Court holds employer liable for COBRA coverage even though employee was not eligible.

• Author: Elinsky, Peter I.
• Position: Consolidated Omnibus Budget Reconciliation Act of 1985

The Eleventh Circuit has held an employer liable for COBRA coverage to a terminated employee, even though the employee was not eligible for COBRA coverage under the terms of the plan, because the employee relied to his detriment on the employer's representations that coverage was available (National Companies Health Benefit Plan v. St. Joseph's Hospital, 11th Cir., 1991).

Facts

While Robert Hersh was employed by National Distributing Company (NDC), he and his family were covered under NDC's self-insured health plan (the Plan). On terminating his employment with NDC, Hersh informed his manager of his desire to continue medical coverage under the Plan pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The manager consulted with the benefits claims clerk - who was aware that Hersh was also covered under his wife's employer's medical plan - and subsequently informed Hersh he was eligible. Hersh signed the continuation coverage agreement on his last day of work and paid the first monthly premium.

The continuation coverage agreement provided for up to 36 months of coverage, which could be terminated for "becoming covered under another group health plan because of either employment or remarriage." Hersh continued to pay the premiums, which NDC accepted and deposited. Hersh submitted minor claims, which were less than his deductible amount.

When Hersh's wife prematurely gave birth to twins, NDC informed Hersh that he was not eligible for COBRA coverage and that NDC was revoking his coverage retroactive to his date of resignation. NDC based the revocation on the fact that Hersh and his dependents were covered under another group health insurance plan. Hersh and his wife's employer (whose coverage of the Hershes was secondary to the NDC plan except for Mrs. Hersh, for whom it was primary insurer) sued for payment of claims, attorney's fees and prejudgment interest. A district court in Georgia found for Hersh and the secondary plan on all counts.

Eligibility for benefits

The Eleventh Circuit first examined Hersh's rights under the Employee Retirement Income Security Act of 1974 (ERISA) - and held that Hersh was ineligible for COBRA coverage because of his coverage under his wife's plan. The court looked to Congress's intent in enacting COBRA, and determined that, since there were no gaps in the NDC coverage and the coverage under the secondary plan, Hersh was ineligible for continuation coverage under the NDC plan. It was...