The Employee Retirement Income Security Act of 1974 (ERISA) does not contain a statute of limitations provision, and courts generally apply the most analogous state law statutory limitation. However, some plans fill the void with contractual limitations. In 2013, the U.S. Supreme Court held, in Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S.Ct. 604 (2013), that reasonable contractual limitations periods in ERISA-governed plans are valid and enforceable. Since Heimeshoff, numerous courts have addressed residual issues, such as what event will trigger a contractual limitations period or in the absence of a contractual limitations provision, statutory limitations. Recently, the Fourth Circuit Court of Appeals addressed both scenarios.
Bond v. Marriott International, Inc.
The Deferred Stock Incentive Plan at issue in Bond v. Marriott International, Inc., No. 15-1160, 2016 U.S. App. LEXIS 1499 (4th Cir. Jan. 29, 2016), was established in 1970, and its vesting schedule and “bad boy” clauses violated the later-enacted ERISA statute. Noting, however, that top-hat plans are exempt from ERISA, Marriott determined that its plan qualified for the exemption, and in 1978 Marriott issued a prospectus that was filed with the Securities and Exchange Commission and distributed to its plan participants, advising all that the plan “is deemed a ‘select plan’ and thus is exempt from the participation and vesting, funding and fiduciary responsibility provisions [in ERISA].” Marriott took the same position when it issued updated prospectuses in 1980, 1986 and 1991. Plan participants, Dennis Bond, who resigned his position in 1991, and Michael Steigman, whose employment was terminated in the same year, received their vested shares under the terms of the written plan.
On January 19, 2010, the plaintiffs filed suit and argued that the plan’s vesting requirements violated ERISA. They asserted a claim for equitable relief in the form of reformation and demanded an order requiring the plan to pay to them additional benefits. The district court agreed with Marriott that the plan was an ERISA-exempt top-hat plan and granted summary judgment to Marriott on that basis; however, earlier in the litigation the district court rejected Marriott’s claim that the lawsuit was time-barred. When the plaintiffs appealed the top-hat plan decision, Marriott cross-appealed and argued that the lawsuit should have been dismissed as untimely. The Fourth Circuit agreed with Marriott and affirmed the judgment in Marriott’s favor without ever addressing the merits of the case.
Because ERISA does not contain a statute of limitations provision, there was no dispute in Bond that the claim was governed by Maryland’s three-year breach of contract statute of limitations. According to the Fourth Circuit, the only question was “when the statute begins to run,” which is a “matter of federal law.” Id. at 12. The common rule, which was applied by the district court, is the “formal denial” rule that is “generally applied in ERISA cases” and delays the trigger for the applicable statute of limitations until after a claim is formally denied. Id. at 12. However, in some cases, that rule is “impractical.” Id. at 12 (citing Cotter v. E. Conference of Teamsters Ret. Plan, 898 F.2d 424 (4th Cir. 1990)). In cases such as Bond, where Marriott calculated and paid the plaintiffs their vested shares and there was no “formal denial,” the Fourth Circuit held that the “clear repudiation” rule should have been applied. Under that rule, “a formal denial is not required if there has already been a repudiation of the benefits by the fiduciary which was clear and made known to the beneficiary.” Id. at 13 (internal citations omitted).
When Marriott, in 1978 and again in 1980, 1986 and 1991, issued the prospectuses that “plainly state[d] that the Retirement Awards did not need to comply with ERISA’s vesting requirements” because it was a “top hat plan ‘exempt from the participation and vesting, funding and fiduciary responsibility provisions’ of ERISA,” it clearly repudiated any claim to the contrary. The plaintiffs waited more than 30 years to file suit, and the delay was fatal to their claim.
Hyatt v. Prudential Ins. Co. of America
Under a separate and distinguishable set of facts, the Fourth Circuit adopted the district court’s application of the “formal denial” rule after the plan in Hyatt v. Prudential Ins. Co. of America denied the claimant’s short-term disability claim and she failed to file suit within the three-year statute of limitations period. See Hyatt, No. 14-0035, 2014 U.S. Dist. LEXIS 155739 (W.D.N.C. Oct. 31, 2014), affirmed No. 14-2305, 2016 U.S. App. LEXIS 2676 (4th Cir. Feb. 17, 2016). However, the Court also tackled the issue of contractual limitations periods relative to the plaintiff’s claim for long-term disability benefits under a policy that contained a three-year contractual limitations provision.
The plan at issue in Hyatt allowed a claimant to file a legal action “up to 3 years from the time proof of claim is required.” Id. at 3.The plan required submission of written proof of a claim within 90 days of the end of the elimination period (i.e., in the plaintiff’s case, by December 11, 2010). Only when it was not possible to submit proof within that 90-day period, the plan allowed proof to be submitted within one year of the deadline. The claimant, however, did not require the extension, and she submitted her proof of loss within the initial 90-day period. Regardless, she attempted to rely on the one-year extension provision to extend the contractual limitations period that governed her lawsuit for an additional year.
The Fourth Circuit rejected the plaintiff’s claim and instead determined that the “additional 1 year provision of the LTD plan did not apply to her since it was possible for her to provide proof of her claim within 90 days.” Id. at 6. Accordingly, “the three year contractual limitations period applicable to the Plaintiff’s filing suit for LTD benefits under ERISA commenced to run at the end of that 90 days” (i.e., on December 11, 2013). The plaintiff’s lawsuit was not filed until February 11, 2014, and she was “barred by the contractual limitations period from claiming LTD benefits in this case.” Id. at 6.
Whether by applying the “formal denial” or the “clear repudiation” rules when analyzing statutory limitation claims or by holding a participant’s feet to the fire when considering a violation of a reasonable contractual limitations period, the court’s intent – to avoid the pitfalls of an untimely claim – appears clear. As stated in Bond, by applying the “clear repudiation” rule, the court achieves “the goals of the statute of limitations, to ‘promote justice by preventing surprises through the revival of claims that have been allowed to slumber until the evidence has been lost, memories have faded, and witnesses have disappeared,’ and to encourage ‘rapid resolution of disputes.’” Id. at 13–14 (internal citations omitted). “These goals ‘are served when the accrual date anchors the limitations period to a plaintiff’s reasonable discovery of actionable harm.’” Id. at 14 (internal citation omitted).