Must denial letters inform the claimant, seeking ERISA-governed benefits, about the contractual limitations provision?

A recent court trend, like with the First, Third and Sixth Circuits, requires denial letters to inform the claimant of the Plan’s contractual limitations provision. See, e.g., Santana- Díaz v. Metropolitan Life Insurance Co., No. 15-1273, 1st Cir. (March 14, 2016) (“Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit.”)

Other courts have rejected arguments that ERISA regulations impose an affirmative duty to include the length of the limitation period for filing suit in claim denial letters. Scharff v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899 (9th Cir. 2009); Wilson v. The Standard Ins. Co., No. 11- 2703, 2014 U.S. Dist. LEXIS 12111 (N.D. Al., Jan. 31, 2014); (holding that a claim-denial letter complied with the regulation despite omitting the civil action limitations period); Koblentz v. UPS Flexible Emp. Benefits Plan, No. 12-CV-0107-LAB, 2013 WL 4525432, at *4 & n.5 (S.D. Cal. Aug. 23, 2013) (same).

The evolving “best practice”: add information regarding the contractual limitations period in the denial letter.

And…here is some good news: sometimes you can use the contractual limitations defense even if the contractual limitations period was not disclosed in the denial letter.

Here’s the case of Upadhyay v. Aetna Life Insurance Company, __Fed. Appx. __ (9th Cir. March 23, 2016).

FACTS: Upadhyay sought ERISA-governed disability benefits. The Plan stated: “No legal action can be brought to recover any benefit after 3 years from the deadline for filing claims.” Upadhyay was required to file her claim for benefits by July 1, 2007, making the date by which to file a lawsuit at July 1, 2010. But she did not file her lawsuit until March 4, 2013.

Aetna denied the claim, but the denial letter failed to inform Upadhyay of the Plan’s contractual limitations period for filing suit.

9th Circuit Court of Appeals HELD: Summary Judgment for Aetna Affirmed.

  1. “[P]arties may ‘agree[] by contract to commence the limitations period at a particular time.’” Op. at 3.
  2. Aetna did not waive its contractual limitations defense despite failing to inform Upadhyay, in its denial letters, of the Plan’s contractual limitations period for filing a lawsuit under ERISA.” Op. at 2.
  3. “Under California law, an insurance company cannot waive a contractual limitations provision defense when the limitations period has already run.” Op. at 2-3 (Emph. added).
  4. “Even if Aetna could waive the contractual limitations period, Upadhyay [failed to show] ‘an element of detrimental reliance or some misconduct’ on the part of Aetna.” Op. at 2-3.
  5. Aetna’s contractual limitations defense was not “an impermissible attempt to circumvent California’s notice-prejudice rule.” Op. at 4.