Employer Can’t Get Back Medical Expenses for Employee not on FMLA Leave

July 29, 2011 (PLANSPONSOR.com) – A court has found that an employer has no stop-loss coverage for the medical expenses of an employee that was not on Family Medical Leave Act (FMLA) leave or covered by COBRA, per terms of the plan.

According to EBIA, the employee in question had left full-time employment to go on FMLA leave. When she didn’t return from leave, she was not offered COBRA but was instead placed on short-term disability, with the employer continuing to treat the employee as covered under the plan for another six months. Following expiration of short-term disability, the employee was terminated from employment and offered COBRA.  

EBIA said the stop-loss carrier refused to reimburse the employer the medical expenses she incurred while on short-term disability, arguing that the employee’s move to short-term disability made her ineligible under the terms of the plan, which required eligible employees not on FMLA or COBRA to be regularly scheduled to work a minimum of 40 hours a week.  

The employer claimed this was only a condition for initial eligibility under the plan and that when the employee went on disability she had a change in status that, under another plan provision, allowed her to continue on the plan. However, the court agreed with the stop-loss carrier, ruling that, under the plain terms of the plan, the employee was not eligible after her FMLA leave ended except through COBRA and that the change-in-status provision relied on by the employer did not overrule the basic requirements for eligibility under the plan.  

The case is Clarcor, Inc. v. Madison Nat’l Life Ins. Co., 2011 WL 2682998 (MDTN 2011).