*District Judge of the Eastern District of Louisiana,

sitting by designation. 

1

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
2

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
 

1In 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. § 300bb5(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

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
 

2The 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". 

 

3This section was amended in 1989, discussed infra. 

4

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:
 

429 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

"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
6

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.
7

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
8

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
 

5Because 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

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, §
10

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
 

6See 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."). 

 

7For 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

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
 

8Hartford 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

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
 

9Our holding today does not require us to decide whether TML

was entitled to any governmental immunity. 

13

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.