Vincent v. Wells Fargo Guard Services, Inc.
23 EBC 1364 (DC SFla 1999)

Facts Of The Case:

Wells Fargo Guard Services (“WFGS”) contracted with Strategic Resource Company (“SRC”) to administer its employee health plans, including collection of premiums and determining entitlement for benefits. As part of the services SRC provided to WFGS, SRC issued appropriate COBRA Qualifying Event Notices when WFGS notified SRC that an employee terminated employment.

An employee of WFGS, Mr. Vincent, terminated employment with WFGS and lost his health coverage, but he did not receive a COBRA Qualifying Event Notice.  WFGS conceded that it had failed to notify SRC of Mr. Vincent’s termination and loss of coverage.  Interestingly, Mr. Vincent and his family did not receive any medical treatment between the time he terminated employment with WFGS and the time they became covered under another group health plan without a pre-existing condition exclusion affecting them.

Question Presented:

The question presented to the court was whether WFGS would be required to pay COBRA compliance penalties because of the failure to comply with the COBRA Qualifying Event Notice requirements with respect to Mr. Vincent and his family.

Court's Decision:

The court began its analysis of the case by noting that previous court decisions have held employers liable for medical expenses where the employers failed to notify their COBRA administrators of Qualifying Events, resulting in the COBRA administrators failing to issue Qualifying Event Notices.  However, the court went on to note that Mr. Vincent and his family had incurred no medical expenses, and therefore the court exercised its discretion and decided not to impose any COBRA compliance penalty with respect to the failure to issue Qualifying Event Notices.

Implications For Employers:

The holding in this cases emphasizes that courts have the discretion to impose, or not impose, the statutory penalties applicable to COBRA compliance failures.  The holding also confirms that, at least to some courts, “harmless errors” in COBRA compliance should not result in the imposition of COBRA’s statutory compliance penalties.  However, all courts do not share this view, and employers who casually disregard COBRA’s compliance rules might expect to incur penalties, even in “harmless error” cases.

Of course, the best course is to ensure total compliance with COBRA’s various rules.  However, in the case of inadvertent mistakes made by employers who otherwise to an excellent job of COBRA compliance, the WFGS case might serve as a useful shield against Qualified Beneficiaries (and their attorneys) demanding COBRA compliance penalties.

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