Supreme Court Upholds Reasonable Contractual Limitations Period in ERISA Plan

HIGHLIGHTS:

• The U.S. Supreme Court has ruled unanimously that certain statute of limitations provisions in employer-sponsored benefit plans are enforceable, even when they begin to run before the plan's administrative process has been exhausted.
• Although Heimeshoff can be considered favorable to employers, there are several reasons for companies to review their plan documents in light of the decision.

In Heimeshoff v. Hartford Life & Accident Insurance Co., et al., No. 12-729, the U.S. Supreme Court has resolved a long-standing conflict among appellate courts, holding that claim for benefits statute of limitations provisions in employer-sponsored benefit plans that are reasonable and not contrary to law are enforceable, even when they begin to run prior to the exhaustion of the administrative process under the plan.

Although the Court’s unanimous ruling can be seen as favorable to sponsors and administrators of ERISA-covered plans, there are several steps employers should consider taking to protect their interests going forward.

Background

Julie Heimeshoff submitted a claim for benefits under the ERISA-covered long-term disability plan sponsored by her employer, Wal-Mart. The plan's underlying insurance policy, issued by the Hartford, required claimants to provide proof of loss within a predetermined deadline. Ms. Heimeshoff failed to provide proof of loss prior to the applicable December 8, 2005 deadline and the plan denied her claim. Ms. Heimeshoff later informally appealed the denial and on November 25, 2007, the plan issued a final denial of her claim on appeal. On November 18, 2010, Ms. Heimeshoff filed suit challenging the denial of benefits.

The plan's insurance policy provided that a suit challenging the denial of a claim must be filed in court within three years of the date proof of loss is due. The defendants moved to dismiss the case on the grounds that it was time-barred, since Ms. Heimeshoff did not file her complaint within three years from the December 8, 2005 date on which proof of loss was due. Ms. Heimeshoff argued that the three-year limitations period should run instead from November 25, 2007, the date on which the plan issued its final denial.

The U.S. District Court for the District of Connecticut and the U.S. Court of Appeals for the Second Circuit held that the limitations period began to run from the date proof of loss was due, as required by the plan.  

The Supreme Court Ruling

In the Supreme Court, Ms. Heimeshoff argued that the limitations period cannot begin to run from a date that is prior to the date on which the claim for benefits accrues, since doing so could potentially cause the limitations period to expire prior to the date on which the claimant is entitled to file a complaint in court. Of course, the hypothetical scenario argued by Ms. Heimeshoff did not apply to her case, since she still had approximately one year to file suit after the plan administrator issued the final denial of her claim.  

The Court disagreed with Ms. Heimeshoff's argument, holding that it “...must give effect to the plan’s limitations provision unless we determine either that the period is unreasonably short, or that a 'controlling statute' prevents that limitations provision from taking effect.” The Court found that neither of those conditions existed with respect to Ms. Heimeshoff's case, since the controlling statute does not contain a limitations provision applicable to claims for benefits and the three-year limitations period in the plan was not unreasonable.

In its opinion (authored by Justice Thomas), the Court restated several concepts that are beneficial to plan sponsors and plan administrators, including that plan provisions should generally be enforced as written; that the decisions of plan administrators are ordinarily reviewed under the abuse of discretion standard; and that the record for judicial review of benefit denials is the administrative record that was presented before the plan, and participants who fail to develop evidence during the plan's internal review process risk forfeiting the use of such evidence in court.

Practical Implications

The Heimeshoff opinion presents important considerations for employers:

• While the ruling provides comfort to many employers that sponsor ERISA-covered plans containing limitations provisions that run from the date proof of loss is due, employers should review their plan documents to make sure that the contractual limitations in their plans are reasonable. Otherwise, they will not be enforceable.
• Since ERISA does not impose a statute of limitations for filing claims for benefits, employers sponsoring plans that do not include limitations provisions applicable to such claims should consider amending their plan documents to add a reasonable limitations period. Incorporating a limitations period in the terms of the plan would avoid the imposition of a borrowed state law limitations period (which in some states could be extensive) and would prevent the imposition of different limitations periods in cases where employers are sued in different jurisdictions.

Holland & Knight Partner Jerrold J. Ganzfried and Senior Counsel Ariadna Alvarez filed an amicus curiae brief on behalf of DRI-The Voice of the Defense Bar, an organization of defense attorneys and in-house counsel that supported the respondents in this case.