Phillips v. Riverside, Inc.

• Decision Date: 02 June 1992
• Docket Number: No. LR-C-91-537.,LR-C-91-537.
• Citation: 796 F. Supp. 403
• Parties: Jerry PHILLIPS, Plaintiff, v. RIVERSIDE, INC., Apartment House Builders, Inc., and Insurance Management Administrators of Louisiana, Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

796 F. Supp. 403

Jerry PHILLIPS, Plaintiff, v. RIVERSIDE, INC., Apartment House Builders, Inc., and Insurance Management Administrators of Louisiana, Defendants.

No. LR-C-91-537.

United States District Court, E.D. Arkansas, E.D.

June 2, 1992.

Patty W. Lueken, Lueken & Owings, Gans Building, Little Rock, Ark., for plaintiff.

James W. Tilley, Huckabay, Munson, Rowlett & Tilley, P.A., Little Rock, Ark., for defendants.

MEMORANDUM AND ORDER

SUSAN WEBBER WRIGHT, District Judge.

This case involves the alleged failure to give proper notice to an employee of his rights to elect continuation of coverage under a group health care plan after termination of his employment. Plaintiff Jerry Phillips claims that the failure to give such notice violated certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA) that are popularly known by the acronym "COBRA." See Comprehensive Omnibus Budget Reconciliation Act of 1986, Pub.L. 99-272, Title X, § 10002, 100 Stat. 227 (1986) (codified at 29 U.S.C. §§ 1161 to 1168). He seeks relief that includes payment of medical bills in the amount of $38,597.08, a declaration that the COBRA election period begins to run from the date of judgment, statutory penalties of $100 per day a provided under 29 U.S.C. § 1132(c), and attorney's fees and costs.

The case was tried to the Court on April 6, 1992. For the reasons explained below, the Court finds in favor of Mr. Phillips. This Memorandum and Order, which was drafted without the benefit of a transcript of the trial, constitutes the Court's findings of fact and conclusions of law.

I.

Jerry Phillips was President of Defendant Riverside, Inc. (Riverside) for several years until his termination in October 1989. Riverside is a subsidiary of Defendant Apartment House Builders, Inc. (AHB). Mr. Phillips spent about 80-90% of his time in the field both overseeing and doing plumbing, heating and air conditioning, ornamental iron, and electrical work for Riverside, as well as working with architects and engineers designing such systems for apartment houses built by AHB. The remainder of his time was devoted to his duties as an officer of the company.

Riverside and AHB each employ over twenty full-time employees and both offer health insurance to their employees under the largely self-funded AHB Employees Benefit Plan and Trust (the Plan). James Kincannon, Vice President of AHB, has been the Plan's administrator since 1989.¹ Defendant Insurance Management Administrators of Louisiana (IMA) is a third party administrator with no discretionary authority and, accordingly, was dismissed from the lawsuit prior to trial.

On October 6, 1989, the owners of Riverside and AHB terminated Mr. Phillips and gave him three months severance pay and benefits, including health insurance.² His termination was not for misconduct or any other reason that would exclude him from coverage under COBRA provisions. In November and December 1990 Mr. Phillips suffered a heart attack and underwent bypass surgery, incurring substantial medical bills. Mr. Phillips did not have health insurance coverage at this time. After the surgery, he met with the Accounts Payable personnel at Baptist Medical Center to discuss ways to pay his bills. They explained his COBRA rights and suggested that he contact his former employer to see if he could pay his premiums current so that his former health insurance provider would pay for his medical bills. On March 24 or 25, 1991, Mr. Phillips contacted AHB and attempted to elect his COBRA coverage benefits, but was refused by Mr. Kincannon.

II.

COBRA provides that employers must allow former employees the opportunity to continue health care coverage under the employer's plan if a qualifying event occurs. 29 U.S.C. § 1161. Such coverage usually is provided by the employer at the employee's own expense, not to exceed 102% of the employer's cost. 29 U.S.C. § 1162(3). The plan administrator must give appropriate notice of COBRA rights on two separate occasions. Under 29 U.S.C. § 1166(a)(1), covered employees and their spouses must be notified of their rights under COBRA at the time of commencement of coverage under the plan. The second round of notice-giving is triggered by a qualifying event. 29 U.S.C. § 1166(a)(4). Termination of employment is a qualifying event. 29 U.S.C. § 1163(2). In the event of termination of a covered employee, an employer must notify the administrator of the group health plan within thirty days of the termination. 29 U.S.C. § 1166(a)(1). The plan administrator, in turn, must notify the discharged employee and other qualified beneficiaries within fourteen days of their COBRA rights and allow them at least sixty days to decide whether or not to elect continuation of their group health plan coverage. 29 U.S.C. §§ 1165(1), 1166(a)(4) and (c), 1167(3)(B). Discharged employees generally may elect such coverage for up to eighteen months following their termination. 29 U.S.C. § 1162(2)(A)(i).

The question is whether Jerry Phillips received proper notice of his rights under COBRA. The defendants say they provided notice; Mr. Phillips claims they did not. The Court's analysis will proceed in two steps. The Court first must determine whether the defendants actually gave notice to Mr. Phillips. If so, the Court then must determine whether that notice adequately informed him of his COBRA rights.

III.

It is undisputed that Jerry Phillips's termination was a qualifying event under section 1163. The Plan's administrator, James Kincannon of AHB, thus was obliged to give Mr. Phillips notice of his COBRA rights. As a threshold matter, it is the plan administrator, not the employer, who is required to give such notice. 29 U.S.C. §§ 1165(1), 1167(3)(B). The Court therefore finds that Riverside is not liable. The following discussion, then, concerns AHB's liability for failure to provide proper notice.

Mr. Phillips said that he never received notice of any kind regarding his right to continuing health coverage under COBRA, and that he would have continued such coverage had he known about it. His wife and son testified that when they picked up mail at the family home there was never a COBRA letter for Mr. Phillips; they also knew of no COBRA notice being received by Mr. Phillips.

James Kincannon and Sheila Vaughan testified at trial about the office procedures used in notifying departing employees of their rights under COBRA. Mr. Kincannon indicated that the Departing Employee's Notice and Election Form (Defendants' Exhibit 2) is what employees receive as a "COBRA letter" after termination of their employment. It functions as an informational letter and election form. No cover letter or other supporting information is included. Mr. Kincannon said that from 1987-91 COBRA letters usually were sent by first class mail and occasionally were hand delivered (such as being attached to the last payroll check), but he was not aware of the specifies. After 1991 the forms were sent by certified mail. He admitted that in 1989 AHB kept no copies, lists, files, or other records verifying that COBRA letters had been mailed or delivered.

Ms. Vaughan testified that she handled paperwork related to the insurance program, including the sending of COBRA letters. Normal procedure in 1989 was to mail COBRA letters first class to employees. She said she made no notations and kept no files, records, copies, or any other information showing that COBRA letters were sent out. However, she specifically recalled sending a COBRA letter to Mr. Phillips, a friend of hers, at his address on Nandina Street in North Little Rock, Arkansas, within two weeks after he left Riverside, but she could not remember if it was mailed first class or certified. She did say that the letter to Mr. Phillips was mailed at the same time she sent COBRA letters to Johnny Belasco and David Sedberry, and that all three letters went the same way. Ms. Vaughan also testified that no COBRA letters were returned in 1989.

Somewhat conflicting testimony was given by David Sedberry and Johnny Belasco. Mr. Sedberry left his job with Riverside about two weeks after Mr. Phillips in order to work with Mr. Phillips (he is now back at Riverside). He said that he received his COBRA letter by certified mail (not first class as was the normal procedure in 1989), signed it, and sent it back to AHB. Ms. Vaughan, on the other hand, denied receiving the COBRA letter returned from Mr. Sedberry. Johnny Belasco said that he left Riverside one to two weeks after Mr. Phillips. He remembered receiving his COBRA letter sometime in November 1989, and was almost sure it came by certified mail. This stuck in his mind because at first he was afraid to sign for the certified letter, thinking it was about child support.

The law presumes that a letter properly addressed, stamped, and mailed was received by the person to whom it was addressed. Hagner v. United States, 285 U.S. 427, 52 S.Ct. 417, 76 L.Ed. 861 (1932); Hoffenberg v. Commissioner of Internal Revenue, 905 F.2d 665, 666 (2d Cir.1990); Beck v. Somerset Technologies, Inc., 882 F.2d 993, 996 (5th Cir.1989); Truesdale v. Pacific Holding Co./Hay Adams Div., 778 F.Supp. 77, 81 (D.D.C.1991). Some courts have held that mere denial of receipt is not sufficient to rebut the presumption. See, e.g., Meckel v. Continental Resources Co., 758 F.2d 811, 817 (2d Cir.1985) (applying New York law).

Here, application of the presumption is a close question. The defendants could not produce a copy of a properly addressed COBRA letter to Mr. Phillips and they did not make any notations or keep a list showing when Mr. Phillips or any other employees were sent a COBRA letter. There was no certified mail receipt and signed post card (if indeed the letter was sent by certified mail). No one testified that he or she actually deposited Mr. Phillips's COBRA letter in the mail, nor was there evidence of customary mailing practices used in AHB's business. On the other...