U.S. Supreme Court Upholds Reasonable Contractual Limitations Period that Begins to Run Prior to the Accrual of an ERISA Claim

The US Supreme Court’s recent unanimous ruling in Heimeshoff v. Hartford Life & Accident Insurance Co. settled a long-standing split among the federal courts of appeal regarding the enforceability of certain contractual limitations provisions in employee benefit plans governed by the Employee Retirement Income Security Act of 1974, as amended (ERISA). The ruling clarified that contractual limitations provisions in ERISA plans that are reasonable and not contrary to law can begin to run prior to the conclusion of the administrative process before the plan.

Background

ERISA establishes several causes of action relating to benefit plans offered to employees of private employers. One of these allows plan participants, beneficiaries, or their representatives to recover benefits payable by a plan (Claims for Benefits).¹ Although ERISA sets a limitations period for other claims, the statue does not specify a limitations period applicable to Claims for Benefits. For years, the operative rule has been that the limitations period applicable to Claim for Benefits cases is borrowed from the most analogous limitations statute of the state in which the case is filed.² When plans include contractual limitations provisions, however, the limitations periods established therein have been consistently enforced.

Contractual limitations provisions applicable to Claims for Benefits are commonly included in plan documents governing employee benefit plans. Plan documents are considered akin to contracts and incorporating a limitations period into the body of the plan provides clarity and notice of the period during which claims can be filed in court. A plan provision incorporating a limitations period also facilitates administration of the plan and promotes uniformity in cases in which employers operating in multiple jurisdictions extend their benefit programs to employees in several states. Rather than being subject to varying statutes of limitations depending on the state in which the participant is employed, a plan with a contractual limitations provision will be subject to a uniform limitations period applicable to all claims filed under that plan.

The Heimeshoff Controversy

Limitations periods applicable to Claims for Benefits usually run from the date on which the plan issues a final denial of claim and the administrative process before the plan is exhausted, and the participant’s cause of action is deemed to have accrued.³ In Heimeshoff, the insurance policy funding the long-term disability plan (LTD Plan) under which Julie Heimeshoff, an employee of Wal-Mart Stores, Inc. (Wal-Mart), claimed benefits contained a limitations provision establishing that a suit challenging the denial of a claim must be filed in court within three years of the date proof of loss is due. The LTD Plan required Ms. Heimeshoff’ to provide proof of loss on or before December 8, 2005, and, therefore, pursuant to the terms of the LTD Plan, this was the date from which the limitations period began to run.

Ms. Heimeshoff failed to provide proof of loss before the December 8, 2005, deadline and her claim was denied by the LTD Plan. Ms. Heimeshoff later informally appealed the denial and on November 25, 2007, the LTD Plan issued a final denial of her claim on appeal. On November 18, 2010, Ms. Heimeshoff challenged the denial by filing suit in court against Wal-Mart and Hartford Life & Accident Insurance Co. (Hartford), the insurance company issuing the policy and the LTD Plan’s administrator. Her claim was filed within three years from the date of the final denial of her claim by the LTD Plan, but beyond three years from the date proof of loss was due. Wal-Mart and Hartford moved to dismiss the case on the grounds that Ms. Heimeshoff’s claim was time barred because it was filed more than three years from the date proof of loss was due. The district court in Connecticut then dismissed the case and the US Court of Appeals for the Second Circuit affirmed. At that time, the Second and Sixth Circuits had enforced these types of limitations periods,⁴ while the Fourth and Ninth Circuits had refused to enforce them.⁵

The US Supreme Court’s Decision

The Supreme Court granted certiorari on the sole issue of the enforceability of the LTD Plan’s contractual limitations provision requiring the limitations period to run from the date proof of loss is due.

Ms. Heimeshoff argued that the three-year limitations period should not begin to run from the date proof of loss was due because that event occurred prior to the date on which the LTD Plan issued its final denial of her claim and thus predated the accrual of her ERISA claim. She claimed that a limitations period cannot begin to run prior to the accrual of an ERISA claim and that to permit this would allow plan administrators to drag out the administrative process in order to hinder the participant’s access to court. This, she claimed, would undermine the regulatory internal review process and would cause participants to shortchange their right to a complete review under the plan in order to have more time to seek judicial review.

Wal-Mart and Hartford argued that state insurance law required the inclusion of language at issue in insurance policies law and that the limitations period was not intended to deprive participants from obtaining benefits under the LTD Plan or from accessing the courts when their claims were denied. They also argued that nothing requires a contractual limitations period in an ERISA plan to run from the date the plan concluded the administrative process and that Ms. Heimeshoff had ample time to file her claim after the conclusion of the administrative process.

The Court held that the provision at issue is enforceable and restated the principle that statutes of limitations do not inexorably commence upon accrual of a claim. The Court further stated that case law cited by Ms. Heimeshoff to support her contention that the limitations period could not begin prior to accrual did not address a critical issue in the case, which is that the parties had contractually agreed to commence the limitations period on a specific date. The Court found that precedent addressing the enforceability of contractual limitations provisions was more relevant to their analysis and concluded that if parties are permitted to contractually determine the duration of a limitations period then so too can they determine its commencement.

The Court specifically held that contractual limitations in ERISA plans should ordinarily be enforced as written, unless they are unreasonably short or are contrary to law. The Court noted that the LTD Plan’s limitations period does not violate ERISA (since ERISA is silent on this issue) and that Ms. Heimeshoff still had approximately one year to sue in court after the LTD Plan’s final denial of her claim. The Court noted that Ms. Heimeshoff had not claimed that a three-year limitations period was unreasonably short on its face, and that a plan’s regulatory internal review process ordinarily lasts around one year. Hence, a limitations period that allowed three years to sue, and that in Ms. Heimeshoff’s specific case provided her the opportunity to sue for approximately one year after the internal claims process had been exhausted, could not be unreasonable.

The Court was not persuaded by the argument that participants would shortchange their right to pursue a complete review before the plan in order to have more time to seek judicial review. The Court characterized as dubious the argument that participants would cut short the review process since failing to develop evidence before the plan would cause participants to forfeit the use of this evidence in court and because the discretion granted to plan administrators in making determinations under the plans they administer generally favors the participant.

Finally, the Court rejected the argument that limitations periods such as the one at issue would allow plan administrators to delay resolution of claims in bad faith. The Court found that plan administrators are required by regulations governing the internal claims review process to resolve claims promptly, failing which the participant will be granted immediate access to courts. The Court’s analysis acknowledges  that the regulatory framework applicable to benefit claims is designed to prevent the type of abuse by plan administrators that Ms. Heimeshoff predicted. Furthermore, dilatory actions by plan administrators would give rise to the traditional defenses to a statute of limitations, including equitable tolling.

The Court stated that contractual limitations provisions like that challenged by Ms. Heimeshoff are not uncommon and have been in use for many years, and that empirical data regarding the historical application of these provisions does not suggest that judicial review had been thwarted in cases in which limitations provisions similar to the one at issue were applied.

Final Thoughts

The Court’s ruling in Heimeshoff is consistent with the following longstanding principles:

1. The clear terms of a plan must be upheld, as recently restated by the Court in US Airways, Inc. v. McCutchen,⁶
2. Plan sponsors have substantial leeway in designing plans as they see fit, and
3. Judicial review of a claims determination is ordinarily limited to review of the file that was before the plan administrator.

Although the ruling provides comfort to employers that sponsor ERISA covered plans containing limitations provisions that run from the date proof of loss is due, employers should review their plan documents to ensure that the contractual limitations in their plans are reasonable, otherwise they likely will not be enforced.

Employers sponsoring plans that do not include limitations provisions applicable to Claims for Benefits should consider amending their plan documents to add a reasonable limitations period. Incorporating a reasonable limitations period in the terms of the plan will avoid the imposition of a borrowed state law limitations period (which in some states could be extensive) and will prevent the imposition of different limitations periods in cases in which employers are sued in different jurisdictions.

This decision benefits not only employers and administrators of ERISA plans, but also plan participants because the assurance that the terms of a plan will be upheld provides certainty and clarity in the administration of employee benefit plans.

Notes

1. See ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a) (1)(B).
2. See Burke v. PriceWaterhouseCoopers LLP Long Term Disability Plan, 572 F.3d 76, 78 (2d Cir. 2009). 
3.  Benefit plans subject to ERISA must include in the plan document a claims procedure that governs the internal processing of claims filed by participants or beneficiaries. See 29 U.S.C. §1133; 29 CFR § 2560.503-1(2012). This procedure requires, among other things, that the plan respond to a participant’s benefit claim within a certain number of days and allows the participant to appeal an adverse benefit determination. This process ordinarily will conclude with a final benefit determination, which usually is the event that triggers the running of the limitations period. Courts of appeal have consistently required the exhaustion of this claims process before participants bring suit in court, and consequently, it is generally accepted that an ERISA cause of action does not accrue until the plan issues a final denial of a participant’s claim.
4. See Burke v. PricewaterhouseCoopers LLP Long Term Disability Plan, 572 F. 3d 76, 79–81 (2d Cir. 2009) and Rice v. Jefferson Pilot Financial Ins. Co., 578 F. 3d 450, 455–456 (6th Cir. 2009).
5. See White v. Sun Life Assurance Co. of Canada, 488 F. 3d 240, 245–248 (4th Cir. 2007) and Price v. Provident Life & Acc. Ins. Co., 2 F.3d
   986, 988 (9th Cir. 1993).
6. 133 S. Ct. 1537 (2013).