On Dec. 16, 2013, the U.S. Supreme Court issued its decision in Heimeshoff v. Hartford Life & Accident Ins. Co., ruling that a plan can limit the length of time a participant has to bring a lawsuit for benefits. The Supreme Court’s decision is a favorable ruling for plan sponsors. To help minimize benefit claims, plan sponsors should consider amending their plan documents to limit the time period for benefit lawsuits.
Specifically, the Court ruled that an employee benefit plan’s contractual limitations period for bringing a lawsuit under ERISA for plan benefits is enforceable if the time period is not unreasonably short or controlled by another law. Also, the Court held that a plan’s contractual limitations period may start to run before a claimant satisfies the plan’s claims and appeals process.
Participants in employee benefit plans covered by ERISA (for example, employer-sponsored health plans) may sue under ERISA to recover benefits due under the terms of the plan. In general, participants must exhaust a plan’s claims and appeals procedures before filing a lawsuit for plan benefits under ERISA. This means that a participant generally does not have a cause of action under ERISA (and cannot bring a valid lawsuit) until the plan issues a final decision on the claim.
A statute of limitations establishes the period of time within which a claimant must bring a lawsuit. Normally, a statute of limitations begins to run when the cause of action accrues (that is, when the participant can file a lawsuit and obtain relief).
ERISA does not include a statute of limitations for benefit claims. Instead, the limitations period in the most similar state statute will apply. This means that the statute of limitations for ERISA benefit claims varies from state to state. In most cases, courts apply the statute of limitations for a state law breach of contract claim. However, this is not always the case if there is a more analogous state statute.
Many employee benefit plans include a three-year time limit for participants to bring benefit lawsuits. Some plans give participants even less time to file benefit lawsuits, such as one year.
After the time limit expires, the benefit plan’s terms would prohibit benefit lawsuits. The Supreme Court’s decision is significant because it addresses the enforceability of an employee benefit plan’s three-year limitations period that started to run before a participant completed the plan’s claims and appeals procedure.
In 2005, Julie Heimeshoff, an employee of Wal-Mart Stores, Inc., submitted a claim for long-term disability benefits with Hartford Life & Accident Insurance Co. (Hartford), the administrator of Wal-Mart’s Group Long Term Disability Plan (Plan).
The Plan contained the following limitations provision: “Legal action cannot be taken against The Hartford … [more than] three years after the time written proof of loss is required to be furnished according to the terms of the policy.” This provision required a plan participant to file a lawsuit for benefits within three years of the date on which the participant was required to submit a claim for benefits to Hartford.
Ms. Heimeshoff submitted her initial claim to Hartford before the claim deadline, which was in December 2005. Hartford denied her claim on the basis that she had failed to provide satisfactory proof of loss. After the initial claim denial, Ms. Heimeshoff disputed the denial using the Plan’s claims and appeals procedures. Hartford issued a final denial on Nov. 26, 2007. In 2010, within three years after Hartford’s final denial of her claim, but more than three years after the claim deadline, Ms. Heimeshoff filed a lawsuit under ERISA for Plan benefits.
Hartford and Wal-Mart argued that Ms. Heimeshoff’s lawsuit was barred by the Plan’s limitations provision. Ms. Heimeshoff argued that the Plan’s limitations period was unenforceable and inconsistent with the general rule that statutes of limitations commence once the cause of action has accrued. She claimed that the statute of limitations should have started running on Nov. 26, 2007, when the final denial was issued.
SUPREME COURT RULING
The Supreme Court held that Ms. Heimeshoff’s claim for plan benefits was time-barred. The Court viewed the plan document as a contract between the plan sponsor and plan participants, through which the parties agreed to the three-year limitations period.
The Court held that, absent a controlling statute to the contrary, a participant and plan may agree by contract to a particular limitations period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.
The Court noted that enforcing a plan’s limitation period as written is especially appropriate for ERISA plans, given the importance of the written plan document. Employers have significant leeway in designing the terms of their benefit plans, but once an ERISA plan is established, the plan administrator must ensure that the plan is operated according to its written terms. According to the Court, ERISA’s cause of action for benefits is “likewise bound up” with the written terms of the plan.
Although the Court did not define boundaries for reasonableness, the court noted that the three-year limitations provision in the Plan was reasonable because Ms. Heimeshoff was left with almost one year to file suit after the Plan issued its final denial of her claim.
IMPACT ON PLAN SPONSORS
Plan sponsors should consider including a time limit for benefit lawsuits in their plan documents to help minimize participant lawsuits. Although the Supreme Court case involved a welfare plan, the Court’s ruling appears to also apply to other types of ERISA plans, such as 401(k) retirement plans. For insured plans, the issuer will typically impose a time limit for participant lawsuits, and this time limit should be included in the plan’s documents or insurance certificates.
Based on the Court’s ruling, a similar three-year limitations period or a limitations period that gives a participant at least one year following the plan’s final decision on the participant’s claim may be considered reasonable.
In addition, plan sponsors should communicate the plan’s limitations period to participants. The time limit should be described in the plan’s summary plan description (SPD) and, to make it more likely that a court will enforce the limit, it should also be included in the plan’s claim denial notices.