A recent decision from the U.S. District Court for the District of Arizona raises important drafting and administrative issues for employers to consider when adding a plan-based statute of limitations provision to their benefit plans. In Solien v. Raytheon Long Term Disability Plan #590, the court refused to uphold a plan-based one-year limitations period for challenging benefit claims in court because the limitation period was not adequately disclosed in the summary plan description (SPD) and was not communicated to the participant as part of the plan’s claim denial determination. Although this is only one district court decision, the result should cause plan sponsors to review how they have implemented any plan-based statutes of limitations to ensure their enforcement by a court.
The Employee Retirement Income Security Act of 1974 (ERISA) does not contain an express statute of limitations period within which participants may bring lawsuits challenging benefit claim denials. Consequently, to determine if an ERISA plan benefit denial lawsuit is timely filed, courts have applied the applicable state law statute of limitations for contract claims from the state where the court sits. One problem with this approach is that the applicable limitations periods widely vary—as some states apply as little as a two-year limitations period while others apply as large as a 15-year limitations period.
To avoid this confusion, many employers have included express limitations periods in their benefit plans that require participants to file suit challenging any benefit denial within a specific period of time, which period is typically shorter than any applicable state statute of limitations period. These plan-based limitations periods generally have been upheld in litigation as long as the plan’s limitations period is reasonable and included in a plan’s governing documents. Prior to Solien, the majority of cases on this issue have focused on the reasonableness of the limitations period. In fact, limitations periods of 90 and 180 days have been routinely upheld by federal courts, and even a 45-day limitations period was upheld by one federal court in Iowa.
On June 2, 2008, the U.S. District Court for the District of Arizona in Solien refused to dismiss a participant’s benefit denial lawsuit, even though the plan contained a reasonable one-year limitations period, because that limitations period was not clearly set forth in the plan’s governing documents or in the benefit denial notices.
In Solien, the plaintiff claimed that her employer terminated her benefits under its long-term disability plan in violation of plan provisions and breached its fiduciary duty by failing to notify her that she had a one-year time period from the date of final denial of her benefits claim to file suit for benefits under ERISA. The employer argued that Solien’s claim was barred by the one-year limitations period contained in the plan, whereas the plaintiff argued that her claim was timely filed within the six-year Arizona state statute of limitations. The court ruled in Solien’s favor, holding that although the plan’s one-year period for filing a claim under ERISA was reasonable, the plaintiff did not receive proper notice of the limitations period to foreclose her lawsuit.
After reviewing the claims procedure provisions provided in the plan’s SPD, the court held that the plan’s limitations period was not enforceable based on where it was placed in the SPD. In addition, the court determined that the language was not sufficiently clear, finding that an average participate would have been unable to understand the language explaining the limitations period. In this case, the language used was typical language that has been inserted in SPDs in response to earlier court decisions on this topic: “any action at law or in equity must be commenced within one year of the denial of any appeal from an initial claim denial, regardless of any state or federal statutes establishing provisions relating to limitations of actions.”
In addition, the court looked to an earlier case that had required a plan administrator to include in a benefits denial notice any time limitation for challenging the denial, even though the time limits were included in the subject plan’s SPD. Therefore, the court found that it would have been “simple” for the plan administrator in Solien to have included the one-year time limit in the plaintiff’s benefit denial letter. The court concluded that a plan administrator does not act in the best interests of participants and beneficiaries when it fails to provide express notice of a plan’s time limit requirements for benefits review procedures, including the right to file suit under ERISA, to the attention of a claimant because “the consequence of an untimely request is to foreclose all external review of her claim.”
Best Practices for Enforcement of Plan Limitation Periods
An employer should take the following steps in plan drafting and claims administration to ensure that contractual limitation periods in benefit plan documents will be enforced by the courts:
- First, employers should include a plan limitations provision in all governing plan documents, including SPDs, and the language should be succinct and prominent (i.e., in bold type) so that a participant will read the provision and be able to understand the applicable limitation.
- Second, the plan limitation language should be included not only in plan administration sections, but also in all sections of the document discussing claims procedures or administration.
- Third, plan administrators should include the plan limitation language in all claim and claim appeal determinations to ensure that participants are on notice of the limitations period.
Providing notice of the limitation period for filing a lawsuit in all governing plan documents and claims determinations that may ultimately be challenged should provide the employer, plan, and plan administrator with greater ammunition in court to enforce a reasonable contractual limitations period so that untimely filed suits will be dismissed.