Compliance November 30, 2004

ERISA, COBRA Claims Barred By State Statute of Limitations

November 30, 2004 (PLANSPONSOR.com) - A federal appeals court has ruled that a Texan statute of limitation effectively bars a plaintiff's claims that an employer violated both the Employee Retirement Income Security Act (ERISA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Reported by

Kip McDaniel

>In the case of Lopez v. Premium Auto Acceptance Corporation, the US 5th Circuit Court of Appeals has ruled that the daughter of a women who died after incurring $33,000 in medical bills should not be reimbursed by her mother’s former insurance company because of a two-year statute of limitations on ERISA and COBRA claims.

>Gloria Gutierrez was an employee at Premium Auto Acceptance Corporation. In August, 1997, three days after returning from surgery treating lung cancer, Gutierrez was terminated. Because the company said that it had less than 20 employees, it believed that COBRA did not apply, and so the company did not provide the terminated employee with a notice that informed her that she could elect to continue her health coverage under the company plan. Her insurance was therefore cancelled after 30 days. Gutierrez died in October, 1998, after incurring substantial medical bills.

>In April of 1999, Gutierrez’s daughter and lone heir, June Lopez, requested that Premium reimburse her mother’s estate for the medical costs because it did not notify her of her right to elect continuing coverage. In March 2000, Premium notified Lopez that it was not covered by COBRA because it had fewer than 20 employees.

>In 2002, Lopez filed suit in US District Court for the Northern District of Texas, alleging that Premium violated ERISA Section 510 by terminating her so that she would not be able to exercise her rights under the company’s health care plan. It also alleged that Premium violated COBRA by failing to notify Gutierrez of her right to extended coverage. The district court, in a summary ruling, barred Lopez’s claim due to Texas’ two-year statute of limitations. Lopez then appealed to the 5th Circuit.

>In agreeing with the lower court, Circuit Judge Will Garwood wrote that “neither [ERISA] section 510 nor COBRA specifies a limitations period. In the absence of express statutory guidance, we borrow the statute of limitations from the most closely analogous state law.” While Lopez argued that a four-year statute should be applied – as it was that state’s residual statute of limitations – Garwood instead found that ERISA and COBRA were subject to a two-year statute. “In granting summary judgment for Premium, the district court ruled that the section 510 claim is subject to the general two-year statute of limitations, applicable to most torts and discrimination claims, and that the COBRA claim is subject to the two-year statute of limitations for unfair insurance practices,” Garwood concluded. The court therefore found that both claims were passed the limitation date, and thus untimely.

>The ruling by the court can be viewed here .