Introduction

On July 9, 2009, the Second Circuit affirmed the U.S. District Court for the Southern District of New York's dismissal of the plaintiff's complaints in Burke v. PricewaterhouseCoopers LLP, et al. In Burke, the plaintiff, Patricia Burke, brought a claim to recover benefits under the PricewaterhouseCoopers LLP Long Term Disability Plan (the "Plan") against both the Plan and the Hartford Life and Accident Insurance Company (the "Plan Administrator"), challenging the termination of her long-term disability benefits. In dismissing Ms. Burke's suit as barred by the applicable statute of limitations, the Second Circuit joined the Fifth, Sixth, Seventh and Eighth Circuits in enforcing the provisions of an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") that prescribed a limitations period that began to run before the date on which Burke was permitted under ERISA to file suit in federal court.1

Background

Patricia Burke, a former Pricewaterhousecoopers employee, applied for long-term disability benefits on September 17, 2002, after exhausting her short-term disability benefits due to knee surgery. Her long-term disability benefits commenced after her short-term disability benefits expired on October 20, 2002. On March 28, 2003, however, the Plan Administrator requested "Proof of Loss" from Ms. Burke, including a medical evaluation to be completed by her doctor, to be submitted within thirty days of its request. Although Ms. Burke's doctor submitted the evaluation to the Plan Administrator within the required time period, the Plan Administrator requested that further information be provided by May 5, 2003, given the contradictory statements in the evaluation in which Ms. Burke's doctor had simultaneously found that she was permanently disabled but could work eight hours per day. Having not received a response to its request for additional information by May 12, 2003, the Plan Administrator notified Ms. Burke that her long-term disability benefits had been terminated, due to the contradictory medical evaluation and the lack of followup response. Ms. Burke's appeal of the termination was denied by the Plan Administrator on October 1, 2003.

Ms. Burke filed a suit in federal court on September 25, 2006, challenging the termination of her long-term disability benefits and alleging a cause of action to recover benefits under Section 502(a)(1)(B) of ERISA. The U.S. District Court for the Southern District of New York dismissed Ms. Burke's claim, stating that it was barred by the terms of the Plan, which prohibited a claimant from bringing legal action more than "three years after the time written Proof of Loss is required to be furnished."2 Ms. Burke appealed, on the basis that the Plan's limitations period could not begin to run before she was able to file her ERISA Section 502 claim for benefits in federal court. On appeal, the Second Circuit reviewed the district court's decision de novo, as the sole question on appeal was a question of law.

Analysis of the Second Circuit Decision

Applicable Statute of Limitations

The Second Circuit found that the central issues in Burke were (i) whether the Plan's expressly-provided three-year statute of limitations was applicable, (ii) whether to apply the Plan's expressly-provided time for when that limitations period would begin to run, and (iii) whether, as a result, Ms. Burke's ERISA Section 502 claim was untimely, as the district court had previously held. The Second Circuit referenced its earlier decision, in Miles v. N.Y. State Teamsters Conference Pension & Ret.Fund Employee Pension Benefit Plan, in which it had stated that because ERISA does not prescribe a statute of limitations period for ERISA Section 502 claims for benefits, the most analogous state statute of limitations should be used to determine whether a claim is timely brought, which in New York, means that a six-year limitations period should be used. In addition, the Court noted that New York state contract law permits contracting parties to shorten that limitations period, where the agreement is memorialized in writing.3 Neither Ms. Burke nor the Plan or the Plan Administrator disputed that the Plan's terms provided for a three-year statute of limitations.

Commencement Date of the Limitations Period

The Second Circuit then noted that district courts in the Second Circuit generally use one of two methods to determine when a Section 502 claim begins to accrue, where the policy contract contains an explicit limitations provision: the accrual date is either (i) when the participant's benefits are initially denied, or (ii) when administrative remedies have been exhausted. Under the first method, Ms. Burke's claim would not have been timely; under the second method, her claim would have been timely. However, the Second Circuit, like the district court, found it unnecessary to determine which of the two general methods should apply to Ms. Burke's claim, because the terms of the Plan specifically provided the time at which the limitations period on legal actions would begin to run, by prohibiting a participant from bringing legal action more than "three years after the time written Proof of Loss is required to be furnished." The Second Circuit was thus instead tasked to determine whether the Plan provision, which specified the time upon which the prescribed limitations period would begin to run, could alter the Second Circuit's general rule that the limitations period begins to run when the participant's Section 502 claim accrues.

The Second Circuit noted that under New York state law, the Plan was allowed to affirmatively provide the circumstances on which the claimant's applicable limitations period would begin to accrue,4 even though that claimant's ERISA Section 502 claim for benefits would not be allowed to be brought under ERISA until the claimant's administrative remedies were exhausted. The Second Circuit noted, in referencing U.S. Supreme Court case Reiter v. Cooper, that as a result of these two overlapping laws, it was "theoretically possible" for a claimant's statute of limitations period to begin to run before the claimant would be able to file suit in federal court, thereby shortening the effective limitations period.5

The Second Circuit then contrasted the holding in the district court's decision in Burke to that of the same district court's earlier holding in Mitchell v. Shearson Lehman Bros., in which the district court found that an ERISA Section 502 claim for benefits accrued when the claimant has exhausted his or her administrative remedies under the plan, in spite of a plan provision identical to the Plan provision in Burke that specifically provided for the limitations period to begin sooner.6 There, the Second Circuit noted that the district court was "motivated by fairness concerns, noting that if a limitations period began before a plaintiff had exhausted administrative remedies through the plan, which consequently would prevent her from bringing an action in court, the 'result would be unfair because a plaintiff would be deprived of the full benefit of the limitations period.'" More importantly, at the time the Mitchell case was decided, neither ERISA nor the regulations thereunder addressed the amount of time a plan administrator could take to review the plaintiff's claim; therefore, the district court in Mitchell worried that an "insurer [could] simply bury a denial of coverage and wait for the statute of limitations to run" if the participant's ERISA claim accrued prior to the exhaustion of his administrative remedies under the plan. In Burke, however, the Second Circuit agreed with the district court's reasoning that because, after the Mitchell decision, the U.S. Department of Labor (the "DOL") issued regulations applicable to benefit claims made under ERISA plans that included deadlines for plan administrators to complete the benefit claims process in a timely manner, the concerns voiced by the district court in Mitchell were no longer relevant.7 Further, the Second Circuit, relying on the district court's decision, reasoned that because, under the new DOL regulations the administrative appeals process would take at most a little more than a year from the initial receipt of the participant's claim (including all available extensions), the claimant "would still have nearly two years to bring legal action under the [p]lan's [three-year] limitations provision;" and thus the scenario raised by the district court in Mitchell as the main rationale for its decision, that the administrator might simply stall the administrative review process until after the statute of limitations had run, was no longer possible.

Finally, the Second Circuit noted that its prior decisions required the court to apply rules of contract law to ERISA plans, and that as a result, the court could not "rewrite, under the guise of interpretation, a term of the contract when the term is clear and unambiguous," such as the Plan term at issue in the Burke case.8 The Second Circuit thus held that the Plan provision, which shortened the applicable limitations period from six years to three years, and which expressly prescribed that such period would begin to run as of the time written Proof of Loss was required to be furnished, should be used to determine whether Ms. Burke's ERISA claim for benefits was timely. Because the Plan provision required that Ms. Burke file her claim by April 27, 2006, and she did not do so until September 25, 2006, her filing was untimely, and the Second Circuit accordingly affirmed the district court's decision to dismiss Ms. Burke's claim.

Recent Application of the Burke Decision

The Second Circuit's decision in Burke has since been applied by the U.S. District Court for the Northern District of New York in Salerno v. Prudential Ins. Co. of America, where the claimant, Donald Salerno, filed an ERISA Section 502 claim for benefits against Prudential Insurance Company challenging the denial of long-term disability benefits under the plan offered by his employer, Prudential Securities.9 The Prudential long-term disability plan document contained nearly identical language to that in Burke, stating that "no [action at law or in equity] shall be brought more than three years after the end of the time within which proof of loss is required." There, the district court, relying on the Second Circuit's decision in Burke, dismissed Mr. Salerno's claim as untimely. The district court held that "where a benefits plan provides a limitations period shorter than six years, the contractual period governs…moreover…courts must adhere to the accrual date as set forth in an ERISA plan, even if the limitations period begins to run before an individual can bring a legal action."

Conclusion

As a result of the Second Circuit's holding in Burke, plan sponsors of plans governed by the laws of states within the Second Circuit, specifically the laws of New York, Connecticut or Vermont, that wish to implement a limitations period shorter than that under applicable state law may now do so.10

In light of the court's rationale in Burke, however, plan sponsors should ensure that the limitations period they choose is longer than the period of time needed to exhaust administrative remedies available to claimants under the Plan document and the DOL's regulations, and that it expressly prescribes a starting date on which the limitations period will begin to run, so that both the plan administrator and any potential claimants can easily anticipate the time period in which suits can be brought under the Plan's terms. Further, plan sponsors should notify participants and beneficiaries of the shorter limitations period by ensuring that the plan document, the summary plan description, and any communications regarding claims procedures are amended to clearly state the shorter limitations period. White & Case would be happy to help you design a limitations period that is consistent with the holding in Burke, and accordingly amend your plan documents.