Opinion ID: 3012951
Heading Depth: 3
Heading Rank: 1

Heading: Did Marie Waive Her Right to Medical Coverage?

Text: Stull argues that the SSP, which Marie signed and returned, constituted a bargain in which Marie waived any right to sue Stull over employment-related claims in exchange for severance pay and Stull’s promise to pay her another month’s medical benefits. Stull insists that it upheld its end of the bargain — it paid benefits through November 30. Although Marie did not receive severance pay, an issue discussed more fully below, Stull asserts that Marie was not contractually entitled to it because she did not fulfill the condition precedent of working through November 6. Berthony responds that the SSP’s waiver does not protect Stull, for each of on the ground that Marie “was not employed at Stull Technologies at the time of her demise.” (214a.) After briefs were submitted in this case, however, the parties reached a settlement agreement under which Seaboard will pay to Berthony, in his representative capacity, the full $5,000 policy amount. We therefore need not discuss this issue further, except to order that Seaboard pay the $5,000 it offered in settlement. We also note that we find Berthony’s claim for attorneys’ fees to be without merit. 11 Berthony’s claims arose subsequent to Marie’s acceptance of the waiver, which occurred on October 11, 1998. He submits that our precedents refuse to recognize waivers of claims arising in the future. See Three Rivers Motor Co. v. Ford Motor Co., 522 F.2d 885, 896 n. 27 (3d Cir. 1975) (holding that prospective waivers of claims are void as against public policy). Moreover, he asserts that Stull’s concept of waiver, taken seriously, would be perverse, as it would prevent Berthony from challenging the very exchange that gave rise to the waiver that Stull now uses against him. We are satisfied that the SSP’s waiver presents no obstacle to Berthony’s claim. New Jersey public policy forbids prospective waivers of any right to sue, and that is precisely what is at issue here. See Becker v. Sherwin Williams, 717 F. Supp. 288, 293 (D.N.J. 1989) (“[E]ven if such a release had been signed by plaintiff, plaintiff would not be precluded from asserting claims which arose after the execution of the general release.”); Three Rivers, 522 F.2d at 896 n.27. This is doubly true when, as here, the consideration for the waiver is a future benefit that the employer fails to provide. B. Assuming Arguendo that the October 30 Letter Was Sent, Was the COBRA Notice Contained Therein Sufficiently Clear? Berthony argues that even if Stull mailed the October 30 letter, the notice it contained respecting Marie’s right to continued medical coverage under COBRA was inadequate and did not fulfill Stull’s statutory obligation under 29 U.S.C. § 1166(a)(1) to give accurate and understandable information on COBRA conversion. Under COBRA, 12 an employee opting to convert from group to private medical insurance must be given a minimum of 60 days in which to do so. 29 U.S.C. § 1165. This time runs either from the occurrence of a “Qualifying Event,” a statutorily-defined term, or from notice to the beneficiary, whichever is later. Termination is usually the “Qualifying Event.” If this COBRA conversion notice is deficient, the employer remains liable for an employee’s medical costs incurred pursuant to the employer’s group plan. The October 30 letter, if mailed, contained a form titled “COBRA ELECTION FORM AND NOTICE,” but Berthony argues that even if Marie had received it, it was insufficiently clear to put her on notice of her rights. Although it referred to a 60-day time period and a “Qualifying Event,” the notice did not define “Qualifying Event.” Berthony therefore contends that Stull failed to discharge its statutory duty to “explain the circumstances which may result in disqualification or denial of loss of benefits.” 29 U.S.C. § 1022(b), and to do so “in a manner that is calculated to be understood by the average plan participant.” 29 U.S.C. § 1022(a)(1). We are satisfied that Stull’s COBRA notice was insufficiently clear to discharge Stull from liability for Marie’s health costs. This is because it is highly unlikely that a lay person would understand the meaning of the term “Qualifying Event” without any explanation of that term. Indeed, we note that the wording was sufficiently opaque that it confused even Loretta Goldstein, Stull’s plan administrator. In her deposition, when asked where in the conversion form one is given an amount of time in which to convert, 13 she stated: “Well, my interpretation of this form states that they have forty-five days.” (167a.) A forty-five day conversion period, of course, would violate 29 U.S.C. § 1165, which requires a minimum of sixty days. Because Stull failed to provide Marie with a readily comprehensible COBRA conversion form, it is liable for her health costs.2 C. Does Stull’s liability for Marie’s health costs extend through November 30, 1998, or December 31, 1998? Stull argues that, even if Marie was entitled to medical benefits under the SSP, she was only entitled to benefits through November 30, 1998, not December 31, 1998. It reasons that Marie’s situation is governed by subsection c, which states: If you do not accept Stull’s offer of continued employment at its Somerset facility and do not make the SSP election in the manner described above, your group health care will cease at the end of the month of your Inactive Date. You must continue to make contributions while this coverage is in effect, even if the level of contribution subsequently changes. (281a) (emphasis added). As Marie’s inactive date was November 6, Stull submits that her coverage ended on November 30, 1998, and that it is therefore not liable for the $23,095 in expenses incurred through December. 2 Because we conclude that any COBRA conversion notice that Stull might have sent to Marie was legally insufficient to discharge it from liability, we need not decide whether, for summary judgment purposes, Stull actually did send that form to Marie. We note, however, that it is doubtful that Stull would prevail on the strength of its records. Although it asserts that it sent the October 30 letter (which contained a COBRA conversion notice) by certified mail, it has been unable to produce any certified mail receipt for that letter. (126a, 162a) Moreover, Loretta Goldstein has no specific recollection of mailing that letter, (162a), and Stull did not demonstrate the regularity of its mailing procedures. 14 Berthony, however, contends Stull relies upon the wrong section of its plan in arguing that Marie’s December expenses were not covered. Subsection c, rescribed above, applies only to employees “who do not make the SSP election.” Marie plainly did make that election by signing the “General Release and Waiver Agreement and Acceptance of the Randolph SSP.” (274a-275a, 279a.) For those in her position who signed and returned the SSP election form, subsection b governs, and it states: If you do not accept Stull’s offer of continued employment at its Somerset facility and make the SSP election in the manner described above, your group health care coverage will cease at the end of the month following your Inactive Date. You must continue to make contributions while this coverage is in effect, even if the level of contribution subsequently changes. (281a) (emphasis added). Although Berthony’s argument may well have merit, the record reflects that he failed to raise it before the District Court, and it is therefore not properly before us. We will not set the judgment aside on this basis, but leave to the District Court the question whether to grant Berthony leave to amend his complaint to include this claim; if it does not, the judgment to this extent is affirmed. D. Can Marie prove damages? Stull asserts that even if it failed to provide Marie with a comprehensible COBRA conversion form, it should nonetheless prevail because Marie has suffered no damages due to Stull’s denial of medical benefits. As noted above, Berthony testified that when Stull dropped his coverage, he transferred Marie to a plan provided by his employer, 15 Amphenol Corporation, through United Healthcare. Although United initially stated that it would not cover Marie until January 1, 1999, the bills from Marie’s hospital care show that United nevertheless paid for her $23,095 in expenses that followed Stull’s November 30 cutoff date. Stull submits that because Berthony obtained from United the same coverage he would have enjoyed under Stull’s plan, he incurred no costs due to any error Stull might have committed. As Stull puts it, “No harm, no foul.” (Stull Br. at 13.) Although Stull’s argument is not without intuitive appeal, it was not supported by legal authority. Indeed neither side adequately briefed the possibile applicability of the New Jersey collateral source rule. As one New Jersey court stated, it is “the general rule that one obligated to pay because of a wrong done, or an obligation incurred by contract, may not benefit by payments or medical services rendered to the injured party from collateral sources.” Lapidula v. Government Employees Ins. Co., 146 N.J. Super. 463, 467 (1977). See also Ronson v. Talesnick, 33 F. Supp. 2d 347, 354 (D.N.J. 1999). While the rule has been modified by statute, the modification applies only to civil actions for personal injury or death. N.J.S.A. 2A15-97. In an analogous context, the Eleventh Circuit, confronting a potential double recovery by an insurance claimant, nevertheless allowed a full recovery since that was the amount the defendant should have paid as the primary insurer. See National Companies Health Plan v. St. Joseph’s Hospital, 929 F.2d 1558, 1574-75 (11th Cir. 1991). The court noted that the double recovery was unlikely to stand, as separate and independent efforts were underway by the secondary insurer to 16 recover the sums in question. Id. Here, too, United would certainly have a cause of action to recover sums wrongfully paid to Berthony for Marie’s expenses. It is worth noting that after briefs were submitted to this Court, we stated in Burstein v. Retirement Health Plan for Employees of Allegheny Health Education and Research Foundation, No. 02-2666, that “[c]laims for ERISA plan benefits under ERISA § 502(a)(1)(B) are contractual in nature.” If Burstein were interpreted to mean that all claims in ERISA cases were essentially contractual, Stull might validly argue that Berthony is entitled to no recovery because he successfully mitigated his damages when he enrolled in the United Healthcare plan. But this might read too much into Burstein, where the quoted statement was made in the context of a dispute over construction of the terms of a discrete plan. Although it appears likely that New Jersey employs the collateral source rule, the Supreme Court of New Jersey has not resolved the question, and it was not briefed in the District Court. 3 Furthermore, it was analyzed only superficially in the briefs submitted to 3 Judge Rendell questions whether the views of the Supreme Court of New Jersey are relevant to the analysis of this federal claim for benefits under ERISA, and more generally whether tort principles such as the collateral source rule are applicable to claims, such as these, that are “contractual in nature.” Burstein v. Ret. Account Plan for Employees of Allegheny Health Educ. and Research Found., __ F.3d __, 2003 WL 21509028, at  (3d Cir. 2003). In addition, she believes that Emilien’s complete mitigation of damages likely negates any entitlement to recovery for plan benefits under ERISA. See, e.g., Garofalo v. Empire Blue Cross & Blue Shield, 67 F.Supp.2d 343, 347 (S.D.N.Y. 1999). She nonetheless joins in the Court’s opinion as it does not foreclose the District Court from considering these issues on remand. 17 this Court. We therefore direct that, on remand, the District Court allow supplemental briefing and argument to resolve this question. E. Was Marie Entitled to Severance Pay? Stull’s SSP, which Marie signed and returned, promised that Stull would grant severance pay to Marie, although it provided that “this severance pay is conditioned on . . . you remaining employed by Stull on a continuous basis from now until November 6 or until released on some earlier date by Stull.” Further, only those employees who are not “on a Leave of Absence, regardless of length of service, as of the Inactive Date” are eligible for the SSP. (279a.) Marie was hospitalized on October 21 and, on October 30, Stull separated her and made the separation retroactive to October 21. Stull argues that because she was separated on October 21, she did not fulfill the condition of working until November 6 and was therefore not entitled to severance pay. There is, however, disagreement as to whether this “separation,” as the October 30 letter referred to it, was in fact a termination or whether it was a medical leave of absence. Goldstein first testified that the October 30 letter’s reference to “separation” meant that Marie had been terminated, and that the October 30 letter was meant to memorialize that action. (16465a.) But later in her testimony, Goldstein testified that as of November 3, 1998, “she was on a leave of absence.” (174a.) Berthony contends that he is entitled to a judgment under either interpretation. If Marie was merely placed on leave of absence, he notes, she would still be an employee 18 and would therefore be entitled to the medical benefits denied to her by Stull. But if she was terminated as of October 21, the position Stull adopts, Berthony submits that Marie’s termination would constitute an “earlier release” by Stull that would qualify her for severance pay under the SSP. It is not clear, however, that she would be eligible for the SSP if she were on a leave of absence as of the Inactive Date. (279a.) He argues that any other interpretation would allow Stull to render impossible Marie’s fulfillment of the “work until November 6 condition. See Epright v. Environmental Resources Mgmt, Inc. Health and Welfare Plan, 81 F.3d 335, 341 n.1 (3d Cir. 1995) (“Just as in contract law, failure to satisfy a condition should be excused if the other party thwarted fulfillment of the condition.”). Stull responds that “[o]bviously the company wanted employees to work right up to the closure of the plant. Severance pay was the incentive to do so.” (Stull Br. at 6.) It contends that Marie’s inability to work, unfortunate though it may have been, was not Stull’s fault, and that it therefore cannot be said to have thwarted Marie’s fulfillment of the contractual condition. Although the District Court concluded that Marie “was not qualified for severance pay since she did not meet the requirements of the SSP agreement,” summary judgment is inappropriate in the face of the disagreement that existed among Stull’s own employees regarding whether Marie’s separation was a termination or medical leave of absence. We will therefore vacate the District Court’s grant of summary judgment in favor of Stull on the matter of Marie’s eligibility for severance pay, and remand the issue 19 to the District Court for further proceedings. On remand, the District Court should first resolve this question of status. If it determines that Marie was terminated on October 21, it should then assess whether, as a contractual matter, her termination rendered her ineligible for severance pay, or if instead it merely constituted a contractual “earlier release” that nevertheless qualified her for severance pay. If it determines that Marie was on a leave of absence, it should assess whether she is ineligible for severance pay under the terms of the SSP. (279a.) F. Should Stull Pay ERISA’s $100-Per-Day Penalty for Failing to Respond to Requests for a Summary Plan Description? Berthony alleges that Stull failed to respond to his repeated requests for a summary description of Stull’s benefits plan pursuant to ERISA, 29 U.S.C. § 1024(b)(4), and he seeks damages pursuant to 29 U.S.C. § 1332(c), which states: Any administrator who fails or refuses to comply with a request for any information which such administrator is required by this title to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper. A claimant seeking this penalty need not demonstrate that the failure to respond caused actual harm — a showing of noncompliance is itself sufficient. Gillis v. Hoechst Celanese Corp., 4 F.3d 1137, 1148 (3d Cir. 1993). Likewise, a claimant need not 20 demonstrate bad faith by the plan administrator, for the statute penalizes a failure to comply with a request as well as a refusal to comply with a request. The record reflects that Berthony sent a written request to Stull on July 27, 1999, asking for a copy of the October 30 letter so that he might assess his legal options. He repeated the request on August 9, 1999. (188a, 189a.) Stull did not respond to these requests. On August 20, 1999, Berthony’s counsel sent a letter to Stull specifically requesting the summary plan description for employee medical plans, and this letter mentioned explicitly ERISA’s $100-per-day penalty for noncompliance. (190a.) Although Stull responded to the August 20 letter on August 25, 1999, it failed to include a copy of the SSP, a document critical to ascertaining participants’ rights under the plan. Although Berthony’s attorney sent a follow-up letter on August 30, 1999, calling Stull’s attention to this omission and requesting a copy of the SSP, (193a), Stull did not respond. Indeed, Stull did not produce a copy of the SSP until Berthony had filed his complaint, and even then it first produced only a template copy that omitted key details such as the “Inactive Date,” which the user of the form was instructed to insert in response to an “insert date” instruction contained in the form itself. The inadequacy of this version is evidenced by the fact that Loretta Goldstein, when asked to interpret the form, testified that the Inactive Date was November 3, 1998, when it was in fact November 6, 1998. (172a-173a.) Ginny Condello, Stull’s Human Resources Director, testified that she found a complete copy of Marie’s SSP while undertaking an unrelated 21 search on August 17, 2000; Stull produced this complete copy on October 4, 2000, as part of its own motion for summary judgment. (261a-262a.) In total, Berthony received on October 4, 2000, a copy of a document he specifically requested on August 20, 1999, a delay of at least thirteen months for a production that ERISA expects to occur within 30 days. 29 U.S.C. § 1332(c). Stull responds that it did the best that it could under the circumstances. It explains that: Stull was undergoing a total reorganization and force reduction at the time that [Marie] left her job. Not only did the plant shut down, but all management and plant operations were consolidated under one roof, in Somerset New Jersey. The Randolph plant’s human resources staff left Stull as well as many of the plant employees. To make matters even more problematic, from a record keeping perspective, the new Human Resource personnel had to deal with the destruction of many of the employee records due to a flood. So not only were all the records moved to a new location, but new people were administering those records and many of the records were destroyed. Furthermore, Stull is not a Fortune 500 company. It can easily be inferred that a company that has to consolidate into one location from three and significantly reduce its staff is not enjoying the best of times. (Stull Br. at 23.) Although we are sympathetic to the idea that a company weathering financial distress might be less culpable than one that is simply dilatory in the face of a request for plan documents, the statute is not so forgiving. Rather, we believe that sanctions are appropriate under these facts. Stull did not produce even a template copy of the SSP until Berthony filed a formal complaint, and even then it was nearly a year before Berthony obtained a copy of the SSP from which he could glean the specific information 22 needed to establish his rights. This is not a situation where a plan administrator tried diligently to accommodate a beneficiary while conducting a search for the missing documents — it located Marie’s SSP only while hunting for an entirely unrelated set of documents. This nonchalance falls directly within the behavior that § 1332(c) is intended to penalize, for as noted above, that section condemns not only an administrator who refuses timely to provide plan documents, but also one who fails timely to provide those documents. We will set aside the District Court’s determination that ERISA’s penalty is inappropriate in this situation. Of course, because the District Court concluded that a penalty was inappropriate, it had no occasion to consider the proper size of such a penalty should one be awarded. We will therefore remand this matter to the District Court, which is presumably more familiar with the case’s tenor and nuances than is this Court. Inter alia, since bad faith can be a factor in determining the size of the penalty, the District Court may want to consider its existence vel non.