October Term, 2013
December 16, 2013
Today the Supreme Court issued one decision, described below, of interest to the business community.
ERISA—Court OKs Contractual Limitations Period for Judicial Review of Adverse Benefits Determinations
Heimeshoff v. Hartford Life & Accident Insurance Co., No. 12-729 (previously discussed in the April 15, 2013, Docket Report)
A participant in an employee benefit plan covered by the Employee Retirement Income Security Act (“ERISA”) may bring a civil action under 29 U.S.C. § 502(a)(1)(B) to recover benefits under the plan. Courts generally require participants to exhaust the plan’s administrative remedies before filing suit to recover benefits. ERISA does not, however, specify a statute of limitations for filing such suits. Instead, courts allow parties to contract for a limitations period if authorized to do so under applicable state law. Today, in Heimeshoff v. Hartford Life & Accident Insurance Co., the Supreme Court clarified that, absent a controlling statute to the contrary, a reasonable limitations period in a plan is enforceable even if the period starts to run before the cause of action accrues—i.e., before the participant has exhausted all administrative remedies.
The case is significant for all ERISA plan sponsors and administrators and for all businesses that use a contractual limitations period.
The petitioner, Julie Heimeshoff, filed a benefits claim under a plan issued and administered by Hartford. Under the policy, Heimeshoff was required to submit a “proof of loss.” The policy also included a contractual limitations provision stating that “[l]egal action cannot be taken … 3 years after the time written proof of loss is required to be furnished.” After Heimeshoff submitted a proof of loss, Hartford denied her claim. In November 2010 (less than three years after the final denial, but more than three years after the proof of loss was due), Heimeshoff brought suit in federal district court to challenge the denial. The district court enforced the policy’s limitations provision and dismissed the action.
The Second Circuit affirmed. In contrast, the Fourth Circuit had held that a limitations period in an ERISA plan is per se unenforceable if it begins to run before the participant’s claim accrues.
Today, in a unanimous opinion by Justice Thomas, the Supreme Court affirmed the Second Circuit’s decision. Relying on a long line of decisions addressing contractual limitations periods in other contexts, the Court held that a contractual limitations period is enforceable as long as the period is of reasonable length and there is no controlling statute to the contrary. Slip Op. 6. The Court noted that neither party challenged the reasonableness of the plan’s 3-year limitations period. Id. at 9. In addition, the Court observed, ERISA regulations require prompt internal review of claims and often require that a final determination be made within one year. Id.
The Supreme Court also held that enforcing a limitations provision that begins to run before a claim accrues would not undermine the internal review procedure, because participants who fail to develop evidence during internal review risk forfeiting the use of that evidence in district court. Id. at 11-12. The Court also concluded that such limitations periods would not endanger judicial review, both because of the regulatory guidelines requiring prompt internal review and because of the availability of traditional judicial doctrines such as waiver or estoppel. Id. at 12-15. Finally, the Court held that state-law tolling rules did not apply because the limitations period was established by the parties’ contract rather than being borrowed from state law. Id. at 16.
Any questions about this case should be directed to Marcia Goodman (+1 312 701 7953) in our Chicago office, Maureen Gorman (+1 212 506 2679) in our New York office, or Donald Falk (+1 650 331 2030) in our Palo Alto office.
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