Employee Health Coverage

Under the employee benefits plan for a large retailer, employees who left the company and then returned within a year could have their health insurance reinstated immediately, but with a one-year exclusion for preexisting conditions. An employee could choose to maintain coverage under COBRA, a federal law allowing a former employee to continue insurance coverage as a bridge to coverage from a new employer. In that event, the returning employee would be considered to have continuous coverage and would not be subject to the exclusion for a preexisting condition. Although it was not spelled out clearly in the plan, the employer's practice was to allow continuous coverage, free of the exclusion, only where the employee had paid a premium for the insurance that was in effect while the employee was away.

Tamyra quit her job with the retailer and learned soon thereafter that she was pregnant. She was rehired a month later, at which time a supervisor told her that her coverage was immediately restored without a preexisting condition exclusion. Tamyra had not paid her first premium for health coverage because she had been rehired so quickly. When her pregnancy expenses were submitted for payment, the plan declined to pay them on the grounds that they related to a preexisting condition, which was excluded because Tamyra had never made a premium payment during the month she was not employed by the retailer.

Tamyra sued to obtain payment for her medical expenses. A federal court ordered the employer to pay the expenses. The employer could not deny coverage under its plan on the basis of the failure to pay a premium where the necessity for such a payment was not apparent in the plan documents and was in fact contradicted by representations made to the employee. Apart from her supervisor's statements, a service representative for the plan also had told Tamyra that she would "fix" the problem of the unpaid medical bills, without the need for further action by Tamyra.

Courts will not allow oral representations to trump the written terms of a benefit plan, but this rule applies only if the documents are free from ambiguity. Where an employee must resort to guessing as to the appropriate course of action, as Tamyra did, it is unfair to penalize her for making the wrong guess.

When Express Mail Fails

A manufacturing company recently sued United Parcel Service for its loss of over $395,000 in profits because UPS did not deliver the company's bid package on time. The manufacturing company mailed a bid and samples of its product to a government agency through UPS on the day before the bids were due. The company's office manager spoke directly to the UPS driver and stressed the importance of timely delivery. UPS missed the next-day delivery, delivering the package one day late. Due to the missed deadline, the company lost the manufacturing contract. After investigating, the company discovered that if its samples had been reviewed and found acceptable its bid would likely have been accepted since its overall price was the lowest.

The company's lawsuit against UPS was dismissed. The UPS pre-printed shipping form clearly indicated that the package contents were insured up to $100 in value and that any special damages or consequential losses were not recoverable. The court found that the shipping form was a contract. While the print on the form was small and the office manager did not read or accept the language limiting UPS's liability, the court nevertheless found that the limiting language was binding. Finding that UPS handles an "exceedingly high volume" of packages on a daily basis, the court concluded that it is unreasonable to expose any shipper to liability for enormous and unforeseeable damages in return for "an $11.75 shipment fee."

EPA Excesses

The federal government's criminal charges against a company and its owner for alleged violations of the Clean Water Act backfired. In an unusual ruling, a federal court held that the company was entitled to recover some of its attorney's fees and legal costs incurred in defending against the bad-faith prosecution.

The company made steel mesh for lobster traps. The waste water from its 150-employee plant emptied into a town's sewer system. In a much publicized action, the federal Environmental Protection Agency (EPA) accused the company and its owner of discharging highly acidic waste water into the public sewer. Later, the charges were dismissed after the prosecutor discovered that information that would have cleared the defendants had been left out of a search warrant application. Samples taken by the EPA not only failed to support the accusations but showed that there was no violation.

The omission of key information from the search warrant application was only part of a pattern of behavior by the government that the court described as "vexatious," that is, lacking good cause and calculated to harass. The overzealous actions by the government came to light when the company brought a claim under a federal law that allows exonerated defendants to recover legal costs if they can prove that the government's case against them was brought in bad faith. Recovery of such fees and costs is relatively rare. There is a heavy burden of proving that the government's pursuit of the case was without any reasonable cause or grounds or amounted to conscious wrongdoing.

Aside from withholding evidence, the EPA agents also altered evidence pertaining to the chemical makeup of samplings taken at the plant. They took samplings in the absence of company personnel, in violation of an agreement between the EPA and the company. The federal agents crossed the line from enforcement to harassment when, in the court's words, "a virtual 'SWAT' team consisting of twenty-one EPA law enforcement officers and agents, many of whom were armed, stormed the [company] facility to conduct pH samplings."

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The federal Department of Housing and Urban Development has issued a new regulation designed to give greater protection to young children exposed to lead-based paint hazards in housing that is financially assisted, or sold, by the federal government. The requirements apply to housing built before 1978, when lead-based paint was banned nationwide for use by consumers. The regulation on its face applies only to federally assisted housing, but the in-depth scientific research that went into writing the regulation may also make it a liability standard in lawsuits brought against owners of private housing. Owners of private residential property containing lead-based paint are well-advised to become familiar with the new regulation.

Since childhood exposure to lead comes primarily from deteriorated lead-based paint and lead-contaminated dust and soil in the living environment, the regulation focuses on these conditions. The specific requirements vary, depending on the nature of the federal involvement (disposal of, or assistance for, the property), the type, amount, and duration of financial assistance, the age of the structure, and whether the dwelling is a rental or is owner-occupied.

Standards for "clearance testing" and safe work practices apply to most federal housing. Studies have shown that the most common way children are poisoned by lead is through dust. As a result, clearance testing is required whenever lead paint is disturbed, such as when deteriorated paint is repaired. The testing involves two steps. The first is a visual search for any remaining deteriorated surfaces and any dust, debris, paint chips, or residue. The second step is a test of dust from the work area to insure that the standards for safe levels of lead have been met.

Contractors generally must comply with safe work practices, such as containing the work area, using special vacuums during cleanup, and making sure occupants are not present while the work is being done. The requirements for clearance testing and safe work practices do not apply for the smallest, or "de minimis," areas of paint. An area of paint is "de minimis" if it is under 20 square feet of exterior surface, under 2 square feet in an interior room, or less than 10% of a building component with a small surface area, such as a window frame.

The new regulation does not apply to nonresidential property; housing exclusively for the elderly or disabled, unless a child under age six is expected to live there; "zero bedroom" dwellings, such as efficiency apartments, dormitories, or military barracks; properties found to be free of lead-based paint by certified lead-based paint inspectors; unoccupied housing that will stay vacant until it is demolished; and rehabilitation or housing improvements that do not disturb a painted surface.