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We have previously reported on how the federal discovery rule – pursuant to which claims for benefits do not accrue until the participant could reasonably have discovered the claim – can require plans to defend the merits of dated claims.1 Recently, there have been some helpful developments with respect to pension plan claims, insofar as courts have recognized that a claim may accrue at the time of retirement and, in some cases, even before retirement. Outside the pension plan context, efforts to protect plans have taken the form of contractual provisions that not only narrow the limitations period, but also prescribe when the claim accrues for statute of limitations purposes. Although most circuits have enforced such contractual provisions, there are some holdouts. As discussed below, courts that have invalidated contractual accrual provisions do so out of the misplaced belief that because federal law, rather than state law, governs the accrual of a cause of action, a contractual limitations period cannot apply. Because there is in fact no support for this distinction, it is hoped that these courts will eventually change course and a consensus will develop in favor of the enforcement of contractual accrual provisions.
ERISA’S RULES ON STATUTES OF LIMITATIONS
A starting point in the defense of ERISA lawsuits is to determine whether a plaintiff’s claim is time-barred by the applicable statute of limitations. Because ERISA does not provide a statute of limitations for non-fiduciary claims, like a claim for benefits under ERISA Section 502(a)(1)(B), 29 U.S.C. 1132(a)(1)(B), courts “borrow” the state statute of limitations that is most analogous to a plaintiff’s non-fiduciary ERISA claim.2 Courts do not, however, “borrow” the accrual date from state law. Irrespective of the source of a statute of limitations, the accrual date for a federal claim is governed by federal law.3
Courts utilize the federal “discovery rule” to determine the accrual date for an ERISA benefits claim. The rule generally provides that a statute of limitations begins to run when a plaintiff discovers or should have discovered the injury that forms the basis of his claim. In the ERISA context, the rule has evolved to the so-called “clear repudiation rule,” pursuant to which a non-fiduciary cause of action will accrue when a claim for benefits has been denied. The “clear repudiation rule” does not require that a formal denial occur. Rather, a cause of action accrues when a fiduciary repudiates a claim for benefits and that repudiation is clear and made known to the beneficiary.4
CONTRACTUAL LIMITATIONS PERIODS
The fact that courts will borrow from state law to determine the limitations period does not prevent parties from contracting for a shorter statute of limitations period. Federal courts will generally enforce contractual statutes of limitations for benefit claims, so long as they are not “manifestly unreasonable.”5 They are less consistent, however, in enforcing contractual accrual provisions, even when these provisions appear alongside the language setting forth the length of the limitations period. The circuits have been divided on this issue and, as discussed below, one circuit appears to have rulings that contradict each other.
The Fourth and Ninth Circuits have refused to enforce accrual provisions derived from ERISA plan statute of limitations language and will instead apply the “clear repudiation rule.”6 In White v. Sun Life Assurance Co. of Canada, the Fourth Circuit specifically refused to enforce a contractual accrual date that began upon the date proof of loss was required to be furnished.7 The court not only disapproved of the application of the contractual accrual date in the case before it, but also refused to adopt a case-by-case, fact-intensive assessment of the reasonableness of the accrual provision, reasoning that such an approach “would impose upon courts a federal common law methodology less compatible with the ERISA framework than the familiar accrual rule that federal courts have presumptively applied.”8 In so ruling, the court relied on the Ninth Circuit’s reasoning in Price v. Provident Life & Accident Insurance Co. and stated that contractual accrual rules “create incentives for plans to use their governing documents to undermine their participants’ civil claims . . . by making claims accrue when proof of loss was due and allowing the statute to expire before a plan participant knew that his claim had been denied.”9
Contrasting the rulings by the Fourth and Ninth Circuits are those in the Second, Sixth, Seventh, and Eighth Circuits, which have enforced accrual dates contained in plan documents similar to those rejected by the Whiteand Price courts.10 These courts reasoned that so long as the entire statute of limitations provision, including both the temporal and accrual elements, was reasonable, there was no reason not to apply and enforce the contractual terms on accrual dates. These courts also concluded that their approach was consistent with the principle that courts not re-write unambiguous contractual terms in such a way that a plan administrator could not anticipate when a suit would be brought.
CONFUSION IN THE THIRD CIRCUIT
The Third Circuit’s decision in Miller v. Fortis Benefits Insurance Co. is frequently cited by its district courts for the proposition that the “clear repudiation rule” should be used to determine the accrual date of a claim for benefits under ERISA, even where the ERISA plan at issue provides its own accrual date along with a temporal length for the contractual statute of limitations. In fact, however, the Miller court did not specifically hold that contractual accrual dates may not apply to ERISA benefit claims, and a later unreported decision from the Third Circuit suggests the opposite could be true.
In Miller, the plaintiff brought a claim for long term disability (“LTD”) benefits, arguing that his LTD benefits had been improperly calculated with a salary that was lower than the one he actually received.11 Both parties agreed that a six-year statute of limitations applied to the plaintiff’s claim,12 but disputed the accrual date.13 The district court utilized the terms of the LTD plan to determine the accrual date and concluded that the complaint was time-barred.14 On appeal, the defendant cited the Seventh Circuit’s decision in Doe v. Blue Cross & Blue Shield United of Wisconsin, for the proposition that “an agreed-upon limitations period, embodied in an ERISA plan, will control if the court considers it to be reasonable.” Miller, 475 F.3d at 520. The Third Circuit, however, concluded that the defendant’s reliance on Doe was misplaced because, it reasoned, the Seventh Circuit had only “determined the applicable statute of limitations for a non-fiduciary ERISA claim.”15
The Third Circuit went on to state:
As we have explained previously, the accrual date for federal claims is governed by federal law, irrespective of the source of the limitations period. To determine the accrual date of a federal claim, we utilize the federal “discovery rule” when there is no controlling federal statute. Under this rule, a statute of limitations begins to run when a plaintiff discovers or should have discovered the injury that forms the basis of his claim. In the ERISA context, the discovery rule has been “developed” into the more specific “clear repudiation” rule whereby a non-fiduciary cause of action accrues when a claim for benefits has been denied.16
The court did not discuss the contractual provision in the LTD plan and instead went through an extensive analysis of the “clear repudiation rule,” concluding that the plaintiff’s claim accrued on the date he first received a miscalculated benefit payment.17 Applying this rule, the Third Circuit affirmed the district court’s ruling that the complaint was time-barred.
Insofar as Miller construed the Seventh Circuit’s ruling in Doe, the decision is subject to challenge. The Seventh Circuit enforced a contractual statute of limitations provision that ran 39 months from the date of the services for which benefits are sought, declining to apply the federal “discovery rule.”18 Then, in Abena v. Metropolitan Life Insurance Co., 544 F.3d 880, 884 (7th Cir. 2008), the court reasoned that, under Doe, “a contractual limitations period is enforceable in an ERISA action so long as it is reasonable” and specifically upheld a contractual term that allowed “three years from the time the proof of Disability must be submitted in which to file suit.” Thus, while the Seventh Circuit has never specifically addressed whether the federal “discovery rule” trumps a contractual accrual provision, it has enforced contractual accrual dates where the entire statute of limitations period was considered reasonable.
The Third Circuit has continued to reject contractual accrual provisions and instead utilize the federal “discovery rule” and the ERISA specific “clear repudiation rule,” stating that “a non-fiduciary cause of action under ERISA ‘accrues when a claim for benefits has been denied.’”19
WHAT ABOUT KLIMOWICZ?
In an unreported decision that came after Miller, but did not reference it, the Third Circuit reasoned in Klimowicz v. Unum Life Insurance Co. of America that the proper start date for the contractual statute of limitations period in a plan document for a LTD claim was either at the time proof of claim was required as defined by the plan document in the statute of limitations provision or when the plaintiff received a “clear repudiation” that his benefits would end.20 The district court had used the contractual accrual date in order to calculate whether the plaintiff’s claim was time-barred by the plan’s statute of limitations. In affirming the district court’s ruling and reasoning that the proper accrual date could be derived from the plan document, the Third Circuit appears to have refuted the reasoning of its prior opinion in Miller. No district court in the Third Circuit, however, has followed Klimowicz’s logic and expressly enforced a contractual accrual date.
The reasoning of the Second, Sixth, Seventh, and Eighth Circuits is more consistent with the enforcement of the contractual provisions of ERISA plans because these courts allow for the adoption of both reasonable temporal lengths and accrual dates for statute of limitations purposes. It seems illogical to only adopt one half of the provision; indeed, how can the reasonableness of a time period be established without considering when it starts?
While the Miller decision seems to follow the reasoning of the Fourth and Ninth Circuits, its decision in Klimowiczappears to find a middle ground. Where a contractual accrual provision is either unreasonable or not available, it makes sense to utilize the clear repudiation rule. Where, however, there is a reasonable contractual accrual provision, it should be adopted and applied along with the rest of the contractual statute of limitations provision.
The lack of uniformity among the courts on this issue is particularly unfortunate because it can provoke forum shopping. It is hoped, therefore, that the courts that have declined to enforce contractual accrual provisions will soon “see the light” and reverse course.
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