ERISA Plan Documents Time Limitations Are Enforceable
MyHealthGuide Source: Employer’s Guide to Self-insuring Health Benefits, Todd Leeuwenburgh, Editor, Thompson Publishing Group. Copyright 2009. 11/13/09, www.thompson.com
Cases:
• Salisbury v. Hartford Life and Accident Co., 2009 WL 3112411 (10th Cir., 9/30/09)
• Lutz v. Philips Electronics North America Corp., 2009 WL 3236029 (3rd Cir., Oct. 8, 2009)
In two separate cases, U.S. circuit courts buttressed a plan’s right to invoke a time limit on lawsuits over benefit denials, by refusing to accept plaintiff arguments that the plans confused them about the starting point of the time limits.
In one of the cases below, the court adopted the limit from state law (because presumably the plan document lacked one). In the other case, the limit was housed in an ERISA plan document, thereby preempting state law.
An increasing number of circuit courts hold that reasonable time limitations in ERISA plan documents are enforceable. In a similar case, Scharff v. Raytheon, 2009 WL 2871229 (9th Cir., Sept. 9, 2009), the 9th U.S. Circuit Court of Appeals enforced an employer’s one-year limit on worker lawsuits over benefit denials.
Salisbury v. Hartford Life
The 10th Circuit upheld an ERISA plan administrator’s enforcement of a three-year limitation period on lawsuits over benefits denials. The court rejected the plan participant’s arguments that:
• (1) the starting-point of the period was ambiguous; and that
• (2) such periods must not be allowed to start until the plan’s administrative appeals process runs its course.
The circuit upheld an earlier district court that held that her lawsuit was late and the limit was enforceable.
The three-year limitation period in the ERISA plan was not rendered unenforceable merely because plan language allowed the clock to start ticking the day the proof of loss was filed with the plan administrator, which in this case was before administrative appeals were exhausted, the court ruled in Salisbury v. Hartford Life and Accident Co., 2009 WL 3112411 (10th Cir., Sept. 30, 2009).
Even though the case involves disability benefits, it still contains points about plan language limits on litigation that are important for health plans.
Facts of the Case
Carol Salisbury was injured in 2000 but did not file for disability benefits until 2002. Her plan administrator, the Hartford Life and Accident Co. (a plan sponsor was not named), approved her claim for long-term disability (LTD) benefits, which it paid retroactively for the 2000-2002 period. But the plan’s definition of “disabled” became more stringent after two years. After that time, a claimant had to be incapable of performing the essential duties of any occupation to be entitled to benefits. Holding that Salisbury did not meet the “any occupation” definition, Hartford denied her benefits for any time after Aug. 2, 2002.
She appealed administratively in March 2003 and Hartford rejected that appeal in September 2003. She waited until March 2008 to file her lawsuit. Upholding the plan’s three-year limitation on legal actions, the district court barred the suit, granting Hartford’s motion for summary judgment. Salisbury appealed.
State statutes of limitation were not at issue here — the ERISA plan is a contract in which parties are free to include reasonable limitation periods, the circuit said.
The 10th Circuit generally defers to state limits on legal actions (because ERISA’s enforcement provisions contain no such limit), except where they are posted in plan documents, which courts see as a contractual agreement. Many circuits, including the 5th, 6th, 7th, 8th and 11th, held that reasonable limits in ERISA plans are enforceable.
The 10th Circuit then turned to the question of whether the Hartford plan’s three-year limitation was reasonable.
The Hartford plan provided:
Legal action cannot be taken against us:
• 1. sooner than 60 days after due Proof of Loss has been furnished; or
• 2. three years after the time written Proof of Loss is required to be furnished according to the terms of the Policy. … Written Proof of Loss must be sent to us within 90 days after the start of the period for which we owe payment.
Salisbury argued that it was impossible to determine a start date, because:
• (1) that depended on when a proof of loss was due;
• (2) the proof of loss was not due before the start of the period for which Hartford owed payment; and
• (3) Hartford’s decision that it owed no payment meant that the period for which it owes payment never started. Therefore, she contended, the plan’s limits were not enforceable.
The court rejected this, saying it was quite easy to determine a start date: Salisbury claimed benefits dating back to Aug, 3, 2002. Thus, the deadline for submitting proof of loss was Oct. 31, 2002, and the contractual limitations period ran through Oct. 31, 2005.
Lutz v. Philips Electronics
Another circuit upheld a plan’s statute of limitations defense, but under an ERISA common law limitations period whose start is triggered when a participant is aware of facts that give rise to a claim of denied benefits. There appears to have been no specific plan limitations period in plan documents.
The 3rd Circuit affirmed a lower court’s decision in Lutz v. Philips Electronics North America Corp., 2009 WL 3236029 (3rd Cir., Oct. 8, 2009) that a four-year statute of limitations (derived from state law) barred plaintiffs from filing suit to compel a plan to compensate them for alleged underpayments.
The Facts of the Case
Joseph Lutz began working with Philips in August 2001. Within the year, he underwent back surgery and used 26 weeks of short-term disability leave. Afterwards he applied for LTD benefits (sponsored by Philips and administered by MetLife) and his claim was approved. Starting in August 2002, he complained to Philips that his LTD benefits were incorrectly calculated and he was being shortchanged.
Lutz and wife Cindy filed their complaint in state court in August 2007, alleging state-law negligence and breach of contract related to the payments. The district court dismissed the suit with prejudice for failure to comply with the applicable (four-year, presumably borrowed from state law) statute of limitations.
The Lutzes appealed, arguing that the district court applied the incorrect statute of limitations to their claims. They also asked the appeals court to let the Lutzes amend their complaint to include a claim of breach of fiduciary duty, which the district court had denied.
The district court ruled that the negligence and breach of contract claims were preempted by ERISA, which does not contain its own statute of limitations (but apparently the Philips plan documents lacked a limit). The 3rd Circuit in past cases looked to the statute of limitations for the most analogous state-law claim and used that. In this case, the most applicable claim was a Pennsylvania’s breach of contract law, which included a four-year statute of limitations.
When Clock Starts Ticking
The Lutzes argued that the limit did not begin to run until the date — in their words — that “in-house counsel for MetLife acknowledged the inaccurate benefit calculation.”
The circuit court said the law did not back this argument up. It held in Miller v. Fortis Benefits, 475 F.3d 516 (3rd Cir., 2007), that:
• (1) the limitations period begins when a plaintiff discovers the harm that forms the basis of the complaint;
• (2) a repudiation of benefits that’s clear to the beneficiary triggers the cause of action;
• (3) an underpayment can qualify as a repudiation, like a denial can.
With that precedent in mind, the Lutzes’ claim limitation period began on Aug. 23, 2002 — the date the Lutzes began complaining. It ran out on Aug. 23, 2006, but the Lutzes did not file their claim until Aug. 6, 2007 — nearly a year after the period ran out, the court said.
The Lutzes’ argued under equitable estoppel theories that the plan falsely represented that benefits were accurately calculated, and that deception prevented the Lutzes from filing their case on time. The court disregarded that as well, because it saw a clear date on which the Lutzes began asserting that they had been shortchanged.
Philips would only be estopped from invoking a statute of limitations defense if there was evidence:
• (1) of fraudulent concealment or misrepresentation;
• (2) that the Lutzes’ relied on the false portrayals to their detriment; or
• (3) of extraordinary circumstances.
As we have already observed, the Lutzes discovered their injury as of August 23, 2002. A successful equitable estoppel argument cannot toll the statute of limitations beyond the date of a plaintiff’s actual knowledge of the injury giving rise to his claim.
The plaintiffs’ breach of fiduciary charges would have been futile, the court ruled, because they fall under ERISA’s three-year limit for fiduciary breach, which had been exceeded as well.
Implications
• As these cases underscore, statute of limitations periods may vary by plan language, by state law as adopted as federal common law, and among the circuit courts. Consequently, multi-state employers’ plans could be subject to different periods depending on geographic location.
• Plans can avoid some of the confusion and variance by ensuring they include statute of limitations provisions in their plans.
• Clear plan language can prevent uncertainty about when the time limit actually starts. The plan can specify the time from which the limitation clock starts ticking: for example:
o (1) on the day the plan member complains about an alleged loss;
o (2) the date an administrative appeal is filed; or
o (3) the date the plan makes its final determination on administrative appeal.
• It is important to make these limits clear, to head off arguments that the plan somehow concealed or misrepresented the limit.
• Plans can assist beneficiaries by clearly putting — on the final denial letter– when the limit clock starts ticking and the date beyond which no lawsuits can be filed.
