The Supreme Court yet again has the opportunity to opine on whether the terms of an employee benefit plan are enforceable as written — this time in the context of a plan’s deadline for participants to bring a lawsuit on a denied benefit claim. On October 15, 2013, the nine justices will hear oral argument in Heimeshoff v. Hartford Life & Accident Insurance Co., 496 Fed. Appx. 129 (2d Cir. 2012), cert. granted, 133 S. Ct. 1802, a case about whether a disability plan can require that a lawsuit challenging a benefits denial be brought within three years from the date when proof of loss is required under the plan. The Court must decide whether a claim for benefits under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) can accrue — and the limitations start — even before the participant or beneficiary has exhausted the plan’s claims and appeals procedures and is legally permitted to sue on that claim. This case is important for plan sponsors that have written (or are contemplating writing)a statute of limitations into their benefit plans limiting the time that participants and beneficiaries can sue the plan over a denied benefit claim, especially where that limitations period begins before final denial.
Plan’s Three Year Contractual Limitations Period Began from Deadline to Submit Proof of Loss
Julie Heimeshoff challenges the Second Circuit Court of Appeals’ decision that upheld her long term disability plan’s three year statute of limitations on benefits lawsuits. The plan, sponsored by Wal-Mart but insured and administered by Hartford Life & Accident Co. (“Hartford”), specified that any legal action against Hartford could not be brought more than three years after the time written proof of loss is required. Under the plan, participants had 90 days from the start of the period when benefits would be come payable to send written proof of loss. The effect of the plan’s limitations period was that the time for Heimeshoff to bring a benefit claim in court began to run while she was still engaging in the required claims and appeals procedures under the plan.
Heimeshoff became disabled due to a chronic medical condition and applied for benefits on August 22, 2005. Her claim was initially closed on December 8, 2005, subject to re-opening when Hartford received satisfactory proof of loss from Heimeshoff’s physician. Heimeshoff had the required information forwarded to Hartford on October 2, 2006, and the claim was reopened. Hartford denied her claim on November 29, 2006. In preparing her appeal, Heimeshoff’s counsel requested — and Hartford agreed — that Heimeshoff have until September 30, 2007 to submit additional materials. Heimeshoff appealed on September 26, 2007, and Hartford issued its final denial letter on November 26, 2007. Heimeshoff filed her lawsuit on November 18, 2010. Hartford argued that the plan required Heimeshoff to file her lawsuit no later than December 8, 2008, which was three years after her proof of loss was due to Hartford.
Hartford Won in Lower Courts
The federal district court for the District of Connecticut granted Hartford’s motion to dismiss the complaint. The court recognized that ERISA itself provides no statute of limitations for actions for benefits under ERISA section 502(a)(1)(B), and that courts look to the analogous state statute of limitations. Connecticut law allows insurers to state in their policies a limitations period of a year or more. Relying on a Second Circuit Court of Appeals decision from 2009, the court also held that a limitations period that begins to run before a claimant may bring a legal action is enforceable. In addition, it found that the plan terms were unambiguous with regard to the limitations period. Even crediting Heimeshoff’s argument that proof of loss was not due until September 30, 2007 (the agreed date to submit additional appeal materials), the court held her action as time-barred because she filed the lawsuit more than three years after that date. The court also rejected Heimeshoff’s argument that Hartford was required to include notice of the limitations period in its denial letter.
The Second Circuit affirmed the district court’s ruling, rejecting Heimeshoff’s argument that Hartford’s contractual limitations period did not begin to run until the final denial of benefits. Holding that federal law controls the accrual date of a party’s claim, the Second Circuit looked to its 2009 ruling in Burke v. PricewaterhouseCoopers LLP Long Term Disability Plan, 572 F.3d 76 (2d Cir. 2009), to reiterate that a plan’s contractual limitations period for bringing a claim under ERISA section 502 may begin to run before a claimant can bring a legal action. It held that the policy language was unambiguous and that the limitations period did not violate ERISA by allowing the limitations period to begin to run before the claim accrued. Noting that Heimeshoff’s counsel had received a copy of the plan containing the limitations period long before the period expired, the Second Circuit held that Heimeshoff was not entitled to any equitable tolling and declined to hold that Hartford was required to disclose the time limits for filing a lawsuit in its benefit denial letters.
Question to the Supreme Court — When Does a Plan-Based Statute of Limitations Accrue for Judicial Review of an Adverse Benefit Determination
The Supreme Court has agreed to consider one of three questions Heimeshoff posed for review — the question of whether the statute of limitations for seeking judicial review of a plan’s adverse benefits determination begins running only after the participant has exhausted plan remedies, notwithstanding a plan provision providing that the limitations period commences before the plan has resolved the claim for benefits. As ERISA does not specify a statute of limitations for a benefit claim, or when a legal right to sue accrues, courts have allowed employee benefit plans to provide their own statute of limitations in the plan document. In general, the Second, Sixth, Seventh, Eighth, and Tenth Circuits have held that where a benefit plan contains a contractual limitations period, that provision is generally enforceable so long as it is reasonable. The Fourth Circuit differs. It held that a contractual limitations provision that begins to run before a judicial challenge can be filed is unenforceable. The Fourth Circuit expressed a concern that benefit plans would have an incentive to delay the resolution of participants’ claims in order to limit the time claimants would have to seek judicial review. Heimeshoff argues that the Ninth Circuit, like the Fourth Circuit, declined to categorically enforce contractual limitations periods that begin before the time the participant can sue, but Hartford disagrees, arguing that the Ninth Circuit case cited by Heimeshoff held that because the plan administrator did not notify the claimant that his claim had been denied, the limitations period could not begin to run until the claimant had reason to know about the denial.
Among the entities that filed amicus briefs is the Department of Labor, which along with the Solicitor General, argues that an ERISA plan may not provide that the statute of limitations for seeking judicial review of an adverse benefits determination begins to run before the plan fiduciary has issued its final decision. Such a provision, the government argues, is inconsistent with ERISA’s remedial scheme because it permits the participant’s required exhaustion of the plan’s claims and appeals procedure to consume all or part of the time for seeking judicial review of the plan’s final decision. According to the government, the result is that the two avenues of redress are set against each other, undermining the availability and efficacy of both, arguing in favor of a rule providing that a plaintiff’s cause of action under ERISA section 502(a)(1)(B) accrues only after plan remedies are exhausted and the plan has issued a final decision.
While Hartford’s limitations period did start the clock running on Heimeshoff’s legal action from the date when proof of loss was due — during the time when Heimeshoff was pursuing her claim and appeal through the plan’s administrative remedies — the effect of Hartford’s contractual limitations period was not overly harsh under the circumstances. The limitations period and its accrual from the date proof of loss was due were clearly set forth in the Hartford policy. Heimeshoff’s attorney had received a copy of the policy well before the time to file a lawsuit. As Hartford has pointed out, Heimeshoff had more than one year from the final denial of her benefit appeal to file her lawsuit within the plan’s contractual limitations period. Furthermore, Connecticut law allows for one-year statutes of limitations in insurance policies. Had the plan contained a one-year limitations period from the plan’s final denial, this case probably would not have raised any eyebrows and certainly would not be before the Supreme Court on the statute of limitations issue, even though the period in which to sue would have been shorter than the time allowed under the Hartford policy. A shorter limitations period arguably may have made for a more compelling case. We will be waiting for the Court’s answer after oral argument on October 15. Stay tuned.