Harris v. United Auto. Ins. Group, Inc.

Citations: 579 F.3d 1227; 47 Employee Benefits Cas. (BNA) 2001; 2009 U.S. App. LEXIS 19589; 2009 WL 2496564Docket: 08-16097

Court: Court of Appeals for the Eleventh Circuit; August 18, 2009; Federal Appellate Court

Original Court Document: View Document

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The appeal concerns the interpretation of 26 C.F.R. 54.4980B-8, A-5, related to ERISA and COBRA, specifically regarding the eligibility for reinstatement of health insurance benefits after a late premium payment. The court determined that the regulation does not apply to the employer-provided insurance plan associated with J.B. Harris, leading to the affirmation of the district court’s dismissal of his complaint.

Harris, employed by United Automobile Insurance Group, Inc. (UAIG), elected COBRA coverage after his termination on May 11, 2007. Ceridian Corp. managed COBRA premium payments for UAIG's former employees. Harris received notification of his COBRA rights but not the required Summary Plan Description. The plan allowed a grace period of 30 days for premium payments, stating that failure to pay by the end of this period would result in loss of COBRA coverage with no reinstatement options.

Harris made timely payments until January 2008, when he received an invoice due on January 11, with a grace period until February 11. His wife mailed the payment on February 11, but it was postmarked February 12, leading to a dispute regarding the late payment. Harris claimed potential postal delays contributed to the timing issue. Ultimately, the court ruled that the late payment could not be excused under the regulation, thereby affirming the loss of coverage.

Ceridian terminated Harris’s COBRA coverage after his payment envelope was postmarked one day after the grace period. Harris sought reinstatement of his benefits from UAIG and Ceridian, but both refused. He filed a complaint with three counts: 

1. **Count I** alleged entitlement to benefits under 29 U.S.C. § 1132(a)(1)(B), asserting UAIG had discretion to award benefits but failed to do so.
2. **Count II** claimed breach of contract against both defendants for not providing the Summary Plan Description and for terminating his benefits.
3. **Count III** alleged violations of 26 C.F.R. § 54.4980B-8, arguing that he should have had the same payment period for premiums as UAIG had for claims.

The defendants moved to dismiss under Rule 12(b)(6), and the district court granted the motion. It ruled that Harris had no right to benefits since UAIG was justified in canceling his insurance due to the late payment. The court dismissed the claim regarding the Summary Plan Description, stating there was no prejudice to Harris. For the breach of contract claim, it found Ceridian had no fiduciary duty to Harris, and Harris conceded that his state-law claims were preempted by ERISA. Count III was dismissed because the cited regulation did not confer substantive rights. Harris was instructed to file a third amended complaint by September 10, 2008, which he failed to do, leading to a dismissal with prejudice. He appealed, claiming that the regulations provided a right to benefits and that his termination was improper under these regulations.

Treasury regulation 54.4980B-8 outlines timely payment for COBRA continuation coverage, stating that payments must be made within 30 days after the coverage period begins. Payments made later may be considered timely only if an arrangement exists between the employer and an insurance provider allowing such flexibility. In this case, UAIG was self-funded and did not have any arrangement with an insurance company, meaning the additional time frame in the regulation does not apply. Consequently, Harris's premium payment deadline was not extended beyond February 11, 2008, justifying UAIG's termination of his coverage. 

Harris contended that his payment should be deemed made on the day his wife mailed it; however, the notice he received specified that payments are considered made on the postmark date. He disregarded warnings about mailing payments late in the grace period, which resulted in his failure to submit timely payment. As a result, UAIG's actions in terminating his coverage were deemed proper, leading to the affirmation of the district court’s dismissal of his complaint. The court noted it could uphold the dismissal based on any legal grounds in the record, regardless of whether those grounds were considered by the lower court. Additionally, the issue of the district court’s dismissal of Harris’s complaint with prejudice was not addressed, as he did not appeal that ruling.

Defendants have filed motions seeking attorney's fees and costs under 29 U.S.C. 1132(g)(1) and Federal Rule of Appellate Procedure 38, claiming that Harris acted in bad faith by filing a baseless appeal. Under 29 U.S.C. 1132(g)(1), the court may award reasonable attorney’s fees based on several factors, including the opposing party's culpability, their ability to pay, the deterrent effect of an award, whether the fee-seeking party benefits all ERISA participants, and the relative merits of the positions. The court determined that no bad faith was established by the district court, and Harris’s appeal, while not directly applicable to the regulations concerning his COBRA benefits, was not wholly frivolous due to a lack of extensive case law on the subject. Additionally, UAIG's request for fees did not aim to benefit other plan participants. Therefore, UAIG is not entitled to fees under 29 U.S.C. 1132(g)(1), and sanctions under Rule 38 are also deemed unwarranted. The defendants' motion to strike parts of Harris's response is denied as moot since the court's decision is unaffected by those references. The request for attorney’s fees related to the motion to strike is also denied. Ultimately, the court affirms the district court's dismissal of Harris's complaint.