The Supreme Court's decision in Heimeshoff v. Hartford Life & Accident Insurance Co. is good news for plan sponsors and administrators. The Court held that an ERISA plan can establish a contractual limitations period that applies to lawsuits seeking plan benefits that is shorter than the statute of limitations (as long as the contractual limitations period is not "unreasonably short"), and that the plan's contractual limitations period can begin running before the participant has exhausted his or her administrative remedies.
The Heimeshoff Decision
Heimeshoff involved a claim for benefits under Walmart's long-term disability (LTD) plan. The plan stated that legal action could not be taken more than three years after the date written proof of loss was due under the terms of the policy. Ms. Heimeshoff filed suit within three years after the final denial of her claim for benefits, but more than three years after the proof of loss deadline. Her complaint was dismissed as untimely by the district court. The Second Circuit affirmed, and the Supreme Court granted certiorari to resolve a split in the circuits regarding contractual limitations provisions.
The Supreme Court's decision answered two questions that are important when designing and administering ERISA plans.
- Are contractual limitations periods permissible in ERISA plans?
Yes, at least when it comes to benefit claims. The Court held that it is permissible for a plan to have a contractual limitations period that is shorter than the statute of limitations that would otherwise apply to the participant's lawsuit. ERISA does not specify a statute of limitations for benefit claims, and courts therefore look to the most analogous state statute of limitations by default. Nothing prevents the parties from overriding that default rule by contract.
- Can the plan's contractual limitations period begin running before the participant could file a lawsuit?
Yes. The contractual limitations period in Heimeshoff began running when "proof of loss" was due, which is an insurance term that essentially means the date by which the initial claim for benefits must be filed. The participant argued that, under well-established ERISA case law, she could not have filed a lawsuit at that time, because she was required to first exhaust her administrative remedies. She argued that the limitations period therefore could not begin running until her appeal had been denied. The DOL filed an amicus brief supporting that argument.
The Supreme Court disagreed. Inherent in the power to establish a contractual limitations period is the power to set the date when it commences, as "[t]he duration of a limitations period can be measured only by reference to its start date." The only requirement is that the overall limitations period be reasonable.
The Court then went on to hold that the three-year period in the Walmart plan was reasonable. The Court noted that given the timing rules in the DOL's claims regulations, a typical LTD claim will be resolved within one year of the date the initial claim is submitted, which leaves the LTD claimant two years to file suit. The Court also noted that in those extraordinary situations where the administrative process drags on so long that the participant does not have a reasonable period to bring suit, the district courts "are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed," such as equitable tolling, waiver or estoppel.
Significantly, the Court declined to adopt a blanket rule that contractual limitations periods should always be tolled while a claim is in the administrative process. The Court noted that doing so would essentially rewrite the terms of the plan, which courts should be reluctant to do because the written plan "is at the center of ERISA," and the DOL's detailed claims regulations do not require tolling of the limitations period during internal review.
Best Practices After Heimeshoff
Almost all ERISA plans should specify a contractual limitations period for bringing a lawsuit. The most analogous state statute of limitations for benefit claims varies widely from state to state (for example, two years in Minnesota and 10 years in Illinois), and the adoption of a contractual limitations period provides a uniform rule applicable to all participants. The longer the participant is allowed to wait to file suit, the harder it will be to marshal the evidence, as memories fade, benefits staff turns over, and relevant documents are filed away or destroyed.
The contractual limitations period should be in both the summary plan description and the plan document. The contractual limitations period should be in the summary plan description (SPD) because that is the document provided to participants. Courts are reluctant to enforce deadlines that have not been communicated to participants. It should be in the underlying plan document because, after the Supreme Court's decision in Cigna v. Amara, it is clear that the plan is the operative legal document.
A claimant who is running up against a contractual limitations period could ask the plan or claims administrator to enter into a tolling agreement extending the deadline. One of the first things a plaintiff's lawyer does when taking a case is determine the applicable limitations period. If a contractual limitations period is about to expire, a claimant might request a tolling agreement. If the request for a tolling agreement is ignored or denied, the plan or claims administrator should be aware of the possibility that the claimant might file a protective lawsuit.
Keep in mind that the DOL may propose regulations tolling a contractual limitations period while the claim goes through the administrative process. The Heimeshoff decision was based in part on the fact that the DOL's claims regulations do not toll the limitations period while a claim is pending. The DOL sided with the claimant in Heimeshoff and may propose new regulations to rectify that problem.