I have been blogging about ERISA basic principles and respect for boundaries, and just got a little help from the U.S. Supreme Court. In Heimeshoff v. Hartford Life Accident Insurance Comany, a unanimous decision, the Court upheld the three-year statute of limitations set forth in the terms of the ERISA benefit plan document. The Court held that while a cause of action does not commence until the plan issues a final denial in the claims appeal process, the plan and its participants can agree to commence the limitation period before that time (here, at the proof of loss due date).
The Plan Is at the Center of ERISA
In resolving the circuit split, the Court explained that under U.S. Supreme Court authority (Order of Unite Commercial Travelers of America v. Wolfe), a limitations period is enforceable provided it is of reasonable length and there is no controlling statute to the contrary. This approach necessarily allows the parties to agree to the length of a limitation, and its commencement.
Citing CIGNA Corp. v. Amara, the Court found this agreement approach particularly well-suited in the context of ERISA claims, given the “particular importance of enforcing plan terms as written in §502(a)(1)(B) claims.” The Court explained, “The plan, in short, is at the center of ERISA,” citing US Airways, Inc. v. McCutchen. Citing Curtiss-Wright Corp. v. Schoonejongen, the Court further explained that because the rights and duties are built around reliance on the face of written plan documents, the Court would not presume from statutory silence that Congress intended a different approach here. The Court further reminded us, “This focus on the written terms of the plan is the linchpin of a ‘system that is [not] so complex that administrative costs, or litigation expenses, unduly discourage employers from offering [ERISA] plans in the first place,’” citing Varity Corp. v. Howe, emphasis added. In other words, the United States (Department of Labor, et al.) as amicus curiae got it backwards with their argument that ERISA, not the plan, controls, and that the plan terms violated ERISA’s structure.
This makes me feel so much better about the fact that the U.S. Supreme Court decided on Friday to review Dudenhoeffer v. Fifth Third Bancorp. In that case, the United States has made virtually the same argument, regarding plan provisions requiring investment primarily in employer securities that purportedly violate ERISA structure. Keep in mind, the Court knew on Friday that it was about to announce this unanimous decision. We can hope the Court decides this argument is backwards, too. But I digress.
In finding the provision reasonable, the Court observed that the vast majority of states require certain insurance policies to include three-year limitation periods that run from the date proof of loss is due. But the Court also rejected arguments about applying state law regarding statutes limitations, because the plan terms controlled.
Participant Diligence and Protecting Participants From Their Own Mistakes
The plaintiff and the United States had argued that because the claimant was required to exhaust the administrative process before filing suit, allowing the limitation period to run during the administrative process was unreasonable because this could bar claimants from judicial review. The United States further argued that this threatened the “ERISA remedial scheme” because even good-faith administration would diminish the availability of judicial review. The Court dismissed this is as a non-issue: “Forty years of ERISA administration suggests otherwise.” Indeed, even in this case where the review period was longer than usual, the plaintiff had a year to file suit after the final decision in the administrative process. But she waited until almost three years after the final denial to finally file her complaint.
Reviewing the handful of cases cited by the plaintiff, the Court concluded, “Those cases suggest that this barrier falls on participants who have not diligently pursued their rights.” This brings up an interesting ERISA principle. We hear so much about ERISA fiduciary responsibilities and due diligence, but participants have diligence responsibilities, too. The United States’ argument may have prevailed if the limitation period was only one year and ran concurrent with the administrative process. But the Court demonstrated that the ERISA remedial scheme is effectively structured to allow a participant to exhaust the administrative process, and to file a complaint, within three years.
Participants (and beneficiaries) sometimes make sloppy, tardy, or incomplete appeals. As the Court explained, claimants who fail to submit evidence forfeit the use of that evidence, because courts review benefits denials based on the administrative record. We sometimes advise a fiduciary to give a claimant additional time to perfect an appeal, or another chance to prove he/she is correct – because maybe they are! In fact, in this case, the claimant asked for more time to provide additional evidence, and the administrator gave it to her. Not only was the grant of extra time not harmful to the participant, but it was granted in her best interests, and still gave her time to file suit.
Best Interests of All Participants and Beneficiaries Includes Cost Control Mechanisms
Participant diligence is important for another reason. The fiduciary is required to operate the plan in the best interests of the participants and beneficiaries, but the interests of one participant can be adverse to the other participants. Here, the participant could have filed suit within a year after the denial, but instead waited three years to file, dragging the plan all the way to the U.S. Supreme Court on the issue of whether she was tardy. Someone has to pay the legal fees for those choices, just like someone has to pay for the surprising punitive penalty in Rochow v. Life Insurance Company of America. This takes us back to the Court’s concern that the system is not so complex that “administrative costs, or litigation expenses, unduly discourage employers from offering [ERISA] plans in the first place.” By placing boundaries on the appeal and litigation process, ERISA and the plan terms can control the extent to which one participant’s choices can drive up costs for all the other participants.
ERISA plan sponsors, plan administrators and plan participants and beneficiaries have been given an early holiday gift: a reasonable, three-year benefit claim statute of limitations. I am tempted to call it a safe harbor, but since it was opposed by the United States, I will stick with calling it a boundary. Plan sponsors, give consideration to amending your benefit plan documents to implement a benefit claim statute of limitations provisions similar to the one in Heimeshoff v. Hartford Life Accident Insurance Company. If you have an existing provision that is structure differently or has a shorter time period, talk to your employee benefits attorney about whether it would likely pass muster under the rationale set forth in Heimeshoff.
Plan administrators, make sure your documentation is consistent with the plan document, so we do not have to litigate those CIGNA Corp. v. Amara questions about 502(a)(3) equitable relief when a plan administrator contravenes plan terms.
Plan participants and beneficiaries, know your rights and your responsibilities, and be grateful for a boundary that keep your plans’ costs in control, and your premiums down.