COBRA Violations Bite Employer for $63,000

October 4, 2005 (PLANSPONSOR.com) - As plan sponsor and administrator, Harding Tube Corp. was found liable for failure to notify a group insurer about a COBRA election and failure to remit premiums to the insurer.

Thompson.com reports that in the case of Linden v. Harding Tube Corp., 2005 WL 2397033 (E.D. Mich., Sept. 28, 2005), Harding was found liable for nearly $63,000 in unreimbursed medical expenses.   Meanwhile, the company sued ADP COBRA Services, Inc., its COBRA administrator, and ADP has counter sued.

Fact Set

The employee in the matter, Francis Czaplicki, was terminated in June of 2001.   When he was hospitalized in late July, MedAssist faxed a generic election form to Harding on Czaplicki’s behalf.   According to Thompson.com, Harding then faxed a COBRA transmittal form to ADP informing them of Czaplicki’s termination date, his desire to obtain coverage, and MedAssist’s name and address.   ADP sent an election notice and payment coupon to the former employee at MedAssist’s address.   MedAssist sent the payment to ADP, which claims it then sent the premium payment to the employer.   Harding said it never received or cashed a check from ADP, and ADP concedes that the check was never cashed.

Czaplicki’s coverage was cancelled for failure to pay premiums, and he sued Harding for COBRA notice violations (he has since died and his executor has taken his place in the suit).

The court agreed that both Harding and ADP failed to notify the insurer of coverage and remit payment, but found Harding liable as plan sponsor and administrator.   While Czaplicki had sought reimbursement of $95,600 in expenses ( the amount the hospital would charge uninsured patients),  but the court only ordered the employer to reimburse only the amount the hospital would have charged the insurer (an HMO).

Harding’s complaint against ADP claims that the problems resulted from ADP’s failure to timely notify the worker of his COBRA rights and the premium amount and ADP was obligated   to indemnify Harding based on its service agreement, while ADP’s countersuit claims the employer violated the agreement by failing to provide notice on a   timely basis of Czaplicki’s qualifying event.   The court denied Harding’s request for summary judgment on both matters, saying issues of facts  remained regarding which party’s actions led to the COBRA coverage lapse.

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