On March 20, 2025, in Owens v. Blue Shield of California et al., a U.S. District Court in California granted and denied in part a motion to dismiss a claim involving the applicability of ERISA to state continuation coverage.
The plaintiff was employed with one of the defendants, Fredrickson and Company, through March 2020 and received employer-sponsored health coverage through Blue Shield of California. The plaintiff’s health benefits ceased on March 31, 2020, at which time she elected continued coverage under Cal-COBRA and paid monthly premiums and received coverage for the next two and a half years. During this time, Fredrickson and Company was acquired by codefendant Gallagher & Co., which subsequently cancelled coverage with Blue Shield. On December 15, 2022, Blue Shield terminated Fredrickson’s health insurance coverage retroactive to July 2022 and notified the plaintiff that her coverage had been terminated. However, the plaintiff received no advanced warning of the cancellation, and Blue Shield continued to accept her premium payments through October. As a result, she was without coverage for several months but still incurred medical bills.
The plaintiff subsequently sued Fredrickson, Gallagher, and Blue Shield under ERISA. However, the defendants moved to dismiss the complaint, arguing that California law (and not ERISA) governed the case. In addition, the defendants argued that, even if ERISA applied, the plaintiff had failed to state a claim for relief against them under the cited provisions.
The court ultimately ruled that ERISA governed the case, as it involved a Cal-COBRA continuation plan, where an employee receives continuing health coverage under an employer’s ERISA-governed plan after the employee’s employment ends. Significantly, the court allowed the plaintiff’s denial of benefits claim under ERISA Section 502(a)(1)(b) to proceed, finding the plaintiff had sufficiently alleged entitlement to benefits under an ERISA plan, and the cancellation of the benefits without adequate notice and an explanation of her rights. Furthermore, the court denied the motion to dismiss the plaintiff’s claim for failure to provide requested plan documents, to the extent asserted against defendants Frederickson and Gallagher, since the complaint adequately alleged they had served as plan administrator.
However, the court dismissed the plaintiff’s fiduciary breach claims under Section ERISA 502(a)(2), which requires allegations of a plan-wide injury, because the facts of the complaint only supported claims of injuries to individual participants. The court also dismissed the plaintiff’s fiduciary breach claim under Section 502(a)(3), citing the complaint’s failure to allege the type of equitable relief the plaintiff was seeking or to differentiate this relief from the denial of benefits claim for unpaid medical bills.
Employer Takeaway
The applicability of ERISA to claims involving state continuation coverage (such as Cal-COBRA) remains an unsettled area of law, as courts continue to grapple with the interplay between state and federal laws governing continuation coverage. However, the court’s decision in this case highlighted the potential liability issues for plan sponsors under ERISA for state continuation coverage breaches. While the court chose to dismiss several portions of the plaintiff’s claim pertaining to ERISA, it did rule that ERISA would govern claims involving state continuation coverage if the underlying plan is governed by ERISA. As a result, employers must remain aware of their ERISA fiduciary responsibilities for both federal and state continuation coverage, particularly with regard to participant notification and communication requirements. Employers should also be especially mindful of continuation coverage issues in situations where there is a change in a plan or plan administrator due to an acquisition.