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Dec. 16 --A disability plan's three-year limitations period running from the date on which proof of loss is due doesn't offend the Employee Retirement Income Security Act, a unanimous U.S. Supreme Court ruled (Heimeshoff v. Hartford Life & Accident Ins. Co., U.S., No. 12-729, 12/16/13).
A disability plan participant argued that her plan's three-year limitations period “undermine[d]” ERISA's two-tiered remedial scheme, because it began running before the time at which she could exhaust her administrative remedies under the plan. Both the district court and the U.S. Court of Appeals for the Second Circuit disagreed with her, finding that the plan's clear terms were valid and enforceable.
Agreeing with the lower courts, the Supreme Court held that, “[a]bsent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limitations period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.”
The unanimous Dec. 16 opinion was written by Justice Clarence Thomas.
The case asked the justices to shed light on when a contractual limitations period in an ERISA-governed disability plan begins to run. The plan at the center of the dispute included a provision stating that any litigation challenging an adverse benefit determination must be brought within three years after the time “proof of loss” was required to be submitted to the plan's administrator in the course of filing a claim for plan benefits.
The petitioner, Julie Heimeshoff, challenged this limitations period on the grounds that it began to run before the time at which the plan administrator issued a final benefits determination. According to Heimeshoff, many ERISA plans require claimants to exhaust administrative remedies before filing suit, while “[a]t the same time, the limitations period begins running and wastes away while the claimant is going through the administrative review process.”
This “undermines the internal benefit resolution process while simultaneously weakening ERISA's civil enforcement protections” and “gives fresh meaning to the word Kafkaesque,” Heimeshoff argued in her brief.
In her petition for Supreme Court review, Heimeshoff argued that the circuits “conflict” over the accrual time for ERISA statutes of limitation, with the Fourth and Ninth circuits prohibiting limitations periods that begin running before a legal claim has accrued and the Second, Fifth, Sixth, Seventh, Eighth and Tenth circuits upholding such limitations periods.
The plan's administrator, Hartford Life & Accident Insurance Co., argued that Heimeshoff “mischaracterize[d] the nature and degree of conflict among the circuits.” According to Hartford, “every circuit but one to have considered that question has concluded that nothing in ERISA categorically forbids the enforcement of a contractual limitations period that begins to run before a claimant may bring suit.”
The Supreme Court began its analysis with Order of United Commercial Travelers of Am. v. Wolfe, 331 U.S. 586 (1947), which the court said provided the “well-established framework” for interpreting contractual limitations periods.
In Wolfe, the Supreme Court held that “[i]n the absence of a controlling statute to the contrary, a provision in a contract may validly limit, between the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself shall be a reasonable period.”
According to the court, Wolfe establishes that statutory limitations periods “provide only a default rule” that “permits parties to choose a shorter limitations period.” Although ERISA is silent as to the appropriate statute of limitations for benefit claims under Section 502(a)(1)(B), the court said that, “[i]f parties are permitted to contract around a default statute of limitations, it follows that the same rule applies where the statute creating the cause of action is silent regarding a limitations period.”
Moreover, the Wolfe rule “necessarily allows parties to agree not only to the length of the limitations period, but also to its commencement,” which was the subject of dispute in the instant case, the court said.
“The duration of a limitations period can be measured only by reference to its commencement,” the court continued. “Each is therefore an integral part of the limitations provision, and there is no basis for categorically preventing parties from agreeing on one aspect but not the other.”
Further, the court said that the principle of enforcing written plan terms “is especially appropriate when enforcing an ERISA plan,” because of the “particular importance of enforcing plan terms as written in §502(a)(1)(B) claims.”
Having established the general rule that contractual limitations periods are enforceable, the court went on to articulate two exceptions to this rule: limitations periods that are “unreasonably short” and limitations periods that are prevented from taking effect by a “controlling statute to the contrary.”
Because neither Heimeshoff nor the government claimed that the Hartford plan's three-year limitations period was unreasonably short on its face, the court focused its inquiry on whether ERISA constituted a controlling statute to the contrary.
On that point, Heimeshoff argued that the plan's limitations period would “undermine” ERISA's two-tiered remedial scheme, which calls for any judicial action to recover benefits to be preceded by an internal administrative appeal with the plan's administrator.
According to Heimeshoff, limitations periods like the one in question cause participants to “shortchange their own rights” during the administrative review process “in order to have more time in which to seek judicial review.”
The court called this argument “highly dubious.” It said that, “to the extent participants fail to develop evidence during internal review, they risk forfeiting the use of that evidence in district court,” because those courts generally limit the judicial record to “the administrative record compiled during internal review.”
Moreover, participants “are not likely to value judicial review of plan determinations over internal review,” the court said. That's because district courts “ordinarily review determinations by such plans only for abuse of discretion,” the court said. Therefore, “participants have much to lose and little to gain by giving up the full measure of internal review in favor of marginal extra time to seek judicial review,” the court concluded.
The court also rejected the argument that limitations periods such as Hartford's “will significantly diminish the availability of judicial review,” saying that “[f]orty years of ERISA administration suggests otherwise.”
According to the court, Hartford's three-year limitations period “is quite common,” and “the vast majority of States require certain insurance policies to include 3-year limitations periods that run from the date proof of loss is due.”
On this point, the court noted that Heimeshoff “identifies only a handful of cases in which §502(a)(1)(B) plaintiffs are actually time barred as a result of this 3-year limitations provision.” Moreover, “[t]hose cases suggest that this barrier falls on participants who have not diligently pursued their rights,” the court said, finding that “[t]he evidence that this 3-year limitations period harms diligent participants is far too insubstantial to set aside the plain terms of the contract.”
Further, when those situations arise, the court said that district courts “are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed.”
“If the administrator's conduct causes a participant to miss the deadline for judicial review, waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense,” the court said. “To the extent the participant has diligently pursued both internal review and judicial review but was prevented from filing suit by extraordinary circumstances, equitable tolling may apply.”
The court concluded that the plan's limitations period was enforceable and affirmed the judgment of the Second Circuit.
Michelle L. Roberts, an attorney with Springer & Roberts LLP in Oakland, Calif., and counsel for amicus curiae United Policyholders, told Bloomberg BNA Dec. 16 that there were several key issues the court's opinion didn't address.
Roberts said that some states, including California, have notice prejudice rules which prevent insurance companies from refusing to consider claims in which proof of loss is submitted late.
“Applying [the Heimeshoff ruling] to situations like that wouldn't be justifiable,” Roberts said. However, Roberts said that the court's discussion of controlling statutes to the contrary “gives me hope that this decision wouldn't prevent certain provisions of the California Insurance Code from being enforced.”
Roberts also said that the court's ruling may cause the Department of Labor to add the issue of tolling to its regulatory agenda.
“What we can expect to see is that the Department of Labor is going to take a look at the regulations and require tolling of any statute of limitations that begins to run while claimants exhaust their administrative remedies,” Roberts said. “I think you'll see among the plaintiff's bar a big push for the DOL to come in and say you've got to toll.”
Roberts expressed doubt as to whether the court's ruling could be extended to participants challenging the termination of benefits they previously had been receiving, as opposed to participants challenging initial benefit denials.
“I don't think this opinion could be read to say that those people who were paid benefits for three years and then had benefits terminated couldn't bring suit,” Roberts said. “Any statute of limitations would be tolled until proof of loss was due after their claim was subsequently denied.”
“Looked at any other way, it wouldn't make sense,” Roberts said. “You'd have limitations periods that would run out for people who didn't even have a dispute yet.”
Amy R. Covert, a partner in Proskauer Rose LLP's New York office, said that the court's ruling was consistent with its other recent ERISA decisions.
“I'm not all that surprised by the decision being unanimous,” Covert told Bloomberg BNA Dec. 16. “I think that after [U.S. Airways v. McCutchen] and [CIGNA Corp. v. Amara], the Supreme Court has telegraphed to us that they are going to be enforcing the written terms of a plan.”
“This is a good opinion for employers, and provides uniformity on this issue,” Covert said. “It certainly can be read very broadly going beyond the disability benefit plan context. I would expect that plan counsel will be introducing limitations periods in plans to the extent they have not already done so, and not just in welfare plans but also in pension plans.
“A fair interpretation of the court's opinion would support upholding contractual limitation periods in pension plans that require challenges to benefit calculations to be asserted within a reasonable period of time after a participant receives an annual benefit statement or terminates employment,” Covert said.
Nicole Eichberger, senior counsel with Proskauer Rose's New Orleans office, told Bloomberg BNA Dec. 16 that she saw the court's opinion as reaffirming the importance of the written plan document.
“From a defense perspective, what I found most important was the strength of the opinion insofar as saying that claims arising under [ERISA Section] 502(a)(1)(B) are limited to enforcing the plan terms as written,” Eichberger said. “This reminded everyone--participants, courts and attorneys--that you're not permitted to deviate from those written plan terms. When you're under (a)(1)(B), you must stick to the terms of the written plan document.”
Eichberger also said that she thought the justices might have taken the opportunity to provide further clarification as to what they thought a reasonable contractual limitations period would be.
Instead, “they decided to leave well enough alone and sit on their prior opinions, saying that it's worked so far, so we're not going to adjust it,” Eichberger said.
Covert and Eichberger weren't involved in the litigation.
Heimeshoff suffered from fibromyalgia and chronic pain. In 2005, she applied for long-term disability benefits from a plan administered by Hartford. Hartford denied her claim in December 2005, finding that she had failed to provide satisfactory proof of her disability. After an informal appeal, Hartford issued its “last and final denial letter” on Nov. 25, 2007, according to Heimeshoff.
The Hartford plan imposed a three-year limitations period on legal actions challenging adverse benefit determinations. Heimeshoff filed a lawsuit challenging Hartford's decision on Nov. 18, 2010. Hartford moved to dismiss her claim, arguing that it was barred by the plan's limitations period. According to Hartford, the plan required Heimeshoff to file suit no later than Dec. 8, 2008, which was three years after her “proof of loss” was due to Hartford.
The U.S. District Court for the District of Connecticut agreed with Hartford.
According to the district court, the Hartford policy “unambiguously” provided that no legal action could be brought more than “3 years after the time written proof of loss is required to be furnished according to the terms of the policy.” Proof of loss must be submitted “within 90 days after the start of the period for which The Hartford owes payment,” the district court said.
Finding these provisions unambiguous, the district court granted Hartford's motion to dismiss Heimeshoff's claim as time-barred.
The Second Circuit affirmed in an unpublished opinion. It found that ERISA doesn't prohibit a contractual limitations period that begins to run before the time at which an ERISA plan issues a final claim denial, causing the claimant's legal claim to accrue.
Here, “[t]he policy language is unambiguous and it does not offend [ERISA] to have the limitations period begin to run before the claim accrues,” the Second Circuit said (179 PBD, 9/17/12; 39 BPR 1777, 9/18/12; 54 EBC 1084).
Heimeshoff appealed to the Supreme Court, which agreed to review one of the three questions she presented--namely, when the statute of limitations accrues for judicial review of an ERISA disability adverse benefit determination” (73 PBD, 4/16/13; 40 BPR 1001, 4/23/13).
The justices heard oral arguments in the case in October (200 PBD, 10/16/13; 40 BPR 2463, 10/22/13).
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Text of the opinion is at http://op.bna.com/pen.nsf/r?Open=pkun-9efm3j.
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