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When COBRA cases survive motions to dismiss, big dollars are at stake. Marrow v. E.R. Carpenter Co., No. 8:23-cv-02959, is a class action lawsuit filed in the U.S. District Court for the Middle District of Florida on behalf of Saroya Marrow, her two children, and an unspecified number of additional former employees, their spouses, and dependents. It’s estimated that the defendant company’s potential liabilities under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC) could exceed $700,000 for the Marrows alone, in addition to the potential need to cover a large amount in medical expenses.
Background
On February 4, 2025, the court ruled that if Ms. Marrow’s description of her former employer’s COBRA notice is accurate, she and the class may be entitled to damages. At this stage, defendants generally argue that even if the plaintiff’s facts about the COBRA notice are correct, the notice still complies with applicable requirements and, therefore, the case should be dismissed. Employers often hesitate to go to trial in COBRA cases because plaintiffs are usually sympathetic individuals. In this case, for example, Ms. Marrow no longer had a job, was without medical insurance, and both she and her two daughters suffered from serious medical conditions, including liver issues and COVID-19 infections that required emergency room treatment.
Potential Penalties
If Ms. Marrow prevails, the company may be required to reimburse medical expenses for Ms. Marrow, her daughters, and the other class action plaintiffs. Although the company may use a medical insurance provider or a stop-loss provider (if the company’s coverage is self-insured) to pay or reimburse claims under its group health plan, Ms. Marrow and the other plaintiffs were not covered individuals, so the insurance companies may not need to offset what the company must pay. In addition, COBRA notices that violate ERISA can be penalized up to $110 per day per qualified beneficiary. While we don’t know the exact number of class action plaintiffs, we do know that Ms. Marrow was one of three covered participants in her family. We also know from the court’s recitation of certain facts that Ms. Marrow’s employment ended on March 9, 2022. If we assume the case is decided on the last day of this year (2025) and penalties begin accruing as of the first of the month after termination of employment (April 1, 2022), then the company could face 1,370 days of penalties. For the Marrows alone, this would amount to $452,100 ($110 per day for three qualified beneficiaries — Ms. Marrow and her two daughters). COBRA violations can also trigger an IRC excise tax. Using similar assumptions, the potential liability for the Marrow family alone could reach $274,000, as the IRC penalty is $100 per day per qualified beneficiary, but with a cap of two qualified beneficiaries per family (meaning the Marrow family is counted as three for ERISA penalties and two for IRC penalties).
COBRA Notice Errors
The plaintiffs contend that the company’s improper COBRA notice prevented them from submitting timely COBRA elections. The first alleged issue is the description of the time limit to elect COBRA. The plaintiffs argue that the COBRA notice incorrectly stated that qualifying beneficiaries had 60 days from their last day of employment to elect COBRA continuation coverage. Under COBRA, qualified beneficiaries must have 60 days to elect coverage from the later of the loss of coverage or the date the COBRA notice is provided. The notice’s claim of “60 days from termination” would only be accurate if coverage ends and the COBRA notice is provided on or before the last day of employment.
For coverage to end on the last day of employment, the employee cannot have prepaid premiums beyond that point. For example, if a March payroll deduction includes premium deductions for coverage through March 31, then termination of employment before March 31 might not trigger a loss of coverage on the date of termination. We don’t know if the Marrow case will explore this, but it is worthwhile for employers to confirm whether premiums from payroll deduction are paid in advance or in arrears.
The plaintiffs also argue that expressing the deadline as a number of days from a specific date requires qualified beneficiaries to perform calendar calculations. The plaintiffs appear to take the position that COBRA notices must express the specific date on which the election opportunity expires (e.g., “June 30, 2025”) rather than referencing a time frame such as “60 days from termination.” Although this position is not directly reflected in the statutes and regulations outlining COBRA, COBRA notices must be written in a manner that the average qualified beneficiary can reasonably understand. Asking recipients to perform calendar calculations can lead to misunderstandings. For example, if the COBRA notice is provided and coverage ends on June 30, could some employees mistakenly interpret 60 days as ending on August 30 instead of August 29? How many employees might assume that 60 days equals exactly two months, even though this is not true if a 31-day month or February is involved?
In addition to these points, the plaintiffs allege two inconsistencies in the notice. First, the COBRA notice stated that the first COBRA payment was due when the COBRA election was made, while elsewhere it explained that payment was due within 45 days after the election. COBRA prohibits requiring payment in less than 45 days after the election is made, so if the company’s notice imposed a shorter deadline, it would be incorrect. Second, the COBRA notice initially directed recipients to contact the company to learn the premium amount, but elsewhere it mentioned accessing a “rate sheet” for premiums. COBRA requires that notices inform recipients of their premium amounts without requiring them to do anything more than review the notice, so requiring them to contact the company could be a violation. If a list of available coverages and the associated premiums is attached to the COBRA notice, that may be compliant if the rate sheet or the COBRA notice also indicates the coverages for which qualifying beneficiaries are eligible.
Takeaways
COBRA violations carry incredibly high penalties, and plaintiffs in these cases often generate empathy due to their medical circumstances. For this and other reasons, employers should regularly review their COBRA notice templates to ensure they accurately and clearly explain deadlines, available coverages, and amounts due. As this case highlights, even seemingly minor details, such as whether premiums are paid in advance or arrears, can come under scrutiny. If you have any questions about COBRA or other employee benefits issues, please contact the author of this article or your employee benefits adviser.
