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Temporary Restraining Order Not a Legal Separation Under COBRA

A federal court in Oklahoma has held that a court-issued temporary restraining order is not equivalent to a legal separation, and is therefore not a COBRA qualifying event. As a result, an employer was found to have violated COBRA when it provided a COBRA election notice at the time such an order was issued, and not when the divorce became final.

FACTS OF THE CASE

In the case of Simpson v. T.D. Williamson, Inc., an employee and his wife were both covered under an employer’s group health plan. The couple separated and the wife later filed for divorce. She was also granted several temporary restraining orders, prohibiting the employee from having any contact with her and granting her sole possession of the family residence.

After learning of a temporary court order, the employer notified the wife that a qualifying event — legal separation — had occurred, that her health coverage was therefore terminated, but that she could elect COBRA coverage. The wife argued that she had not experienced a qualifying event because her divorce was not yet final. She nonetheless elected COBRA coverage under protest. That coverage was later terminated when neither she nor the employee paid the premium.

When the divorce became final, the wife again attempted to elect COBRA coverage, but the employer ignored her election. She sued, claiming that the final divorce decree, and not the temporary order, was the COBRA qualifying event.

THE COURT’S RULING 

The court held that a temporary order is not a legal separation under Oklahoma law. It is therefore not a qualifying event for COBRA purposes. The employer argued that, because the temporary order required the parties to live apart and prevented the participant from returning to the marital home, it created a legal separation for COBRA purposes. The court disagreed.

After noting that COBRA does not define a legal separation, the court concluded that no state courts had addressed the definition of this term under applicable state law. Applying a public policy analysis, the court found that living separately pursuant to a temporary court order is not the same as a legal separation, and therefore does not constitute a COBRA qualifying event. Instead, the only qualifying event in this case was the entry of the divorce decree.

The employer was therefore ordered to reimburse the wife for her medical expenses and individual insurance premiums during the period before the divorce. The court also ordered the employer to provide the wife a COBRA notice offering her 36 months of COBRA coverage from the date the divorce decree was filed, and to pay her a penalty of $25 per day from that filing date until the COBRA notice was given.

IMPLICATIONS FOR EMPLOYERS 

Employer health plans that use legal separation as a coverage termination event must take into account state laws regulating the definition of legal separation. As this case points out, the meaning of legal separation can vary from state to state. While most states document legal separation through a court order or separation agreement, some states do not have a formal process. Others do not even recognize the concept of legal separation.

Given this uncertainty, employers may want to reevaluate whether legal separation is an appropriate criterion for terminating health coverage. After all, legal separation is a COBRA qualifying event only if it results in the loss of coverage under the terms of the plan. If a health plan uses divorce as the sole measure of a marriage’s termination — and the ensuing loss of coverage — the interpretation of state laws governing legal separation may be avoided.

At a minimum, employers should review their COBRA procedures and health plan documents to ensure that — if legal separation does result in the loss of coverage under the terms of a plan — they have an understanding of what actually constitutes a legal separation under state law, thereby triggering the obligation to provide a COBRA election notice.