Smith v. Rogers Galvanizing Co.

• Decision Date: 28 October 1997
• Docket Number: No. 96-5168,96-5168
• Citation: 128 F.3d 1380
• Parties: 21 Employee Benefits Cas. 2197, 97 CJ C.A.R. 2619 Clarence Roy SMITH; Betty Smith, Plaintiffs-Appellees, v. ROGERS GALVANIZING CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1380

128 F.3d 1380

21 Employee Benefits Cas. 2197, 97 CJ C.A.R. 2619

Clarence Roy SMITH; Betty Smith, Plaintiffs-Appellees, v. ROGERS GALVANIZING CO., Defendant-Appellant.

No. 96-5168.

United States Court of Appeals Tenth Circuit.

Oct. 28, 1997.

Stephen L. Andrew (D. Kevin Ikenberry with him on the brief), Stephen L. Andrew & Associates, Tulsa, OK, for appellants.

Greggory T. Colpitts (Clifford R. Magee with him on the brief), of Tulsa, OK, for appellee.

Before SEYMOUR, Chief Judge, EBEL and BRISCOE, Circuit Judges.

BRISCOE, Circuit Judge.

Plaintiffs Clarence and Betty Smith filed this action against defendant Rogers Galvanizing Company, alleging defendant violated the continuation rules of the Consolidated Omnibus Budget Reconciliation Act (COBRA), 29 U.S.C. §§ 1161-1168, by failing to give plaintiffs notice of entitlement to elect to continue their health care coverage upon Clarence Smith's termination from employment with defendant. Following a non-jury trial, the district court ruled in favor of plaintiffs, concluding defendant failed to provide plaintiffs with sufficient notice of their right to elect continuation health care coverage. The court awarded plaintiffs $40,005.16 in insurance benefits and attorney fees in the amount of $44,022.50. Defendant appeals, attacking both the judgment and the fee award. We affirm. ¹

I.

Clarence Smith was a thirty-year management employee of defendant. He has been unable to work since May 18, 1992, because of emphysema. He received $150 per week under a short-term disability insurance policy provided by defendant, which expired after a period of six months. His employment was terminated effective November 1, 1992.

Clarence Smith was notified by the Social Security Administration by letter dated November 3, 1992, that he had been determined to be disabled and was entitled to retirement, survivors, and disability insurance benefits under Title XVI in the amount of $944.40 per month beginning in November 1992. The Social Security Administration determined he became disabled on May 22, 1992.

On or about October 28, 1992, defendant's human resources manager, Robert Krewett, visited plaintiffs' home for the purpose of personally notifying Clarence Smith that his employment would be terminated effective November 1, 1992. The president of the company had asked Krewett to personally contact Clarence Smith regarding his termination and COBRA rights because Clarence Smith had been a valued employee of the company for over thirty years. During the visit, Krewett explained that, under COBRA, Clarence Smith's termination was a qualifying event entitling plaintiffs to elect to continue health insurance coverage under the plan offered by defendant. Krewett also advised plaintiffs that the cost of continuation coverage would be between $550 and $600 per month. Krewett did not send a confirmation letter regarding plaintiffs' rights under COBRA. During the visit, Clarence Smith asked Krewett if defendant could arrange to pay his health insurance premiums until he was eligible for Medicare coverage (which would not occur until November 1, 1994). Krewett stated he would check into the matter, but he did not again contact plaintiffs until June 1993 when he advised plaintiffs their failure to elect COBRA continuation coverage within sixty days following the November 1, 1992, termination date effectively terminated their COBRA rights.

Defendant intentionally paid plaintiffs' monthly health insurance premiums of $557.94 for November and December 1992. Defendant also paid their January premium because of an internal error. Although defendant stopped paying the monthly premium thereafter, the insurance company failed to delete plaintiffs from coverage because of a failure of communication, and the insurance company continued to pay plaintiffs' incurred medical bills through May 31, 1993. As a result of these combined errors, plaintiffs believed defendant had acceded to their request to pay their monthly premiums until Clarence Smith qualified for Medicare coverage. Effective May 31, 1993, defendant terminated the insurance plan offered to its employees and switched to a self-funded medical group plan. Clarence Smith was hospitalized on June 8, 1993, and learned he was not eligible for coverage.

Plaintiffs brought this action against defendant seeking continuation medical insurance coverage and ensuing benefits under COBRA. The district court concluded defendant failed to provide plaintiffs "with a proper qualifying event notification as required under COBRA." Aplt.App. at 35. As plaintiffs were not given proper notice, the court concluded Clarence Smith had until November 1, 1994, when he became eligible for Medicare benefits, to elect continuation coverage, and Betty Smith's period of time to elect was extended beyond that. See 29 U.S.C. § 1162(2)(A)(v) and (2)(D). The court further concluded plaintiffs were entitled to collect from defendant the amount of any medical bills incurred during the continuation coverage period, less premiums and applicable deductibles.

At a subsequent hearing to resolve the issue of damages, the parties apparently agreed defendant would determine the amount of benefits due plaintiffs under the self-funded insurance plan. ² Judgment was entered in favor of plaintiffs on June 20, 1996, in the amount of $40,005.16, plus attorney fees of $44,022.50.

II.

Sufficiency of notice

The district court concluded the oral notice given to plaintiffs by Krewett did not satisfy the notice provisions of COBRA. Defendant argues the information was provided in good faith and was more than adequate to allow plaintiffs to make an informed decision about whether to participate in COBRA continuation coverage. We review the district court's findings of fact for clear error and its conclusions of law de novo. Steiner Corp. Retirement Plan v. Johnson & Higgins, 31 F.3d 935, 939 (10th Cir.1994), cert. denied 513 U.S. 1081, 115 S.Ct. 732, 130 L.Ed.2d 635 (1995).

COBRA requires that employers allow former employees the opportunity to continue health care coverage under the employer's plan (at their own expense, not to exceed 102 percent of the employer's cost) if a qualifying event occurs. 29 U.S.C. § 1161. When a qualifying event occurs (such as termination of employment, see 29 U.S.C. § 1163(2)), the employer is required to notify the plan administrator within thirty days of the date of the qualifying event. 29 U.S.C. § 1166(a)(2). The administrator is then required to notify "any qualified beneficiary" of the qualifying event. 29 U.S.C. § 1166(a)(4). In an action for benefits under COBRA, the administrator bears the burden of proving adequate COBRA notice was given. See Stanton v. Larry Fowler Trucking, Inc., 52 F.3d 723, 728-29 (8th Cir.1995).

Here, defendant was both the sponsor and the administrator of the insurance plan. Accordingly, it was defendant's duty under COBRA to notify plaintiffs, both of whom were qualified beneficiaries, that Clarence Smith's employment termination was a qualifying event that afforded them the right of continuation coverage.

Unfortunately, COBRA contains no specific requirements as to the manner in which notice must be given. In general, courts that have addressed the issue have held that "a good faith attempt to comply with a reasonable interpretation of the statute is sufficient." Lawrence v. Jackson Mack Sales, Inc., 837 F.Supp. 771, 782 (S.D.Miss.1992), aff'd 42 F.3d 642 (5th Cir.1994); Jachim v. KUTV, Inc., 783 F.Supp. 1328, 1333 (D.Utah 1992); Branch v. G. Bernd Co., 764 F.Supp. 1527, 1534 n. 11 (M.D.Ga.1991), aff'd 955 F.2d 1574 (11th Cir.1992) ("courts have generally validated methods of notice which are calculated to reach the beneficiary"); see also H.R.Rep. No. 453, 99th Cong., 1st Sess. 563 (pending promulgation of regulations defining what will constitute adequate notice, "employers are required to operate in good faith compliance with a reasonable interpretation" of COBRA's requirements).

The district court concluded defendant failed to provide plaintiffs with a proper qualifying event notification because (1) the oral notice did not advise plaintiffs of the specific amount of the monthly premium to continue coverage, and (2) the oral notice did not advise plaintiffs they had forty-five days after a positive COBRA election to pay the monthly premium.

We conclude the first ground--that defendant did not advise plaintiffs of the specific amount of the monthly premium--was not alone sufficient to invalidate the notice. Krewett advised plaintiffs of the approximate range of the monthly premium. ³ Thus, we conclude defendant satisfied the controlling standards (i.e., good faith and reasonableness) with respect to this narrow piece of information.

As for defendant's failure to advise plaintiffs when their first premium payment would be due, it appears to be a closer question whether this by itself rendered the notice inadequate. District courts have held that failure to advise beneficiaries of premium due dates, combined with other notice deficiencies, renders the notice invalid. See, e.g., Van Hoove v. Mid-America Bldg. Maintenance, Inc., 841 F.Supp. 1523, 1534 (D.Kan.1993); Phillips v. Riverside, Inc., 796 F.Supp. 403, 410 (E.D.Ark.1992) (notice did indicate when the " '45 days to pay' " began to run). We have not found any case discussing whether omission of notice of the payment grace period, considered alone, renders the notice invalid. Ultimately, we find it unnecessary to decide this question because omission of the grace period was not the only deficiency in the notice.

Under COBRA, the rights of a covered employee and his or her spouse are not dependent upon each other. McDowell v. Krawchison, 125 F.3d 954, 959-60 (6th Cir.1997). "For example, a covered spouse might choose to elect coverage while the covered employee does not, or they might choose different plans." Id. Thus, as plaintiffs have correctly...