Christmas may have come a little early for plan administrators and companies looking for clarity in ERISA litigation. Last Monday, the U.S. Supreme Court ruled 9-0 in Heimeshoff v. Hartford Life & Accident Insurance Co. that contractual limitations provisions in ERISA plans are enforceable unless the time limitation is unreasonably short or is preempted by statute.
In 2005, Julie Heimeshoff, a senior PR manager for Wal-Mart, reported chronic pain and fatigue that interfered with her duties. After being diagnosed with lupus and fibromyalgia, Heimeshoff stopped working and filed a claim for long-term disability with Hartford Life & Accident Insurance Co., the administrator of Wal-Mart’s Group Long Term Disability Plan.
Hartford was not persuaded by the evidence provided by Heimeshoff’s doctors and issued a final denial of her claim in 2007. Less than three years later, but more than three years after her proof of loss was due under the Plan, Heimeshoff filed suit, challenging the denial under ERISA § 502(a)(1)(B). She did so despite the Plan’s limitation provision, which provided that “Legal action cannot be taken against The Hartford. . . [more than] 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.”
Ruling in favor of Hartford, the Court held that the requirement that ERISA plan participants exhaust the plan’s administrative remedies before suing to recover benefits does not prohibit a plan and its participants from agreeing to a limitations period that begins to run before the final decision to deny benefits.
The decision resolved a circuit split on the enforceability of contractual limitations provisions under ERISA. The Second and Sixth Circuits took the view that the limitations were enforceable (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)), while the Fourth and Ninth Circuits have struck down such limitations (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)).
ERISA does not contain a statute of limitations, and many ERISA plans spell out specific limitations periods. The tension behind the circuit split centered on a dispute over how to determine when the statute of limitations starts to run (i.e., when a claim accrues).
Rather than wrestling with procedural questions such as whether it was permissible for a cause of action to “accru[e] at one time for the purpose of calculating when the statute of limitations begins to run, but at another time for the purpose of bringing suit” (see Reiter v. Cooper, 507 U.S. 258, 267 (1993) (noting that this was permissible)), the Court focused on the fact that “the parties have agreed by contract to commence the limitations period at a particular time” and that, as a result “we find more appropriate guidance in precedent confronting whether to enforce the terms of a contractual limitations provision.”
The Court looked to US Airways v. McCutchen, another recent Supreme Court ERISA case that gave broad leeway to plan drafters and (quoting McCutchen) noted that “[t]he plan, in short, is at the center of ERISA” and that the principle of enforcing contract terms as written was “especially appropriate” in ERISA cases. The Court concluded that it must “give effect to the Plan’s limitations provision unless we determine either that the period is unreasonably short, or that a ‘controlling statute’ prevents the limitations provision from taking effect.”
The Court concluded that the three-year limitations provision in the Plan was not unreasonable because Heimeshoff was left with almost one year to file suit after the administrative process had concluded—even though the process had taken longer than usual. The Court rejected the argument that ERISA is a “controlling statute” contrary to the Plan’s limitations provision, noting that it was “highly dubious” that enforcement of the Plan’s limitations period would undermine ERISA’s process of requiring an internal review of all claims prior to litigation.
The Court went on to reject various arguments made by Heimeshoff and the U.S. government, including the argument that enforcing the limitation would open the door for abuse by plan administrators inclined to delay proceedings to run out the clock on plaintiffs. The Court noted that applicable regulations set deadlines that prevent administrators from doing this and that the penalty for failure to meet such deadlines is immediate access to judicial review for the participant. 29 CFR §2560.503–1(l).
The Court acknowledged that equitable tolling remained available for plaintiffs who had been diligent but who ran out of time for reasons beyond their control. Although this may appear to be the plaintiff bar’s best remaining hope after the Heimeshoff decision, the Court may have closed the door before enterprising plaintiffs’ attorneys could open it. The Court flatly rejected the claim that equitable tolling should apply in this case, cautioning that its application would undermine the contractual terms of the plan: “[b]y effectively delaying the commencement of the limitations period until the conclusion of internal review, however, this approach reconstitutes the contractual revision we declined to make.”
The Heimeshoff decision continues the trend of favoring the plain language of ERISA plans. Employers can breathe a little easier, knowing that this area of the law has gained clarity and should continue to draft reasonable, favorable terms on accrual of claims and provide appropriate notice of those terms in benefit statements and summary plan statements.