Under Federal ERISA law, employers are required to allow certain employees and their dependents who would otherwise lose coverage under a group health plan as a result of certain specified events to elect to continue that coverage for specified periods at their own expense. This bundle of rights is commonly known as COBRA coverage.
COBRA coverage can be triggered by such "qualifying events" as death, termination (for reasons other than gross misconduct) or reduction of hours, divorce or legal separation, Medicare entitlement, change of status of a dependent child or employer bankruptcy; termination may include retirement, resignation or layoff. The plan administrator is responsible for notifying  "qualified beneficiaries" of their COBRA rights. Qualified beneficiaries include an employee's spouse and dependents as well as the employee in certain circumstances, such as when termination or reduction of hours causes loss of coverage. Generally, the employer is the plan administrator unless the plan is offered under an arrangement involving multiple employers or unless the responsibilities of the plan administrator have been contracted out to a third party.
The duty to notify the employee of his or her COBRA rights arises by statute and is independent of a beneficiary's actual knowledge of those rights. Furthermore, a plan is not relieved of its obligation to provide COBRA benefits because the plan's underlying insurance policy does not include COBRA coverage. Coverage must be provided even if the plan has to self-insure it. Even if COBRA coverage is included in the insurance policy, an employer should take pains to notify its insurer promptly of an employee's change of status. Because a plan's obligation to provide COBRA coverage is independent of the actions of an insurer, an employer thinking about changing carriers should also obtain advance confirmation from a prospective new insurer as to how existing COBRA beneficiaries will be treated.
COBRA contains no specific requirements as to the manner in which the notice of the right to continue coverage must be given. In some instances, a good-faith attempt to comply with a reasonable interpretation of the statute is sufficient. Generally, the notice must contain sufficient detail as to the costs and benefits of coverage to allow the beneficiary to make an informed decision about whether to elect coverage. Although it is by far the better practice, written notice is not required. Thus, an employer who is also the plan administrator may give a terminated employee oral notice of his or her COBRA rights, provided it can be shown that the employee was adequately advised of those rights. The plan administrator bears the burden of proving that adequate notice was given.

Failure to give proper notice of COBRA rights can be expensive. A court has the discretion to hold a plan administrator that fails to provide the required notice personally liable for an amount that can be as much as $110 per day. A court may also rule that an employer's failure to give the required COBRA notice can entitle a qualified beneficiary to coverage of any medical expenses that the beneficiary incurred during the period for which COBRA coverage might otherwise have been enforced.
Even if COBRA coverage is unnecessarily or mistakenly activated, the plan's acceptance of a COBRA election and premium payments may create a contract between the plan and the beneficiary. The plan may not only have to pay the benefits during the period for which it accepted the premiums, but it may also be responsible for providing continuation coverage during the maximum period allowed under COBRA. Moreover, if there were no requirement to offer COBRA coverage, this additional benefit may not be covered by the employer's group health insurance.