The United States Supreme Court upheld provisions for a 3-year limitations period for suing a disability plan for benefits that were set by the plan (Heimeshoff v. Hartford Life & Accident Insurance Co.). Many ERISA plans have such provisions. All ERISA plans should be reviewed and should consider a reasonable contractual limitations period.
Because ERISA does not specify a statute of limitations, courts have generally looked to state statutes of limitation to determine how long a person has to bring suit for employee benefits on a timely basis. Many ERISA plans provide for a specific period, apart from any state statute of limitations, by which the participant must sue. As long as the period is reasonable, the Supreme Court now says it is enforceable, absent a controlling statute to the contrary.
Under state statutes of limitations, a plan participant must exhaust the plan's claims procedures. The period to file a lawsuit begins when the final decision is made under the claims procedures.
A plan's contractual period during which a lawsuit must be filed can begin before the final decision under the plan's internal claims procedures. In Heimeshoff, the period began at "the time proof of loss" was due and ended 3 years later. This occurred before the final denial under the claims procedures. The Supreme Court said: "…a participant and a plan may agree by contract to a particular limitations period, even one that starts to run before the cause of action accrues, as long as the period is reasonable."
In reviewing the contractual limitation periods for ERISA plans, consider the following:
- Is it clear when a contractual limitation period begins? Ends?
- Is the provision in the plan document or insurance policy or only in the summary plan description (SPD)? Arguably, the "contract" is the plan and/or insurance policy but the SPD informs participants of material terms of the plan. It may be prudent to have the provision in both the plan and the SPD.
- Is the limitation period reasonable? Is there a reasonable time between the expected end of the administrative claims procedure and the end of the limitations period?
- Are the contractual limitations periods consistent among ERISA plans or is there a reason for differing periods?
- Is any contractual limitation period clearly and effectively communicated to participants? Start with good SPD language.
Examination of the status of current ERISA plans and consideration of contractual limitations periods is a good way to start the new year.