Last year, we 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. In that article, we noted that efforts to protect plans had 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. We noted then that although most circuit courts had enforced such contractual provisions, some had not, and we had hoped that the courts that have declined to enforce contractual accrual provisions would soon “see the light” and reverse course. Now, with the Supreme Court’s granting of certiorari in Heimeshoff v. Hartford Life & Accident Insurance Co., it is likely that that the high court will provide guidance and uniformity on this issue.
ERISA’s Rules on Statutes of Limitations and Contractual Limitations Periods
ERISA does not contain a statute of limitations period for suits challenging the denial of benefits by a plan administrator. Rather, courts borrow the limitations period from the most analogous state statute. Although state law determines the relevant statute of limitations period for benefit claims, federal common law determines when a claim for relief accrues. 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 for the claim. In the ERISA context, the discovery rule has evolved to the so-called “clear repudiation rule,” pursuant to which a benefit claim will accrue when a fiduciary repudiates a claim for benefits and that repudiation is clear and made known to the beneficiary. Some courts applying this standard have concluded that the limitations period runs from when the participant was on reasonable notice of the claim. Regardless, a formal denial of the claim is not required.
The fact that courts borrow from state law to determine the limitations period does not prevent parties from contracting for a shorter limitations period. Federal courts have generally enforced contractual limitation periods for benefit claims as long as they are made known to participants and beneficiaries and are not “manifestly unreasonable.” The courts are less consistent in enforcing contractual accrual provisions.
The Supreme Court recently granted certiorari in Heimeshoff to resolve the circuit split on the question of “[w]hen should a statue of limitations accrue for judicial review of an ERISA disability adverse benefit determination?”
Heimeshoff v. Hartford – The District Court Ruling
Julie Heimeshoff had been a Wal-Mart employee for nearly twenty years. In 2005, she filed a claim for long term disability benefits as a result of various ailments caused by fibromyalgia. Wal-Mart’s disability plan was administered by Hartford Life & Accident Insurance Co. Hartford denied Heimeshoff’s claim in December 2005, finding that she had failed to provide satisfactory proof of her disability. After an appeal, Hartford issued its “last and final denial letter” on November 25, 2007.
On November 18, 2010, Heimeshoff filed suit against Hartford and Wal-Mart, challenging the denial of her benefits under Section 502(a)(1)(B) of the Employee Retirement Income Security Act (“ERISA”). Hartford moved to dismiss the lawsuit arguing that Heimeshoff’s claim was barred by the plan’s limitation period, which required that legal actions be brought within three years from the time that proof of loss was due under the plan.
The United States District Court for the District of Connecticut agreed with Hartford, concluding that Hartford’s 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 court concluded that these provisions were unambiguous. Because Heimeshoff’s proof of loss was due no later than September 30, 2007 and she had not filed suit until November 18, 2010, the court dismissed her claim as time-barred.
The Second Circuit Affirms
Heimeshoff appealed the District Court’s dismissal of her claim, arguing that the limitations period should not have begun to run until after her administrative claim was denied. The Court of Appeals rejected her challenge, relying on Second Circuit precedent that in turn relied on decisions of the Sixth, Seventh, Eighth and Tenth Circuits, holding that ERISA allows a limitations period to being running before the right to bring a judicial claim accrues, unless the application of the shortened limitations period would be unreasonable in the particular case. Accordingly, it held that the district court properly dismissed Heimeshoff’s claim as untimely as she had filed her lawsuit several months after the plan’s three year period had expired.
The Supreme Court Will Consider Whether A Contractual Limitations Period Is Enforceable
In April, the Supreme Court granted Heimeshoff’s petition for certiorari. The high court agreed to address the question of when a statute of limitations should accrue for judicial review of an ERISA disability plan’s adverse benefits determination.
According to Heimeshoff, many ERISA plans require claimants to exhaust administrative remedies before filing suit, while “the limitations period begins running and wastes away while the claimant is going through the administrative review process.” Heimeshoff contends that this “contradicts ERISA’s well-established requirement that the beneficiary exhaust her administrative remedies before filing suit.” In her petition, Heimeshoff argues 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.
In its brief in opposition to Supreme Court review, Hartford argues that Heimeshoff mischaracterizes “the nature and degree of conflict among the circuits” on the issue of contractual limitations periods. According to Hartford, she misstates the position of the Ninth Circuit, and it is only the Fourth Circuit that has taken a position contrary to the majority of the circuits, which have upheld the enforceability of a contractual limitations period similar to the one in Hartford’s policy unless its application would be unreasonable in a particular case.
The Circuit Split
Although the degree of the split is disputed, everyone agrees that the Fourth Circuit has clearly refused to enforce accrual provisions derived from an ERISA plan’s contractual limitations language that begin running before a claimant can file suit in court. In White v. Sun Life Assurance Co. of Canada, the Fourth Circuit considered facts almost identical to those in Heimeshoff, but it specifically refused to enforce a contractual accrual date that began upon the date proof of loss was required to be furnished. Recognizing that such provisions allow the limitations period to run before a claimant can file a judicial challenge (i.e., before an administrative claim is exhausted), the court opined that such accrual provisions create “incentives to delay [that] would undermine internal appeals processes as mechanisms for full and fair review and undermine the civil right of action as a complement to internal review.” The Fourth Circuit refused to adopt a case-by-case, fact-intensive assessment of the reasonableness of the accrual provision.
As we have previously reported, the reasoning of the Second, Sixth, Seventh, and Eighth Circuits is more consistent with the enforcement of the contractual provisions of ERISA plans. If the high court’s contract-based analysis in McCutchen is indicative, then we would expect the Court to base its decision on the ERISA principle that written terms of a plan should be enforced as written, upholding the Second Circuit’s decision.
A ruling in Hartford’s favor could have broad implications and could conceivably lead to the application of the accrual rules in other contexts that could serve to more substantially reduce stale claims by participants. For example, a pension plan could include provisions requiring that a challenge to benefit calculations must be filed within a reasonable period after a participant receives an annual statement of their accrued benefit, or when the participant terminates employment, rather than at the point of retirement, when relevant information may no longer be readily accessible.
Whichever way it rules, the Supreme Court’s decision on this issue should provide uniformity with respect to plan rules on the accrual of benefit claims and should simplify the calculation of deadlines to file a suit for benefits under ERISA.