Health Plan Did Not Cover Employee on Disability Leave

August 23, 2012 ( - A decision by the 6th U.S. Circuit Court of Appeals should warn employers to know their health benefits plan design.

The appellate court ruled that Clarcor could not get reimbursement from its employee health plan provider for expenses it paid for an employee on short-term disability leave because the “clear plain and unambiguous terms of the plan demonstrate that I.K. was not eligible for plan coverage following the commencement of her short-term disability leave.” Under the plan, eligibility is expressly limited to “regularly assigned, full-time employee[s] … regularly scheduled to work a minimum of 40 hours per week.” The only persons exempt from this requirement are qualified retirees; employees on FMLA [Family and Medical Leave Act] leave; and employees receiving COBRA coverage.  

The court rejected Clarcor’s assertion that the eligibility requirements merely refer to “initial” and not continuing eligibility, saying there is no indication that the “who is eligible” provision concerns initial, as opposed to general, eligibility requirements. The plan contains a separate section that sets forth “when coverage begins,” so the court said it is “nonsensical for the plan to contain two separate sections on initial eligibility.”   

Clarcor also argued that because an employee may change his or her status upon the occurrence of a qualifying event, I.K. had the discretion to retain full coverage during her short-term disability leave. The court rejected the argument, noting I.K. lost her eligibility under the plan because of her reduction of hours, allowing her to elect COBRA coverage, and had no other coverage options.   

Finally, Clarcor contended that even if I.K. were ineligible for coverage under the plan while on short-term disability, she was eligible during her period of COBRA coverage. According to the court, the problem with that contention was the company offered the employee COBRA coverage when she was no longer eligible for it. Clarcor sent her COBRA notice following her termination after short-term disability leave. However, the court found her “qualifying event” for COBRA was the termination of her FMLA leave, prior to her taking short-term disability leave.  

The opinion in Clarcor, Inc. v. Madison Nat’l Life Ins. Co. is here.