiduciary duties as plan administrator and that it did not act in an arbitrary and capricious manner in its administration of the plan. We affirm.

I.

Roy Phillips was employed by the Lincoln Public School System and participated in a group health-insurance program provided by Blue Cross. The plan also covered Delores Phillips, his wife. Roy and Delores Phillips were divorced on December 9, 1987. Under the policy, however, Delores Phillips remained covered until December 31, 1987.

Under COBRA, Delores Phillips was entitled to a continuation of coverage under her husband's plan, provided either she or her husband notified the plan administrator of their divorce within 60 days of her loss of coverage. On February 1, 1988, before the end of the 60-day COBRA notice period, Delores Phillips was involved in an accident which resulted in her lapsing into a coma. A guardian was appointed for her on February 4, 1988, and a successor guardian was appointed in March.

On February 3, Roy Phillips notified his employer of the divorce. That same day, his employer provided Mr. Phillips with the COBRA forms that his ex-wife would need to make her COBRA election. Mr. Phillips, without consulting his ex-wife, elected coverage on her behalf and paid one month's premium to Blue Cross. No further premium payments were made. On February 15, 1988, Blue Cross mailed a premium notice for the months of February and March, along with an identification card and a benefits booklet, to Delores Phillips. Appendix 231, 235-36. On that same day, the hospital called Blue Cross to verify Mrs. Phillips's coverage. A Blue Cross employee, Azalia Jackson, confirmed her COBRA continuation coverage through a computer check of Mrs. Phillips's records. Ms. Jackson, however, did not inform the hospital that Mrs. Phillips was currently in a "grace period," and that her coverage would lapse in 18 days if the delinquent premiums were not paid. ²

On March 8, 1988, the hospital submitted an interim bill to Blue Cross for the treatment of Delores Phillips in the amount of $93,930.10. A final bill for $111,217.58 was submitted on April 7, 1988. Blue Cross denied coverage, claiming that Delores Phillips's coverage ended on January 31, 1988, for non-payment of premiums. Blue Cross arrived at that conclusion by applying the initial premium check submitted by Roy Phillips retroactively to provide coverage for Delores Phillips during the month of January. As no further premiums were submitted for or on behalf of Delores Phillips, Blue Cross took the position that coverage ended on January 31, 1988, the last date for which a premium was paid. As a result, the medical costs incurred by Delores Phillips after that date were not covered, Blue Cross said.

In this appeal, the hospital, as assignee of Delores Phillips's rights, claims that Blue Cross (1) did not comply with COBRA, (2) did not properly administer the health plan, (3) was estopped to deny coverage, and (4) had waived its right to apply the premium retroactively. After reviewing these claims, we hold that Blue Cross did not fail in any of its responsibilities in its administration of the health plan.

II.

The most hotly contested issue in this case is whether Blue Cross complied with COBRA. Under COBRA, a "qualified beneficiary who would lose coverage under [a health plan] as a result of a qualifying event is entitled, under the plan, to elect, within the election period, continuation coverage under the plan." 29 U.S.C. § 1161(a). A "qualified beneficiary" is defined as:

with respect to a covered employee under a group health plan, any other individual who, on the day before the qualifying event for that employee, is a beneficiary under the plan--

(i) as the spouse of the covered employee,....

29 U.S.C. § 1167(3)(A)(i). A "qualifying event" is:

... any of the following events which, but for the continuation coverage required under this part, would result in the loss of coverage of a qualified beneficiary:

* * * * * *

(3) The divorce or legal separation of the covered employee from the employee's spouse.

29 U.S.C. § 1163(3). The election period is the period of time within which the qualified beneficiary must decide to accept or decline coverage under the plan. This period begins on the date on which coverage terminates by reason of a "qualifying event" and lasts at least 60 days, ending, in the case of a qualified beneficiary who receives notice under 29 U.S.C. § 1166(a)(4), no earlier than 60 days after the date that the required notice is given. 29 U.S.C. § 1165(1)(C)(ii).

Providing appropriate notice is a key requirement under COBRA. 29 U.S.C. § 1166 defines the two separate notice responsibilities which the parties must perform. Under 29 U.S.C. § 1166(a)(1), covered employees and their spouses must be given notice of their rights under COBRA at the time COBRA coverage attaches to their plan. The second round of notice-giving commences at the time of a qualifying event. Under 29 U.S.C. § 1166(a)(3), if a divorce is the qualifying event, either the covered employee or the qualified beneficiary is responsible for notifying the administrator of its occurrence. If the notice of divorce is given by the covered employee, the administrator must notify any qualified beneficiary of such beneficiary's rights under the Act. 29 U.S.C. § 1166(a)(4)(B). The notice from the administrator to the qualified beneficiary must occur within 14 days of the date on which the administrator is notified of the qualifying event. 29 U.S.C. § 1166(c). If the administrator fails to provide that notice to the qualified beneficiary, it may be bound to provide coverage to her.

Delores and Roy Phillips were divorced on December 9, 1987. Under 29 U.S.C. § 1163(3), this divorce is a qualifying event. As the spouse of a covered employee at the time of the divorce, Delores Phillips is a qualified beneficiary under 29 U.S.C. § 1167(3)(A)(i), and therefore is entitled to elect COBRA continuation coverage. Under the provisions of COBRA, Delores Phillips's election period began on December 31, 1987, the date on which she would lose coverage under Roy Phillips's health plan. 29 U.S.C. § 1165(1)(A). As of that date, Delores Phillips would have at least 60 days to determine whether or not she wanted COBRA continuation coverage through her ex-husband's employer.

The central issue is whether Delores Phillips was provided with proper notice of her rights under COBRA. There is not much dispute that Blue Cross complied with the first notice provision of COBRA. Under 29 U.S.C. § 1166(a)(1), Blue Cross was required to provide covered employees and their spouses with notice of their rights under COBRA at the time the statute attached to their plan. Blue Cross asserts, and the hospital does not seem to dispute, that this notice was provided to Roy Phillips in the fall of 1986. Assuming that at the same time notice was also given to Delores Phillips--and no one claims that it was not so provided--this notice is sufficient to inform Delores Phillips of the effects of COBRA on her health plan. See, e.g., Dehner v. Kansas City Southern Industries, Inc., 713 F.Supp. 1397, 1399-1400 (D.Kan.1989) (holding COBRA notice adequate when mailed to an employee with an additional set of instructions included for him to pass to his wife). Thus, the actions taken by Blue Cross in initially apprising the Phillipses of the effects of COBRA satisfied its statutory obligation.

Although a much closer question, we find that Blue Cross's mailing of the identification card, benefits information, and premium statement to Delores Phillips satisfied the second notice requirement of COBRA. Under COBRA, if the notice of the divorce is given to the employer by the covered employee, the plan administrator is required to provide the qualified beneficiary with notice of her rights to continue coverage. 29 U.S.C. § 1166(a)(4)(B). When Roy Phillips notified his employer of the divorce, his employer gave him a COBRA notice form to deliver to his wife. Instead of giving the form to his ex-wife, however, Roy Phillips, knowing that she was in a coma, executed the notice on her behalf. He elected COBRA continuation coverage for her and tendered one month's premium. This information was then forwarded to Blue Cross, which opened a COBRA continuation file for Delores Phillips. No further payments were tendered by Roy Phillips, and no formal COBRA notice was sent to Delores Phillips.

Blue Cross did, however, mail the identification card, the premium statement, and the benefits information to Delores Phillips on February 15, 1988. This occurred within the 14-day window permitted by 29 U.S.C. § 1166(c). ³ We hold that these documents sufficiently met Blue Cross's COBRA obligation to give notice to a qualified beneficiary. This information adequately informed her of the coverage she was entitled to receive and the money that she owed in order to...