Human Resources: COBRA's Notice Duty Met When Certified Mail Used, Even When Notice Was Not Received, 5th Circuit Rules

An employer/plan administrator met its COBRA notification obligation by sending a COBRA notice by certified mail to a qualified beneficiary´s last known address even when the employer knew that the notice was not received, the 5th U.S. Circuit Court of Appeals ruled in a case of first impression. The case is Degruise v. Sprint Corp., 2002 WL 32798 (5th Cir., Jan. 28, 2002).

Facts of the Case
Sprint Corp. terminated Monty Degruise´s employment on Feb. 4, 1998. Degruise was sent his COBRA election notice - dated Feb. 11, 1998 - by certified mail with return receipt requested. On Feb. 17 and 22, the U.S. Postal Service attempted to deliver Degruise´s COBRA notice; however, he was out of town on a three-week honeymoon. A notice was left in his mailbox that a certified letter was at the post office.

When Degruise returned, he went to the post office to retrieve his letter. He did not know at the time it was a COBRA notice. The letter could not be located. Postal workers told Degruise to return in a couple of days. When he returned, Degruise found out that the letter still could not be located. When the postal service did locate the letter, it returned it to Sprint on March 1, 1998, with an indication that Degruise never claimed it.

Degruise had gotten a new job with health coverage shortly after his Sprint employment terminated. However, prior to the coverage effective date, he was treated for a medical condition. His claims were denied because of the plan´s pre-existing condition exclusion.

Degruise then sued his new employer and Sprint under ERISA, alleging that he had not received a COBRA notice from Sprint, and either Sprint or his new employer should be responsible for his "significant" medical expenses. A federal district court held that COBRA requires only a "good faith" effort to comply with its notification provisions, which Sprint met, and ruled in the company´s favor. Degruise appealed.

The 5th Circuit noted that because the U.S. Department of Labor has not issued regulations on COBRA notice procedures, employers must comply with COBRA´s notice requirements using a good faith standard. The court noted that this does not mean, however, that employers must ensure that plan participants actually receive a COBRA notice. Rather, it merely obligates employers to use means that are "reasonably calculated" to reach plan participants.

The 5th Circuit found it "undisputed" that, although Sprint did send a COBRA notice by certified mail, neither Degruise nor anyone on his behalf was there to receive it. In reviewing the district court´s decision, the 5th Circuit emphasized that court correctly found that only a good faith attempt to comply with COBRA´s notice provisions is necessary. Furthermore, the 5th Circuit noted that good faith can be demonstrated in various ways, such as hand delivering a letter "to an individual" or more commonly, sending a letter via first class mail.

In this case, Sprint sent the COBRA notice by certified mail - a "special" type of first class mail used primarily to provide evidence of an individual´s receipt of delivery. This constituted a good faith effort to notify Degruise of his COBRA rights, according to the 5th Circuit.

The fact that Sprint later found out that the notice went undelivered did not affect the case´s outcome, the 5th Circuit noted, because COBRA requires "nothing more" of an employer than to make a good faith attempt to provide notice. Sprint was not responsible for, and had no knowledge of, the notice´s undelivered status. Therefore, the company´s inaction did nothing to undermine the application of COBRA´s good faith standard to the case´s facts. Accordingly, the 5th Circuit affirmed the lower court´s decision. It also added that "this whole episode could have been avoided" if Sprint had taken the "added precaution" of sending the COBRA notice by both regular and certified mail. Although Sprint was not obligated to do so, the court noted, "it would have been a good practice."

Implications
This case once again shows that COBRA´s notice requirement is simply that notices are provided to affected qualified beneficiaries. Employers and plan administrators do not have to guarantee that qualified beneficiaries receive the notices. Many employers still use certified mail to send COBRA notices because they think that proof is needed that a qualified beneficiary actually received the notice. This is not supported by existing case law. In fact, as the Degruise case shows, an employer is sometimes worse off by using certified mail than it would be by using regular first class mail. That is, had the employer sent the COBRA notice by regular mail, it likely would have been delivered and would not have faced a lawsuit on whether it had a duty to do anything when the notice was returned as undeliverable.