Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-01021/USCOURTS-ca10-89-01021-1/pdf.json

Parties Involved:
City of Longmont
Appellee
James Oakley
Appellant
Safeco Insurance Company of America
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

JAMES OAKLEY, 

Plaintiff-Appellant, 

FI LED 

tJriitt'd Snttfs Court of Appeals 

'r"rith r: ;,.,..,;: 

DEC 8 1989 

l(OBERT L. HOECKER 

Clerk 

v. 

) 

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) 

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No. 89-1021 

CITY OF LONGMONT and SAFECO 

INSURANCE COMPANY OF AMERICA, 

Defendants-Appellees. 

ORDER ON PETITION FOR REHEARING 

Before MOORE, ANDERSON, and BRORBY, Circuit Judges. 

Upon appellees' motion for rehearing, it is ordered that 

rehearing is granted. The mandate is recalled. Upon rehearing, 

the court's first opinion in the case, Oakley v. City of Longmont, 

887 F.2d 249 (10th Cir. 1989), is withdrawn. The attached opinion 

is substituted in its place. The suggestion for rehearing en bane 

is denied without prejudice. The mandate is reissued forthwith. 

Entered for the Court 

John P. Moore 

Circuit Judge 

Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 1
PUBLISH 

FI LED 

Uoited States Court of Appeals 

Tenth Cir.r.uit 

DEC 8 1989 

UNITED STATES COURT OF APPEAL&OBERT L. HOECKER 

FOR THE TENTH CIRCUIT Clerk 

JAMES OAKLEY, 

Plaintiff-Appellant, 

v. 

CITY OF LONGMONT and SAFECO 

INSURANCE COMPANY OF AMERICA, 

Defendants-Appellees. 

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No. 89-1021 

Appeal from the United States District Court 

For the District of Colorado 

D.C. No. 88-B-1204 

Submitted on the Briefs: 

Mark E. Biddison and Andrew C. Littman of Stevens, Littman & 

Biddison, Boulder, Colorado, for Plaintiff-Appellant. 

Claybourne M. Douglas, City Attorney, for Defendant-Appellee City 

of Longmont. 

Before MOORE, ANDERSON, and BRORBY, Circuit Judges. 

MOORE, Circuit Judge. 

Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 2
After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The cause is therefore ordered 

submitted without oral argument. 

James Oakley sought a declaratory judgment that he was 

entitled to continue his medical insurance coverage under the 

health plan offered by his employer, the City of Longmont (the 

City}, after he was severely injured in an automobile accident. 

Resolving cross-motions for summary judgment, the district court 

granted the City's motion, finding that under 42 u.s.c. § 300bb2(2}(D}(i), the City is not required to provide continuation 

coverage to its previously covered employee. Oakley v. City of 

Longmont, 701 F. Supp. 800 (D. Colo. 1988). We reverse. 

I. 

Mr. Oakley was employed by the City as a fire fighter when he 

was involved in an automobile collision with a drunk driver and 

suffered a permanent head injury. As a City employee, Mr. · Oakley 

was covered by the City of Longmont Medical and Dental Care 

Expense Reimbursement Plan, Plan No. 56690 (the Plan), which 

extended. coverage until his termination on August 27, 1988, and 

for an additional ninety days until November 26, 1988, as provided 

by the Plan. In July 1988, after an exchange of letters, the City 

informed Mr. Oakley that he was not eligible to maintain his 

medical insurance coverage for an additional eighteen months with 

the City's Plan because he is a dependent under his wife's group 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 3
health plan. Nevertheless, on October 7, 1988, the Plan notified 

Mr. Oakley of his option to continue his prior medical coverage 

for eighteen months by maintaining the premium payments himself. 

Apparently, Mr. Oakley did not return the election form at that 

time because of his prior notification from the City that he was 

ineligible for continuation coverage. Subsequently, Mr. Oakley 

submitted the form on November 21, 1988. 1 

At the time of his termination, Mr. Oakley was a patient at 

the Bear Creek Rehabilitation Center where he was receiving 

rehabilitation therapy for the brain injury he had suffered. 

Although he was listed as a dependent on his wife's group health 

plan, Mrs. Oakley's coverage does not reimburse the costs of this 

treatment. Consequently, Mr. Oakley sought declaratory and 

injunctive relief to continue his medical coverage with the City. 

The district court, however, denied relief under 42 u.s.c. 

§ 300bb-2(2)(D)(i), which states that continuation coverage ends 

on the date "the qualified beneficiary first becomes, after the 

date of the election -- (i) covered under any other group health 

plan (as an employee or otherwise). II The court cited 

accompanying legislative history which it believed manifested 

Congress' "beneficent purpose of requiring a minimal amount of 

continuation coverage for a limited time to provide qualified 

beneficiaries an opportunity to secure other health benefits." 

1 rn its opinion, the district court stated, "Because plaintiff has 

not yet elected continuation coverage, and because he is a 

dependent under his wife's policy, the City has not extended the 

plaintiff continuation coverage." Oakley v. City of Longmont, 701 

F. Supp. 800, 801 (D. Colo. 1988). The record, however, 

establishes that Mr. Oakley timely returned the election form. 

The City does not contest his eligibility on this basis. 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 4
701 F. Supp. at 801-02. However, relying principally on language 

in proposed regulations promulgated in the Federal Register by the 

Internal Revenue Service, 2 which was delegated the authority to 

issue regulations defining required coverage, the district court 

concluded that Congress did not intend "to require employers to 

provide continuation coverage to qualified beneficiaries who are 

covered by more than one group health plan." Id. at 802. Mr. 

Oakley now appeals this conclusion, contending the court erred in 

construing the statute and in relying on a proposed Treasury 

Regulation that has not yet been adopted. 3 

II. 

In 1986, Congress passed the Comprehensive Omnibus Budget 

Reconciliation Act, Pub. L. No. 99-272, 100 Stat. 82 (1986) 

(COBRA), to address the "staggering budget deficits now facing the 

United States." s. Rep. No. 99-146, 99th Cong., 2d Sess. 3, 

reprinted in 1986 U.S. Code Cong. & Admin. News 43. Conflated 

with its many revenue-related provisions is the statute at issue, 

42 u.s.c. § 300bb-l, entitled "Requirements for certain group 

health plans for certain state and local employees." Section 

2The proposed regulation states that continuation coverage must 

not end before "(d) the first date after the date of the election 

upon which the qualified beneficiary is covered (i.e., actually 

covered, rather than merely eligible to be covered) under any 

other group health plan that is not maintained by the employer, 

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) .••• " 

52 Fed. Reg. 22730 (1987). 

3safeco Insurance Company of America is not a party to this appeal 

but has stipulated to being bound by the court's order. 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 5
300bb-1 was spawned by Congress' concern "with 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. 

99-241, Part I, 99th Cong., 2d Sess. 3, reprinted in 1986 U.S. 

Code Cong. & Admin. News 622. As one solution to the problem, 

Congress amended Section 162 of the Internal Revenue Code "to deny 

the business tax deduction for a group health plan of any employer 

who fails to include in the plan a continuation option" to the 

employee, his spouse, and dependent children. Id. Congress 

fashioned the tax incentive to insure that health benefits for 

certain workers would not be put at risk or lost "due to an 

unexpected change in family status." s. Rep. No. 99-1~6, 99th 

Cong., 2d Sess. 3, reprinted in 1986 U.S. Code Cong. & Admin. News 

322. 

Section 300bb-l(a) states: 

In accordance with regulations which the Secretary 

shall prescribe, each group health plan that is 

maintained by any State that receives funds under this 

chapter, by any political subdivision of such a State, 

or by any agency or instrumentality of such a State or 

political subdivision, shall provide, in accordance with 

this subchapter, that each qualified beneficiary who 

would lose coverage under the plan as a result of a 

qualifying event is entitled, under the plan, to elect, 

within the election period, continuation coverage under 

the plan. 

A virtual mirror image of§§ 300bb-l through 300bb-8 is found 

in the Internal Revenue Code, 26 u.s.c. § 162(k) with the 

prefatory tax language. Section 162(i)(2)(A) states: 

No deduction shall be allowed under this section 

for expenses paid or incurred by an employer for ·any 

group health plan maintained by such employer unless all 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 6
such plans maintained by such employer meet the 

continuing coverage requirements of subsection (k). 

Excluded from the requirement of§ 300bb-l(a) are employers 

with fewer than twenty employees and group health plans maintained 

by the government of the District of Columbia or any territory or 

possession of the United States. 42 u.s.c. § 300bb-l(b)(l) and 

(2). To avoid a§ 162(i) denial, "[t]he coverage must consist of 

coverage which, as of the time the coverage is being provided, is 

identical to the coverage provided under the plan to similarly 

situated beneficiaries under the plan with respect to whom a 

qualifying event has not occurred." 42 u.s.c. § 300bb-2(1); 26 

u.s.c. § 162(k)(2)(A); 29 u.s.c. § 1162(1) (emphasis added). 4 The 

accompanying legislative history explains that identical coverage 

means, "[f]or example, if, under the plan, the covered employee 

had the right to select among several levels of coverage, the 

qualified beneficiary generally would be entitled to continue 

whatever level of coverage the employee had .selected for the 

beneficiary prior to the qualifying event." S. Rep. No. 99-146, 

99th Cong., 2d Sess. 3, reprinted in U.S. Code Cong. & Admin. News 

325. 

Section 300bb-3 defines a qualifying event in part for any 

covered employee 5 : 

4The Employee Retirement Income Security Act of 1974, 29 u.s.c. 

§ 1161, contains the same continuation coverage rules and 

identical provisions as found in the Public Health Service Act at 

issue here and the Internal Revenue Code. See, e.g., 29 u.S.c. 

§ 1162(2), 100 Stat. 228. 

511The term 'covered employee' means 

provided coverage under a group 

individual's employment or previous 

42 U.S.C. § 300bb-8(2). 

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an individual who is (or was) 

health plan by virtue of the 

employment with an employer." 

Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 7
[T]he term "qualifying event" means, with respect 

to any covered employee, any of the following events 

which, but for the continuation coverage required under 

this subchapter, would result in the loss of coverage of 

a qualified beneficiary: 

(1) The death of the covered employee. 

(2) The termination (other than by reason of such 

employee's gross misconduct), or reduction of hours, of 

the covered employee's employment. 

Unless there are multiple qualifying events, coverage must extend 

for at least eighteen months from the date of the qualifying 

event. 

Subsection 300bb-8(3)(A) defines a qualified beneficiary 

eligible for continuation coverage. It states: 

The term "qualified beneficiary" means, with 

respect to a covered employee under a group health plan, 

any other individual who, on the· day before the 

qualifying event for that employee, is a beneficiary 

under the plan--

(i) as the spouse of the covered 

employee, or 

(ii) as the dependent child of the 

employee. 

A special rule for terminations and reduced employment underscores 

that a qualified beneficiary includes the covered employee. 42 

U.S.C. § 300bb-8(3)(B). 

With this statutory groundwork in place, we turn to the 

subsection at issue in this appeal, 42 u.s.c. § 300bb-2(2), the 

period of continuation coverage. Continuation coverage 

automatically terminates after the maximum period of coverage 

permitted, 18 months from the date of the qualifying event. 42 

U.S.C. § 300bb-2(2)(A)(l). Otherwise, failure to make a timely 

payment of the premium, 42 U.S.C § 300bb-2(2)(C), or the 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 8
employer's ceasing to provide any group health plan to any 

employee, 42 u.s.c. § 300bb(2)(B), will terminate continuation 

coverage prior to the statutory deadline. In addition, 

continuation coverage ends 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) •. 

42 u.s.c. § 300bb-2(2)(D)(i) (emphasis added). When we read the 

underlined introductory language in conjunction with "covered 

under any other group health plan (as an employee or otherwise)," 

we believe the plain meaning of this subsection cannot be 

construed to include a spouse's preexisting group plan as a 

condition to terminate continuation coverage. Indeed, Mr. Oakley 

did not "first become" covered under his wife's policy after the 

qualifying event that resulted in his termination from the City's 

employment. Nor did Congress intend a covered employee's 

termination to become a condition triggering 'other' coverage 

under a spouse's preexisting group plan. Consequently, only when 

we read the language of subsection (i) to refer to other coverage 

occurring after the qualifying event, do we preserve its plain 

meaning and give effect to Congress' intent. 

Our interpretation is premised on contemporaneous 

congressional history and a reading of the statute as a whole. 

The accompanying House Conference Report explains the conference 

agreement on the duration of coverage provided to widows, divorced 

spouses, spouses of Medicare-eligible· employees, dependent 

children who become ineligible, and for terminated employees: 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 9
[a]s under the House bill and Title IX of the Senate 

amendment, no coverage need be provided after (1) 

failure to make timely payment under the plan, (2) the 

qualified beneficiary is covered under another group 

health plan as a result of employment, reemployment, or 

remarriage, and (3) the qualified beneficiary becomes 

entitled to Medicare benefits. 

H.R. 3128, 99th Cong., 1st Sess., 131 Cong. Rec. 38,285-286 (1985) 

(emphasis added). 

Thus, continuation coverage will terminate if the covered 

employee becomes covered by another policy because he obtains new 

employment, is reemployed, or remarries. None of these conditions 

is present here. While the district court believed "or otherwise" 

included the then-existing coverage of the employee's spouse, 

Congress intended this language to refer to subsequent events 

related to the employee's own employment or marital status. 

Consequently, a qualified beneficiary who receives coverage under 

the group health plan of a subsequent employer other than the 

employer providing the continuation coverage would no longer be 

eligible for continuation coverage. If a qualified beneficiary 

who is the spouse of a covered employee remarries, the 

continuation coverage under the covered employee's plan would 

terminate. 

The subsection must be construed, moreover, in light of the 

entire legislative scheme in which this component operates. See 

2A C. Sands, Southerland on Statutory Construction§ 46.05, at 90 

(4th ed. 1984). The essence of continuation coverage, as found in 

§ 300bb-l and its revenue counterpart, is that coverage must be 

"identical" not only to that coverage which the employee had prior 

to the qualifying event but also to "the coverage provided under 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 10
( 

the plan to similarly situated beneficiaries under the. plan with 

respect to whom a qualifying event has not occurred." 42 u.s.c. 

§ 300bb-2(1). Although the district court believed Congress was 

concerned with providing minimal coverage and avoiding overlapping 

continuation coverage, 701 F. Supp. at 802, the statute speaks 

only in terms of identical coverage to be made available for a 

limited time to a covered employee. Hence, under this scheme, if 

the spouse of a covered employee could elect continuation coverage 

and pay the applicable premium not to exceed 102% of the premium 

cost, 42 u.s.c. § 300bb-2(3)(A}, it is inconsistent that Congress 

would deny the same election to the covered employee. 

Thus, while the contemporaneous legislative history does not 

specifically address the language at issue here, "covered (as an 

employee or otherwise)," we 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. Mr. Oakley was 

terminated because of a catastrophic event which otherwise would 

have put his family at risk and jeopardized his treatment had the 

continuation rules not been in effect to maintain his 

rehabilitation for a limited period of time. 

In light of Congress' overriding intent to address the crisis 

in health insurance coverage in the workplace, we are persuaded 

that§ 300bb-2(2)(D)(i) does not provide the basis to terminate 

continuation coverage under the circumstances of this case. The 

proposed Treasury Regulations on continuation coverage 

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Appellate Case: 89-1021 Document: 010110282908 Date Filed: 12/08/1989 Page: 11
requirements of group health plans, on which the district court 

relied, do not alter our reading. Until the agency completes 

formal rule-making and promulgates final regulations, the proposed 

rules, which the Internal Revenue Service has already deemed 

interpretive regulations, are unpersuasive. See Telvest, Inc. v. 

Bradshaw, 618 F.2d 1029, 1036, n. 10 (4th Cir. 1980). 

Based on our analysis of the statutory scheme, we conclude 

the district court erred as a matter of law in deciding§ 300bb2(2)(D)(i) terminated Mr. Oakley's eligibility to elect 

continuation coverage under the Plan. We therefore REVERSE the 

judgment and REMAND for entry of judgment in accordance with this 

opinion. 

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