United States Court of Appeals,
Fifth Circuit.
No. 93-2859.
Victoria TEWELEIT, Plaintiff,
v.
HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY, Defendant-Counter
Defendant-Appellee,
v.
The TEXAS MUNICIPAL GROUP BENEFITS RISK POOL, Defendant-Counter
Plaintiff-Appellant.
Feb. 7, 1995.
Appeal from the United States District Court from the Southern
District of Texas.
Before JONES and STEWART, Circuit Judges, and DUPLANTIER*, District
Judge.
EDITH H. JONES, Circuit Judge:
This is a dispute between an insurance company, Hartford Life
& Accident Insurance Company (Hartford), and an employer, Texas
Municipal League Group Benefits Risk Pool (TML), revolving around
the interpretation of the word "covered" under a section of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
amendments to the Employee Retirement Income Security Act (ERISA).
42 U.S.C. § 300bb-2(2)(D) (1986). The COBRA amendments were
enacted generally to preserve employees' medical insurance as they
move from job to job. Hartford interpreted the statutory term
"covered" to mean that after its insured, the daughter of a TML
*
District Judge of the Eastern District of Louisiana,
sitting by designation.
1
employee, got married and signed on to her new husband's insurance
policy, Hartford's COBRA responsibility terminated even though the
young woman was indisputably not "covered" on the new policy for a
pre-existing condition. The district court agreed with Hartford's
interpretation and granted summary judgment against TML, which had
given contrary advice. We disagree with Hartford's interpretation
of the mandated scope of COBRA coverage and therefore reverse and
remand.
BACKGROUND
In 1990, Victoria Teweleit (Victoria) sued Hartford, and later
TML, for refusing to pay her about $30,000 in insurance benefits
for follow-up care on a heart-lung transplant she had received.
Hartford and TML sought indemnity against each other. Victoria
settled her suit against Hartford for $181,000 and against TML for
$50,000.
The indemnity claims went forward. Shortly before trial, the
district court notified the parties that he would determine the
propriety of Hartford's termination of Victoria's health insurance,
while the jury would find the relevant facts that precipitated the
termination. TML does not challenge the jury's factual findings on
appeal, and we accept them as true. The jury's findings and
additional undisputed facts follow.
In 1988, Victoria Cooley was a dependent adult child covered
under her father's insurance policy through his employer TML.
Victoria underwent a costly heart and lung transplant that was
covered under Hartford's policy. When, in late 1988, Victoria
2
planned to marry Mr. Teweleit, she needed to ensure that medical
expenses relating to the transplants would still be covered after
her marriage. Mr. Teweleit's policy excluded coverage for
pre-existing conditions for the first year.
Victoria's mother was verbally assured by TML personnel that
under COBRA, Victoria would be entitled to continuing coverage for
her pre-existing conditions within her father's plan even if she
married and became covered under her husband's policy.1 Hartford
did not participate in giving Victoria's mother this information.
Relying on these representations, Victoria was married on December
17, 1988, and signed her COBRA forms that same day. She became a
named insured under her husband's policy effective January 4, 1989.
Hartford discovered in May, 1988 that Victoria was insured
under both plans and promptly cancelled her COBRA continuing
coverage. Hartford's asserted authority for cancelling Victoria's
COBRA coverage was 42 U.S.C. § 300bb-2(2)(D), a section that allows
the insurer to terminate continuing COBRA coverage when the insured
first becomes "covered" under any other group health plan.
Concluding that when Victoria became a named insured under her new
husband's health plan, she was "covered" for purposes of COBRA,
Hartford refused to pay approximately $30,000 in medical bills
1
In its Findings of Fact and Conclusions of Law, the
district court found that TML personnel also told Victoria that
she had to elect COBRA coverage before the wedding. This was
incorrect. Victoria could have waited up to sixty days after
getting married to elect continuing coverage. 42 U.S.C. § 300bb-
5(1). Ironically, if Victoria had availed herself of the 60-day
wait, she would have fallen within the retroactivity period of
the amendment discussed infra.
3
related to her pre-existing condition.
The district court agreed with Hartford's reasoning and held
that Hartford justifiably cancelled Victoria's coverage. Adopting
the jury findings that (1) TML misrepresented to Victoria her right
to COBRA coverage and (2) Victoria relied upon these
representations to her detriment, the district court ordered TML to
indemnify Hartford for its costs and fees reasonably incurred in
defending and settling with Victoria.2
On appeal, TML argues that, because Victoria's husband's
policy excluded coverage of her pre-existing condition, Victoria
was not truly "covered" under any other group health plan and thus
Hartford's termination of COBRA coverage was wrongful. TML seeks
indemnity for its costs and fees incurred in defending and settling
with Victoria.
DISCUSSION
Resolution of this case turns on the meaning of the word
"covered" in its statutory context. The version of the COBRA
section applicable to this case3 allows an insurer to terminate
coverage on:
2
The award consisted of $278,923.75 in attorneys fees,
$61,224.84 in costs and expenses, and $180,000 for reimbursement
of Hartford's settlement with Victoria, for a grand total of
$520,148.59.
Thus by the conclusion of this litigation the refusal
to pay $30,000 in medical bills had resulted in expenditures
of well over $600,000, a factor of more than twenty to one.
The health care system is not the only one which needs
"fixing".
3
This section was amended in 1989, discussed infra.
4
"The date on which the qualified beneficiary first becomes,
after the date of the election—
(i) covered under any other group health plan (as an employee
or otherwise)...."
42 U.S.C. § 300bb-2(2)(D) (1986) (emphasis added). The parties
dispute whether covered under any other group health plan means
that the beneficiary of COBRA coverage (a) generally has or obtains
some second policy of health insurance, or (b) has or obtains a
second policy with substantially the same benefits as the initial
policy. Hartford argues that (a) is correct; TML argues that (b)
is correct. We agree with TML.
The COBRA amendments to ERISA were enacted in response to
"reports of the growing number of Americans without any health
insurance coverage and the decreasing willingness of our Nation's
hospitals to provide care to those who cannot afford to pay."
H.R.Rep. No. 241, 99th Cong., 2d Sess. 44, reprinted in 1986
U.S.C.C.A.N. 42, 579, 622. The effect of COBRA is to require group
health plan sponsors "to provide continuing coverage on an
individual basis for qualified beneficiaries until, among other
triggering events, those beneficiaries become covered under another
group health plan, as an employee or otherwise." Brock v.
Primedica, Inc., 904 F.2d 295, 296 (5th Cir.1990) (citing 29 U.S.C.
§ 1162(2)(D)(i)).4
Although, for reasons to be explained, Hartford contends the
cases are distinguishable, three circuits have construed this COBRA
4
29 U.S.C. § 1162(2)(D)(i) and 42 U.S.C. § 300bb-2(2)(D)(i)
are identical provisions. The former governs the population at
large while the latter governs public employees.
5
provision. See Oakley v. City of Longmont, 890 F.2d 1128 (10th
Cir.1989), cert. denied, 494 U.S. 1082, 110 S.Ct. 1814, 108 L.Ed.2d
944 (1990); Brock v. Primedica, Inc., 904 F.2d 295 (5th Cir.1990),
and National Co. Health Benefit Plan v. St. Joseph's Hosp., 929
F.2d 1558 (11th Cir.1991). These opinions are worth a brief
recapitulation.
Oakley was the first circuit court case to examine this COBRA
provision. Oakley was insured by both his employer and his wife's
employer before he became disabled in an automobile collision. He
elected to purchase COBRA continuing coverage from his employer
because his insurance plan covered certain rehabilitation expenses
not provided for by his wife's plan. Later, Oakley's insurance
company terminated his COBRA coverage because it asserted he was
"covered" by his wife's plan. The Eleventh Circuit rejected this
construction of section 300bb-2(2)(D)(i). Oakley, 890 F.2d at
1132. The court's analysis focused primarily on the timing of the
second policy and concluded that because Oakley did not "first
become" covered under his wife's policy after he left his job, his
insurance company did not have the right under the statute to
terminate his COBRA coverage. Id. The court summarized its
holding thus:
"[W]e are satisfied that the overall statutory scheme
contemplates continuation coverage to remain available to the
covered employee despite a spouse's preexisting insurance
policy. Surely the facts of this case illustrate the precise
gap in coverage which troubled Congress."
Id. at 1133 (emphasis added).
Chief Judge Politz relied on Oakley in deciding Brock. Mrs.
6
Brock was insured by her employer and by her husband's policy.
When Brock terminated her employment, she purchased COBRA
continuing coverage. Later, her insurance company denied her
claims for medical bills she had incurred, asserting that she was
not eligible for continuing COBRA coverage because she was
"covered" under her husband's plan for the type of benefits for
which she sought reimbursement. As Brock explained it, Oakley
turned on the fact that denial of continuing coverage would have
created a "gap" in Oakley's coverage because the character of
coverage was different. Id. at 297. In other words, because the
specific benefits sought by Oakley were covered by his COBRA plan
but not his wife's plan, Oakley was not really "covered" by another
plan for purposes of the statute. By contrast, there was no "gap"
in Brock's coverage as both plans covered the benefits she sought.
Brock held that termination of the COBRA plan was proper. Id.
The third case, National Co., builds upon Brock. Robert Hersh
was covered by his employer and his wife's insurance policy before
quitting his job. After he resigned, Hersh purchased COBRA
continuing coverage from his employer. Subsequently, his wife had
complications while giving birth to twins. When Hersh filed a
claim under his COBRA coverage, it was denied on the grounds that
he was "covered" by his wife's policy. Agreeing with Brock, the
Eleventh Circuit explained that the time when the second insurance
coverage was procured, whether concurrent or subsequent to the
COBRA policy is irrelevant. Id. at 1570. The critical inquiry is
whether there exists a "significant gap in coverage" between the
7
two plans. Id. at 1571. Since in that case both plans covered
substantially the same expenses arising out of the twins' birth,
the court concluded that termination was proper. Id.
Brock and National Co. and, to a lesser extent, Oakley have
voiced a common interpretive theme of COBRA coverage: its purpose
is to eliminate gaps in insurance coverage that could accompany
changes in or loss of employment. These statements are not just a
theme, however, but the enacted will of Congress in language
sufficiently clear to achieve its purpose. Denying continuation
coverage when a gap in coverage would otherwise occur would serve
to frustrate Congressional intent. Accord National Co., 929 F.2d
at 1571. Therefore, we see no reason to depart from the analysis
of these cases.
Hartford contends that the three cases are inapposite because
they dealt with coverage by a second policy that existed concurrent
with the COBRA continuation policy, and thus more properly turned
on when, under the statute, the insured "first becomes" covered by
the non-COBRA policy. In this case, however, Victoria first became
a beneficiary under her husband's policy after COBRA coverage had
begun; the analytical focus is solely on the word "covered" rather
than on the question of the two policies' timing. While Hartford's
argument has logical force, it does not account for the emphasis
laid by three circuit courts, including our own, on the need to
eliminate gaps in coverage. It is perfectly consistent with those
cases to hold, as we do, that "coverage" means the actual provision
for benefits in the insurance policy for which a COBRA continuation
8
policy is a supplement.
While Victoria was covered under her father's insurance
policy, her medical bills incidental to her transplant were paid by
Hartford. The follow-up expenses were not reimbursable under her
husband's policy because they resulted from a pre-existing
condition. When Hartford terminated Victoria's coverage under her
father's policy, these expenses were not "covered" by any policy of
insurance. There can be no doubt that Victoria experienced a
significant gap in coverage.5
In 1989, Congress added the following italicized clause to the
relevant statute, which now permits the insurer to terminate COBRA
coverage on:
"The date on which the qualified beneficiary first becomes,
after the date of the election—
(i) covered under any other group health plan (as an employee
or otherwise) which does not contain any exclusion or
limitation with respect to any preexisting condition of such
beneficiary...."
42 U.S.C. § 300bb-2(2)(D)(i) (1989) (emphasis added). Had this
language existed at the time of Victoria's COBRA election, it would
have been clear that Hartford could not terminate her coverage when
she joined her husband's policy. Congress, however, made this
amendment retroactive only to elections made after January 1, 1989.
Omnibus Budget Reconciliation Act of 1989, Pub.L.No. 101-239, §
5
Because the statute at issue has been amended and applies
retroactively to 1989, this is most likely a case of last
impression. Therefore, we do not endeavor to define with
precision what constitutes a "significant" gap in coverage. We
decide today only that a gap created by a pre-existing condition
exclusion qualifies as significant.
9
6801(b)(2)(B), 103 Stat. 2297 (1989). Because Victoria elected
COBRA coverage in December, 1988, the amendment does not reach back
to this case.
The parties disagree as to the effect of the amendment.
Hartford argues, not unpersuasively, that the amendment evidences
a Congressional intent to change the law as it previously stood.
The limited retroactivity of the amendment bolsters this
interpretation. Hartford also points for support to an IRS
regulation that was proposed as an interpretation of the earlier
statute. Prop.Treas.Reg. § 1.162-26, Q & A-38, 52 Fed.Reg. 22730
(1987). The proposed regulation stated that COBRA coverage could
be terminated as early as:
"the first date after the date of the election upon which the
qualified beneficiary is covered ... under any other group
health plan even if that coverage is less valuable to the
qualified beneficiary than COBRA continuation coverage (e.g.,
if the other coverage provides no benefits for preexisting
conditions )."
Id. (emphasis added). However, whatever influence this proposed
regulation may have had on insurance company decisions while it
remained pending, it was never adopted and thus has no precedential
authority. S. Cent. United Food & Commercial Workers Unions and
Employers Health & Welfare Trust v. AppleTree Mkt., Inc. (In re
AppleTree Mkt., Inc.), 19 F.3d 969, 973 (5th Cir.1994) ("proposed
regulations are not entitled to judicial deference and carry no
more weight than a position advanced in a brief by one of the
parties").
On the other hand, TML argues that the amendment effected a
clarification in the law but did not change the law at all. We
10
agree. The amendment did not change existing law but clarified and
emphasized the original Congressional intent behind COBRA. See
H.R.Rep. No. 101-247, 101st Cong., 1st Sess. 145 (1989), reprinted
in 1989 U.S.C.C.A.N. 1906, 2923.6 This circuit has already
interpreted the 1989 amendment in Brock, stating that "[it] further
emphasizes Congress's concern that group health plan participants
and their dependents not be placed in a situation in which they
suffer a gap in the character of coverage...." Brock, 904 F.2d at
297 (emphasis added). Brock relied on Oakley to illustrate that a
gap in the character of coverage occurs when a medical condition is
covered under one policy but not under the other.7 Id. In Oakley,
the insured's rehabilitation expenses were reimbursable under the
COBRA continuing coverage policy but were excluded by the insured's
other policy. When the COBRA coverage was terminated, the insured
suffered a gap in the character of coverage because his
rehabilitation expenses were not covered by his wife's policy.
Likewise, Victoria suffered a gap in the character of her
coverage when her COBRA coverage was terminated because her
husband's policy expressly excluded all pre-existing conditions
from coverage for a year. As in Oakley, this exclusion amounts to
a gap in the character of coverage, a gap eliminated first by the
6
See also Conery v. Bath Associates, 803 F.Supp. 1388, 1403
(N.D.Ind.1992) ("The 1989 amendment did not change the law; it
merely clarified Congress' original intent.").
7
For purposes of analyzing this particular statute, we
interpret "significant gap in coverage" to mean the same as "a
gap in the character of coverage" and use the terms
interchangeably.
11
original language of the COBRA provision, but strengthened in the
1989 amendment. The advice that TML gave Victoria's mother, that
Victoria could marry and still retain COBRA continuing coverage
insurance, was correct. The termination therefore violated 42
U.S.C. § 300bb-2(2)(D) even as it existed prior to the 1989
amendment.
At oral argument and in a supplemental letter brief, Hartford
contended that we need not address the language of the statute but
can decide the case by construing the language of its contract with
TML. Hartford asserts that its contractual obligation to TML was
less encompassing than the COBRA provisions. In other words,
Hartford argues that even if we decide that TML's interpretation of
"covered" under the statute is correct, we should still find that
Hartford was justified in terminating Victoria's policy because the
contract allowed it to do so. The language of the contract belies
Hartford's assertion: Hartford agrees to provide continuation
coverage to those "who are entitled to such continuation under the
Consolidated Omnibus Budget Reconciliation Act of 1985, subject to
the payment of the required premium." The contract is coextensive
with COBRA. Hartford's argument fails.
Hartford also asserts that its termination of the policy was
reasonable in light of the legal authority available at the time.8
But the reasonableness of Hartford's belief that it was entitled to
8
Hartford points to the proposed IRS regulation, supra, and
the district court opinion in Oakley v. City of Longmont, both of
which supported Hartford's interpretation of COBRA, but neither
of which ultimately proved to be good law.
12
terminate the policy is not at issue. Unfortunately for Hartford,
it is possible to be reasonable and yet wrong.
Based upon the finding that TML personnel incorrectly advised
Victoria's mother that Victoria was entitled to COBRA continuing
coverage, the district court awarded Hartford its costs and fees
reasonably incurred in defending and settling this lawsuit.
Because we hold that Victoria was entitled to COBRA continuing
coverage, this award must be reversed. The question remaining to
be resolved is whether TML is entitled, as it claims, to indemnity
from Hartford.
CONCLUSION
Victoria was protected by 42 U.S.C. § 300bb-2(2)(D)(i), in its
earlier version, from termination of her COBRA coverage while her
husband's policy provision excluding pre-existing conditions
remained in effect. Because the district court concluded
otherwise, its judgment must be reversed, and the case must be
remanded to the district court for a determination whether TML is
entitled to indemnity from Hartford for any of its fees and costs
incurred in litigating and settling Victoria's lawsuit.9
REVERSED and REMANDED.
9
Our holding today does not require us to decide whether TML
was entitled to any governmental immunity.
13