In a unanimous Dec. 16, 2013, decision, the U.S. Supreme Court held that contractual limitations periods for legal actions challenging benefits denials in plans governed by the Employee Retirement Income Security Act (ERISA) are enforceable as long as the periods are not unreasonably short or prohibited by statute (Heimeshoff v. Hartford Life & Acc. Ins. Co., 12/16/13).
The court upheld a disability plan's three-year limitations period, which ran from the date on which proof of loss was due, even though the benefits recipient could not begin to exhaust her administrative remedies until benefits had been denied. In an opinion written by Justice Clarence Thomas, the high court said it recognized the importance of enforcing plan terms as written.
This decision “provides assurance to employers and plan sponsors that they can put a contractual statute of limitations within their plan documents,” Nicole Eichberger, an attorney in Proskauer Rose’s New Orleans office, told SHRM Online. “Employers are free to set what the statute of limitations will be so that they can tailor it to the needs of their plan without court interference.”
However, Eichberger noted that the court declined to define what a reasonable limitations period was, merely upholding what was in the plan before it.
Lower Courts Rule for Insurer
In 2005, Wal-Mart employee Julie Heimeshoff, who suffered from fibromyalgia and chronic pain, applied for long-term disability benefits from a plan managed by Hartford Life & Accident Insurance Co. Hartford denied her claim in December 2005, concluding she had failed to provide satisfactory proof of her disability. After an appeal, Hartford issued its “last and final denial letter” on Nov. 25, 2007, according to Heimeshoff.
The Hartford plan had a three-year limitations period for legal actions challenging adverse benefit determinations. The plaintiff filed a lawsuit challenging Hartford's decision on Nov. 18, 2010. Hartford moved to dismiss her claim, arguing that it was barred by the limitations period. According to the insurer, the plan required Heimeshoff to file suit by Dec. 8, 2008, which was three years after her “proof of loss” was due to Hartford.
A federal district court in Connecticut sided with the insurer, concluding that the Hartford 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 district court said. It found these provisions to be unambiguous and, thus, granted Hartford's motion to dismiss Heimeshoff's claim as time-barred.
The 2nd Circuit affirmed the ruling. It held that ERISA does not prohibit a contractual limitations period that begins to run before the time that an ERISA plan issues a final claim denial, causing the claimant's legal claim to accrue. Here the “policy language is unambiguous,” and it does not violate ERISA “to have the limitations period begin to run before the claim accrues,” the appellate court said.
Supreme Court Agrees with Lower Courts
The Supreme Court affirmed the 2nd Circuit’s ruling. The high court explained that although a limitations period generally begins to run when a cause of action accrues—which, in this case, did not occur until Heimeshoff exhausted the claims process—that is a default rule, which can be modified by contract. Under the court’s precedents, parties generally can contract for a shorter limitations period, provided that the period is not unreasonably short and that a controlling statute does not require a contrary result. The court reasoned that because parties can agree to the length of the limitations period, it follows that they can also agree as to the date when the limitations period starts to run. It stated that this rule is “especially appropriate when enforcing an ERISA plan,” because its documents are the “linchpin” of the plan—that is, the beneficiary’s rights flow from the documents.
Having determined that contractual limitations periods generally should be enforceable, the court next asked whether the period in this case was unreasonably short or whether ERISA itself prohibited the parties from adopting it. It concluded that the answer to both questions was no.
The period was not unreasonably short because, in the ordinary case, the internal process would be resolved within a year, leaving the parties two years to sue. Heimeshoff had conceded at oral argument that a one-year period would be sufficient to sue.
The court also determined that the plan’s limitations period was not contrary to ERISA itself. Heimeshoff had argued that by allowing the statute of limitations to run during the internal review process, the plan encouraged beneficiaries to retain counsel early or to attempt to short-circuit the internal process to ensure that they made it to court before the statute of limitations elapsed. In addition, she maintained that plan administrators have an incentive to prolong the internal process before denying a claim, thus making it more difficult for beneficiaries to sue.
The court found these arguments unpersuasive, calling the premise that participants will sacrifice the benefits of internal review to preserve more time for filing suit “highly dubious” in light of the benefits of review, and recognizing that the evidence does not support the claim that plan administrators are using the internal process to thwart judicial review.
Joanne Deschenaux, J.D., is SHRM’s senior legal editor.