Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-01021/USCOURTS-ca10-89-01021-0/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, 

FILED 

Unlwd Sra~ Co!lrt of Appeals 

·remh Cir-:uir 

OCT .. 6 1989 

ROBERT L. HOECKER 

Clerk 

v. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

No. 89-1021 

CITY OF LONGMONT and SAFECO 

INSURANCE COMPANY OF AMERICA, 

Defendants-Appellees. 

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-Appellanto 

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

of L'ongmont. 

Before MOORE, ANDERSON, and BRORBY, Circuit Judges. 

MOORE, Circuit Judge. 

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 1
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); lOth 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 severe~y injured in an automobi le accident. 

Resolving cross-motions for summary judgment, the district court 

granted the City's motion, finding that under 42 u.s.c. S 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 

-2-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 2
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 that he was ineligible for 

continuation coverage.l 

At the time of his termination, Mr. Oak l ey was a patient at 

the Bear Creek Rehabilitation Center where he was receiving 

rehabilitation therapy for the brain injury he had s u ffered . 

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 reli ef under 42 u.s.c. 

S 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) ••. It The court cited 

accompanying congressional histor y which i t believed manifested 

Congress• 11 beneficent purpose of requiring a minimal amount of 

continuation coverage for a l i mi ted time to provide qualified 

beneficiaries an opportunity to s ecure other health benefits." 

701 F. Supp. at 801-02. However, relying principally on language 

in a proposed regulation promulgated by the Internal Rev enue 

1Mr. Oakley later returned the form, and the City does not contest 

his eligibility on this basis. 

-3-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 3
Service, 2 which was delegated the authority to enforce the 

statute, the court concluded that Congress did not intend 11 to 

require employers to provide continuation coverage to qualified 

beneficiaries who are covered by more than one group health plan. 11 

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 11Requirements for certain group 

health plans for certain state and local employees. '' Section 

300bb-l 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 

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) •••. 11 

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. 

-4-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 4
provide care to those who cannot afford to pay. 11 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. 99-146, 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 

such plans maintained by such employer meet the 

continuing coverage requirements of subsection (k). 

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

with fewer than twenty employees and group health plans mainta ined 

-5-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 5
by the government of the District of Columbia or any territory or 

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

(2). To avoid aS 162(i) denia l , "[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(l); 26 

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

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

employee5 : 

[T]he term ''qualifying e vent" means, with respect 

to any cover ed 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: 

4The Employee Retirement Income Security Act of 1974, 29 O.S.C. 

§ 1161, contains the same continuation coverage rules and 

i dentical provisions as found in the Public Health Service Act and 

the Internal Revenue Code. See, e.g., 29 u.s.c. § 1162(2), 100 

Stat. 228. 

511 The term 'covered employee' means an individual who is (or was) 

provided coverage under a group health plan by virtue of the 

individual's employment or previous employment with an employer." 

42 u.s.c. s 300bb-8(2). 

-6-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 6
The term "qualified beneficiary" 

respect to a covered employee under a group 

any other individual who, on the day 

qualifying event for that employee, is a 

under the plan--

(i) as the spouse of the covered 

employee, or 

(ii) as the dependent child of the 

employee. 

means, with 

health plan, 

before the 

beneficiary · 

In fact, § 300bb-8(3){B) provides a special rule for terminations 

and reduced employment: "In the case of a qualifying event 

described in section 300bb-3(2) of this title, the term 'qualified 

beneficiary' includes the covered employee." 

Failure to make a timely payment of the premium, 42 U.S.C 

§ 300bb-2(2)(C), or the employer's ceasing to provide any group 

health plan to any employee, 42 u.s.c. § 300bb(2)(B), will 

terminate the requirement to provide continuation coverage. In 

addition, continuation coverage may end under S 300bb-2(2)(D)(i), 

which states: 

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) .••• 

The present language of subsection (i) appeared in 1986 when 

Congress enacted the Tax Reform Act, Pub. L. No. 99-514, 100 Stat. 

2085 (1986), which amended various provisions of COBRA.6 

Previously, § 300bb-2(2)(D)(i) read "a covered employee under any 

other group health plan." A House Conference Report explained 

this language, "(a]s under the House bill and ~itle IX of the 

6These amendments were made effective 

unless otherwise specified. 

-7-

as if included in COBRA 

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 7
Senate amendment, 

to make timely 

no coverage need be provided after (1} failure 

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) . 

The amended language thus attempts to clarify Congress• 

intention that continuation coverage must be provided to a 

qualified employee unless the employee is covered by virtue of his 

reemployment or otherwise changes marital status. While the 

district court believed ''or otherwise" included the then-existing 

coverage of the employee's spouse, it would appear that Congress 

intended this language to refer to subsequent events related to 

the employee's own employment or marital status. Section 300bb2(2){D)(i) specifies the coverage available "at the time of the 

qualifying event" would terminate only after the date of election 

when the beneficiary first becomes covered by another plan because 

of a change in job or marital status. Thus, a qualified 

beneficiary who receives coverage under the group health plan of 

an employer other t han 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. 

Our interpretation of this subsec tion is generated by the 

nucleus of S 300bb-l and its revenue counterpart. The essence of 

continuation coverage is that it is "ident ical" not only to that 

-8-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 8
coverage which the employee ~ad prior to the qualifying event but 

also to uthe 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). 

Thus, under this scheme, the spouse of a covered employee who 

might have some other insurance coverage could elect continuation 

coverage and pay the applicable premiums not to exceed 102% of the 

premium cost. 42 u.s.c. § 300bb-2(3)(A). It is inconsistent then 

that Congress would deny the same election to the covered 

employee. 

When we look at the subsequent debate over the continuation 

coverage rules, we are further convinced that Congress intended 

"any other coverage" to permit the employee to elect to maintain 

his prior coverage for a limited period of time so that a gap in 

coverage would not put him or his family at risk . That debate 

concentrated on two unresolved and contested areas: (1) the 

appropriate penalty for failure to satisfy the continuation 

coverage requirements of group health plans {see S. 2238 and H.R. 

4845) and (2) those preexisting conditions which would permit a 

qualified beneficiary to elect continuation coverage when the new 

plan excludes coverage of that preexisting condition. (See H.R. 

Rep. No. 100-801, lOOth Cong., 2d Sess., pt. 2 (1988)). 

Subsequent amendments to Titles 26 and 29, the Technical and 

Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, 102 Stat. 

3342 {1988), included the penalty for failure to provide 

-9-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 9
continuation coverage. 7 The Act provided new coverage under ERISA 

which the accompanying Senate report explained. 

The bill deletes the provision allowing 

continuation coverage to be terminated upon the coverage 

of the qualified beneficiary under the group health plan 

of an employer other than the employer providing . the 

continuation coverage. 

This provision is intended to carry out the purpose 

of the health care continuation rules, which was to 

reduce the extent to wh1ch certain events, such as the 

loss of one's job, could create a signif~cant gap in 

health coverage. The fact that a qualified beneficiary 

receiving group health coverage from another employer is 

willing to pay up to 102 percent of the applicable 

premium for continuation coverage {which he or she may 

be required to pay by the employer providing the 

continuation coverage) is a strong indication that the 

new employer group health coverage has left a 

significant gap in the qualified beneficiary's health 

coverage. This is especially true when the new employer 

group health coverage excludes coverage for a 

preexisting condition that is covered by the 

continuation coverage. 

S. Rep. No. 100-445, lOOth Cong., 2d Sess. 6, reprinted in 1988 

u.s. Code Cong. & Admin. News 4955 (emphasis added).B 

"Although subsequent legislative history is less 

authoritative than contemporaneous explanation, subsequent 

Congressional declaration of an act's intent is entitled to great 

weight in statutory construction." Roosevelt Campobello Int'l 

Park Comm'n v. United States Environmental Protection Agency, 711 

F.2d 431, 436-37 (1st Cir. 1983) (citation omitted). While the 

contemporaneous legislative history does not specifically address 

7section 4980B(b) states in part: "(1} IN GENERAL. - of the tax imposed by subsection (a) on any failure 

to a qualified beneficiary shall be $100 for each 

noncompliance period with respect to such failure." 

The amount 

with respect 

day in the 

8The provision was to apply to events occurring after December 31, 

1988. 

-10-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 10
the 11 covered under any other group hea·lth plan11 question, we are 

satisfied the overall statutory scheme contemplates continuation 

coverage to remain available to the covered employee despite a 

spouse's other insurance. Indeed, 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 which is underscored 

in subsequent amendments and congressional history, we are 

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

terminate continuation coverage under the circumstances of this 

case. Congress did not contemplate that a spouse's other coverage 

would nullify a covered employee's right to elect continuation 

coverage. The proposed Treasury Regulations which have not yet 

been enacted do not alter our view. 9 Until the agency completes 

formal rule-making and promulgates rules that are the product of 

this adjudicatory process, the proposed rules are unpersuasive. 

See Woodstock/Kenosha Health Center v. Bowen, 810 F.2d 123 (7th 

Cir. 1987). 

Based on our analysis of the statutory scheme, we conclude 

the district court erred as a matter of law in deciding § 300bb9The Departments of Labor, Treasury, and Health and Human Services 

are authorized to promulgate rules to administer this program. To 

date, no agency has issued its final regulations. 

-11-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 11
2(2)(D).(i} terminated Mre 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 

opiniono The mandate shall issue forthwith. 

-12-

Appellate Case: 89-1021 Document: 01019401993 Date Filed: 10/06/1989 Page: 12