The Supreme Court of the United States ruled that an ERISA plan may properly impose a reasonable time limit on filing a lawsuit to recover benefits. Such time may start to run even before completion of the required administrative review process.
On December 16, 2013, the Supreme Court of the United States, in Heimeshoff v. Hartford Life & Accident Insurance Company, unanimously concluded that an Employee Retirement Income Security Act of 1974 (ERISA) plan’s provision imposing a time limit for filing a lawsuit is enforceable, so long as that time period is reasonable in length and there is no controlling statute to the contrary. The Court held that an ERISA plan is a contract whereby, through participation in the plan, the participants can be required to agree to both a time limit for bringing lawsuits as well as how to define when that time limit will start to run. Notably, in Heimeshoff, the three-year limitation period began to run when proof of loss was required and before completion of the administrative review process. This decision underscores the importance of including a reasonable time limit in benefit plan documents to shorten otherwise applicable state law limitations periods and to provide uniformity for benefit claim accruals for all participants and beneficiaries.
On August 22, 2005, the plaintiff filed an administrative claim for long-term disability benefits with the administrator of her employer’s long-term disability plan (Hartford). In November 2005, Hartford notified the plaintiff that it could not determine whether she was disabled because her physician failed to provide the necessary medical reports. In October 2006, the plaintiff submitted further information, and Hartford denied her claim in November 2006. In May 2007, Hartford granted the plaintiff’s request for an extension of the plan’s claim appeal deadline until September 30, 2007. On September 26, 2007, the plaintiff submitted her claim appeal along with additional medical evaluations. On November 26, 2007, the plaintiff’s claim denial was administratively affirmed.
The long-term disability plan contained a contractual limitations provision, which required a plaintiff to initiate legal action against Hartford within “three years after the time written proof of loss is required to be furnished according to the terms of the policy.” On November 18, 2010—almost three years after the final claim determination but more than three years after proof of loss was due under the plan’s terms—the plaintiff filed suit against Hartford, challenging her long-term disability benefit denial. The district court dismissed the lawsuit based upon the plan’s provision requiring a lawsuit to be filed within three years from the time proof of loss was required. The U.S. Court of Appeals for the Second Circuit affirmed the dismissal. The Supreme Court granted certiorari to resolve a split among the Courts of Appeal on the enforceability of such time limitations provisions in benefit plans.
The Supreme Court’s Analysis
The Supreme Court, through Justice Thomas, unanimously upheld the application of the plan’s three-year limitations period commencing upon proof of loss. The Court determined that the critical issue in the case was the ERISA plan’s requirement that a participant must commence a lawsuit within a particular period of time or lose the right to do so. Applying a well-established rule from Order of United Commercial Travelers of America v. Wolfe, the Court held that in the absence of a controlling statute to the contrary, an ERISA plan’s limitations provision may validly limit the time for bringing a lawsuit to a period shorter than that prescribed in the general statute of limitations, provided that the shorter period is reasonable.
The plaintiff first argued that the time limitations period should not commence until after a benefit claim is finally denied and a claimant may file suit. The Court disagreed, finding that parties are permitted to contract around a default statute of limitations both in its length and accrual date. The Court determined that a plan’s provisions must be enforced as written.
The plaintiff next argued that the time limitations period was unreasonably short. However, the Court again disagreed, finding that the Department of Labor’s claims regulations generally require benefit claims to be resolved administratively within one year. After exhausting the available administrative remedies, as ERISA requires, the Court found that claimants under the plan would normally still have two years in which to file suit. Even in cases such as this one, where the administrative review process required more time than usual, a plaintiff would generally be left with at least one year in which to file suit, and the Court found that a one-year limitations period is reasonable.
In extreme cases, such as if a plan administrator attempted to unduly delay the administrative process or otherwise acted in bad faith when analyzing a claim, the Court determined that courts are well equipped to apply traditional equitable doctrines, like estoppel or waiver, to allow a claim to proceed. Since the plan’s contractual limitations period was neither unreasonable nor foreclosed by ERISA, the Court upheld the dismissal of plaintiff’s benefit claim.
Importance of Plan Contractual Limitations Periods
The Court’s decision in Heimeshoff is an important victory for plan sponsors and administrators. By including a limitations period in an ERISA benefit plan, a plan sponsor can provide uniformity to claim accrual across various states. There is no statutory limitations period for benefit claim litigation under ERISA. As a result, courts generally apply the most applicable state statute of limitations for benefit claims, which is typically the state breach of contract statutory period. State limitations periods vary broadly, with some states applying as short as a two-year limitations period while others utilize as long as a fifteen-year period.
In addition, a limitations period written into the ERISA plan typically will drastically shorten the applicable limitations period, as courts have upheld as reasonable contractual limitations provisions as short as 90 days. In light of the Supreme Court’s decision in Heimeshoff, plan sponsors and administrators should review their plan documents to ensure that they contain a reasonable contractual limitations period so that they will have all possible defenses available when benefit claim litigation is commenced.