Bad COBRA Notices Can Cost You
Sun Trust Bank was sued in a class action challenging its COBRA notice. The plaintiffs who brought the lawsuit claimed that the COBRA notice was materially deficient in that it failed to provide the name and address of the party responsible under the plan for COBRA administration and that it failed to provide an adequate explanation of the plan’s procedures for electing COBRA. Instead, the notice directed plan participants to a general human resources website and phone number. In order to settle the litigation, Sun Trust has agreed to modify its notice to identify “My HR” as the party responsible for administering COBRA benefits and to identify the specific location on the My HR website where information regarding COBRA coverage and a COBRA election form can be found. The notice also provides an alternative means to obtain an election form, specifically saying that it will be mailed to a participant upon request.
In addition to making the changes to the COBRA notice, Sun Trust has agreed to fund a settlement fund of $290,000 which will be used to compensate class members and to pay attorneys’ fees, expenses and special awards to the class representatives. The attorneys have agreed to seek no more than $110,000 in fees, plus expenses. The class representatives may receive up to $5,000 in a special award, with the balance to be split among the class members, who are all persons sent a COBRA notice by or on behalf of Sun Trust between June 1, 2014 and January 6, 2016. The parties expect the class to consist of approximately 9,000 individuals. Individuals can choose to opt out of the class, but typically few class members opt out in these situations because the cost of bringing a separate lawsuit generally exceeds what expected benefits would be.
The lawsuit was filed April 1, 2015. Sun Trust’s motion to dismiss was denied on September 18, 2015, and on October 2, 2015 Sun Trust received a comprehensive set of written discovery requests to which Sun Trust responded on November 5, 2015. While we do not know the amount of attorneys’ fees expended by Sun Trust, it is reasonable to think that its fees would be in the same order of magnitude as class counsel’s fees. Presumably Sun Trust determined that the cost of settlement would be less than the cost of continued litigation, including the risk of loss and penalty exposure.
The changes that will be made to the COBRA form seem relatively minor. Employers may wish to review their own forms, particularly forms that direct employees and their family members to websites to make sure that it is clear where within the website the COBRA information lies. That change may save the employer the cost and headache of a class action lawsuit.
Contact Benefits Notes for more information.