Court Moves Forward Suit over Post-Employment Benefits Advice

October 26, 2011 (PLANSPONSOR.com) – The U.S. District Court for the Northern District of Georgia ruled, a former employee can continue with his claim that his former employer violated the Employee Retirement Income Security Act (ERISA) when it made improper suggestions regarding his post-employment health insurance options.  

In the case of Fadely v. Blue Cross and Blue Shield of Georgia Inc., the court decided it would not dismiss James G. Fadely’s fiduciary breach claim, saying he had the right to bring the claim to court based on the improper suggestions his former employer made while he was enrolled in the employer’s plan under COBRA.

The court ruled that claims by former employees who were participants when the ERISA violations occurred are allowed, even if the individual is not longer a participant. Therefore, Fadely does have a right to bring a claim for the ill advice given to him during his employment with Crawford, he also has a right to bring a claim for the time his insurance coverage was extended under COBRA.

Fadely was employed by Crawford Communications for several years. (Crawford has since changed its name to Encompass Digital Media, Inc.). In 2009, shortly after his 65th birthday, Crawford terminated Fadely from the company. According to court records, Fadely had several health concerns at the time, including multiple heart attacks, open heart surgeries, and artery disease diagnoses.

After being terminated from the company, Fadely asked for assistance from Crawford’s human resources department to help him decide if he should continue his current health benefits under COBRA or enroll in Medicare. Fadely alleges that Crawford incorrectly advised him and told him to enroll in Medicare Part A–not Part B–and elect COBRA continuation coverage. Fadely took Crawford’s advice, and enrolled in COBRA continuation coverage administered by Blue Cross and Blue Shield of Georgia. According to court records, Fadely states if he was not given advice from Crawford, he would have enrolled in Medicare Part B.

After his termination from Crawford, Fadely incurred substantial medical expenses. For a year Blue Cross paid each claim, and then allegedly, without notifying Fadely, it began to recoup benefits paid to medical providers who treated Fadely. Fadely claims that Blue Cross began recouping benefits paid to his health care providers as if he had coverage under Medicare Part B as primary coverage for the period of May 1, 2009, to August 31, 2010. Fadely therefore incurred a substantial financial liability as a result of this, and did not receive a response to his repeated inquiries to Encompass and Blue Cross regarding his health care coverage.

Fadely then sued both Encompass and Blue Cross, alleging both violated ERISA because the defendants refused to prove requested information, made misrepresentations, breached their fiduciary duty based on a misrepresentation, failed to timely notify Fadely of an adverse benefit determination, failed to reference the specific plan provision on which the denial was based, and failed to describe review procedures, including applicable time limits and the right to bring a civil action.

Encompass argued it was not a plan administrator or a plan fiduciary, and it therefore could not be held accountable for the breaches of fiduciary duty and ERISA violations. The court ruled that Encompass’ identification of plan fiduciary by Fadely was adequate due to the fact that Blue Cross also identified the company as the plan administrator.

The case is Fadely v. Blue Cross and Blue Shield of Georgia Inc., N.D. Ga., No. 1:11-cv-01409-TWT.

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