On Friday, the Sixth Circuit Court of Appeals reversed an employee’s summary judgment finding that COBRA had been violated because the employer failed to send a COBRA continuation notice when the employee began a medical/workers’ compensation leave of absence or when it stopped paying her premiums even though her medical insurance premiums began to be paid from her workers’ compensation payments upon the commencement of the leave. Morehouse v. Steak N Shake, No. 18-4186 (6th Cir. 2019). In reversing, the Court concluded that the change in payment method and continuation of her medical insurance rendered her reduction in hours (i.e., medical leave) irrelevant and that the later loss of coverage was caused by the employee’s failure to pay her insurance premiums when she was notified that the employer stopped paying them a few months later. “[A]ltering the contribution method alone, as [the employer] did here when it began deducting premiums from [the employee’s] workers’ compensation checks, does not inherently change the ‘terms and conditions’ of coverage and therefore does not produce a ‘loss in coverage.’” Accordingly, “no qualifying event occurred that would have triggered a mandatory COBRA notification” even though the employee ceased reporting to work because she did not “’cease to be covered under the same terms and conditions’ when [her] contribution method was altered” by deducting the premium from her workers compensation benefits instead of her paycheck.
According to the Court’s opinion, the employee injured her knee at work on May 25, submitted a workers compensation claim and requested a leave of absence. The employer began paying workers compensation, began deducting her share of the insurance premiums from the workers compensation (instead of her paycheck) and also sent her an FMLA eligibility notice and request for medical certification, which was timely returned. The employer failed, however, to ever designate her leave as covered by the FMLA. Instead, the employer notified her on September 20 that she had exhausted her FMLA a month earlier, when it also stopped paying workers compensation and ceased paying her medical insurance. She was notified on September 9 that if she failed to pay the entire premium, her medical insurance would be terminated. She was also notified on September 20 that she should seek a reasonable accommodation and that if her employment was terminated, she could then seek COBRA continuation coverage. When she failed to pay her insurance premium, her coverage was terminated on October 3, retroactive to August 14 for non-payment. She obtained replacement coverage in January. Her employment was terminated on February 11 the following year.
The employee challenged the termination of workers compensation in state court and filed a federal lawsuit for failure to send her notice of her rights of COBRA continuation. There is no indication that she ever challenged the denial of FMLA leave due to the employer’s failure to ever properly designate FMLA leave. The trial court denied the employer’s motion for summary judgment and granted the employee’s motion, awarding her $2500 in dental bills, plus $50/day statutory damages (from when it stopped paying her premiums and when she obtained replacement coverage) and attorney’s fees.
On appeal, the Court noted that employers are required to send a COBRA notice upon a qualifying event, which includes termination of employment and reduction in working hours, if, but for the continuation coverage required under this part, the qualifying event would result in the loss of coverage.
COBRA provides that taking FMLA leave does not by itself constitute a qualifying event. The parties argued whether the employee was properly placed on FMLA leave because that could impact whether there had been a qualifying event. However, the Court decided that this argument was irrelevant because “the terms and conditions of [her] insurance have not changed and therefore there was no “loss of coverage” under the statute . . .” Without loss of coverage, whether there has been an event is irrelevant. In particular, the Court stated that “[a] ‘reduction in hours’ alone is not necessarily a qualifying event; it must also lead to a loss in insurance coverage.”
Under 26 C.F.R. § 54.4980B-4, A-4(c), a loss of coverage “means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event.” The regulation further clarifies that the “loss of coverage need not occur immediately after the [qualifying] event, so long as the loss of coverage occurs before the end of the maximum coverage period.”
Relying on an unreported 2007 opinion in Jordan v. Tyson Foods¸ the Court found that it was the plaintiff’s failure to pay her health insurance premium in September which resulted in her loss of coverage, not her reduction in working hours following her injury or the change in payment method of the premiums. In Jordan, that plaintiff had taken FMLA leave and then failed to pay his premium contribution as required by the employer’s policy and his coverage was terminated. By the time he failed to return to work following his FMLA leave, his coverage had been terminated and he was not then provided with a COBRA notice. The Court rejected that a qualifying event had occurred with his FMLA leave (because only the payment method had changed) or his termination (by which time his coverage had been terminated due to his non-payment of premium contributions). Similarly, in this case, only the payment method changed upon the commencement of her leave of absence and her coverage was terminated on October 3 due to non-payment of premiums.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
