Both the United States Court of Appeals for the Sixth Circuit and the Supreme Court of the United States have recently ruled that ERISA does not bar a plan from imposing a contractual statute of limitations on benefit claims.
In the Sixth Circuit case1, an insurance company terminated the plaintiff's long-term disability benefits when he failed to complete mandatory vocational rehabilitation for his knee injury. When the plaintiff, relying on Indiana's statute of limitations for breach of contract, sued the insurance company three and a half years after it denied his appeal, the company cited the plan's three-year statute of limitations. The Sixth Circuit held that while the absence of an ERISA-imposed claims filing period usually means that state statutes of limitations should be relied upon, it is only appropriate to do so when the claim is not otherwise time-barred by the parties' reasonable contractual agreement. The Sixth Circuit concluded that the plan's three-year statute of limitations was a reasonable contractual agreement.
The Supreme Court recently upheld a plan-imposed three-year statute of limitations in another case.2 The unanimous Court stressed the importance of honoring the explicit terms of the plan document as written, unless its terms proved unreasonable or another "controlling statute" applied. Finding the three-year statute of limitation reasonable and ERISA's provisions inapplicable or otherwise unaffected, the Court affirmed the enforceability of the plan's limitation provision. Unfortunately, the Supreme Court declined to define how short a reasonable statute of limitations may be.
In the wake of these decisions, employers should consider amending their benefit plans to impose a contractual statute of limitations. Any such contractual statute of limitations should be disclosed in summary plan descriptions and any other materials that discuss claims and appeals procedures.