Take It to the Limit – The High Court Reviews When ERISA Plan Limitation of Actions Period Begins

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It is well-settled that parties can contract for the length of a limitation of actions period.  It also is well-settled that parties may contract for a limitation of actions period to start before the time to commence an action accrues.  In fact, many states’ insurance laws prescribe language requiring that the limitation period start before a cause of action could accrue.  The limitation of actions period is always subject to a court’s review of whether the length of the period of limitations leaves a reasonable time for a party to commence an action to challenge a denial of contract benefits.  Nevertheless, participants’ counsel continuously argue that limitation periods in plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §1001, et seq., should not start before the internal administrative procedures have been exhausted even if the written plan terms require the limitation of actions period to start from the date proof of loss is due.

On October 15, 2013, the U.S. Supreme Court heard oral argument on Heimeshoff v. Hartford Life And Accident Insurance Company to resolve the circuit split between the Third, Fourth and Ninth Circuit Courts of Appeals, which tolled an ERISA-plan limitation period until the participant exhausted his administrative remedies, and the majority of other circuits that have enforced the plan terms as written.  Petitioner, a participant whose claim for plan benefits was barred by the three-year limitation of actions period that ran from the date proof of loss was due, had at least one year from the date she exhausted her administrative appeals procedure to commence her lawsuit.  Petitioner argued that the three-year “clock” should not start until the internal appeal process is complete and argued that the application of this rule would bring uniformity to limitations periods under ERISA.  In questioning from Justice Ginsburg, the petitioner conceded that ERISA does not have a statutory limitation period for benefit claims but contended that the start date for a limitation period would be controlled by federal law, which would preempt any state law starting the limitation period at an earlier date.

The petitioner’s argument, however, failed to consider the well-settled tenet of ERISA that written plan terms must be enforced as written.  See ERISA §502(a), 29 U.S.C. §1102(a); Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83 (1995).  The ERISA-plan language at issue provides that the limitation of actions period is “3 years after the time written proof of loss is required to be furnished according to the terms of the policy.”  The petitioner’s argument requires courts to rewrite these plan terms to state that the three-year limitation of actions period runs from the date the internal appeal procedure is exhausted—not the date proof of loss is due.  The petitioner’s argument effectively would allow otherwise stale claims to be litigated and require insurance companies to revisit their reserve and underwriting calculations to account for the possibility of untimely claims being pursued despite the written plan terms.

Forty-eight states have laws or regulations providing that the start date of a limitations period in an insurance policy should run from the date proof of loss is due.  Neither the U.S. Congress nor the Department of Labor has promulgated any rules that would prevent a plan from using this start date.

On December 12, 2013, the U.S. Supreme Court confirmed that ERISA plans and participants may agree, by contract, to a reasonable limitations period even if it starts to run before a cause of action accrues.  The High Court held written ERISA-plan terms cannot be ignored in an effort to keep these otherwise stale claims alive.