The Supreme Court today - in a unanimous opinion authored by Justice Thomas - lays a trap for the unwary ERISA plan participant. It holds that an ERISA plan sponsor can impose its own limitations period and accrual rule for claims under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), different from what is provided by state or federal law, provided that it is not "unreasonably short" (and remains subject to equitable exceptions). This post explains the significance of Monday's opinion and sets out three things that participants and beneficiaries must do to protect themselves from these legal landmines.
Heimeshoff v. Hartford Life & Accident Ins. Co., No. 12-729 (U.S. S. Ct. Dec. 16, 2013): Before launching into the Supreme Court's decision Monday, we review briefly the fundamentals of ERISA limitations law.
Except for claims of breach of fiduciary duty (essentially three years from discovery or six years from the last event - 29 U.S.C. § 1113), Congress provided no limitations periods for ERISA claims. Thus, under the common law of federal limitations, courts are instructed to borrow the limitations period (the number of months or years for filing a civil action) from the most analogous statute of limitations provided by the forum state law. For claims of plan benefits, that period is borrowed from the state's limitations period for enforcing written contracts. So in my home state of Illinois, the period is ten years to bring such a claim.
On the other hand, the event that causes the limitations period to begin running on a claim (i.e., the date it "accrues") is set by federal, not state, law. The Supreme Court today reaffirmed that the federal accrual event for claims under a benefit plan is the date when "the plan issues a final denial" of a benefit.
The significance of Monday's decision, resolving a split among the U.S. Courts of Appeals, is that the written plan can set both the limitations period (normally provided by state law) AND the accrual date (federal law), and that those written terms may be enforced even if inconsistent with statutory and case law.
In this case, the claimant - who was seeking a long-term disability (LTD) benefit - missed out on the accrual date of her claim. She assumed (erroneously) that she could wait until the plan committee finally denied the claim before counting the time for filing her civil action. The LTD period in the insurance plan in the case was three years. But instead of the claim accruing when the benefit was finally denied, the plan itself provided for an earlier accrual date: three years after "proof of loss" is due to the insurer.
The significance of the accrual language could have easily been overlooked, but proved catastrophic. For while the participant's proof of claim for LTD (due to chronic pain) was due September 30, 2007, the plan did not issue a final denial until November 26, 2007. The participant measured the three-year limitations period from the denial date and filed her civil action on November 18, 2010 - which was more than three years from the date her claim was due.
The Supreme Court upholds dismissal of the case on limitations grounds. It holds that unless a statute provides otherwise, parties can contractually agree - as in an ERISA plan, to a different limitations period and accrual date: "Absent 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 Court rejects the participant's argument that ERISA imposes substantive limits on setting limitations/accrual dates.
The court observes that there are doctrines that may mitigate the harshness of this rule. A contractual period cannot be "unreasonably short." It must accommodate the period for internal review provided by the Department of Labor regulation, 29 C.F.R. §2560.503-1. (Failure of the administrator/plan committee to meet those internal deadlines means the participant enjoys immediate access to judicial review.) And in "cases where internal review prevents participants from bringing § 502(a)(1)(B) actions within the contractual period, 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."
Still, the bottom-line holding is that the plan period governs and presumptivel must be followed.
So here are three things that you - as a participant or beneficiary - must do to avoid the limitations trap:
1. Order immediately - in a written, dated request - a copy of the plan instrument from the plan administrator, under the provisions of 29 U.S.C. § 1024(b)(4). Within 30 days, the administrator must "furnish a copy of the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated." Only the plan instrument itself may set the limitations period, so rely on that document to tell you what your rights and obligations are.
2. Do not delay filing in federal district court after receiving a final determination from the plan committee on your claim. Ms. Heimeshoff might have had a fighting chance of winning equitable tolling if she had not waited more than two years after receiving a rejection to file in court.
3. If a plan determination does not arrive and you are close to the expiration of a limitations period, get an express, written tolling agreement from the plan committee to suspend the running of the period or - if all else fails - file your civil complaint and then move for a stay. Definitely do not count on appeals to justice, fairness and equity to extract you out of an expired limitations period after the fact.