The U.S. Supreme Court recently returned to ERISA Plan Administrators some needed control over lawsuits seeking benefits under the plans they administer. In Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S. Ct. 604 (2013), the Court unanimously held that an ERISA Administrator retains the necessary discretion to establish a “contractual statute of limitations,” shorter than the one defined by state law for contract actions, and define the deadline by which participants must bring a lawsuit for plan benefits. The only caveat is that the truncated limitations period must be “reasonable.” Heimeshoff therefore gives Plan Administrators added certainty and re-demonstrates the Court’s reverence for ERISA plan terms as written. Heimeshoff thus underscores the paramount importance of drafting unambiguous plan terms.
ERISA allows plan participants to bring suit to “recover benefits due” them under the language of their plans. But before a court can consider any such lawsuit on the merits, plan participants must first “exhaust” the plan’s internal claims process by availing themselves of all available internal appeals. Congress, however, did not dictate a deadline by which a lawsuit seeking plan benefits must be brought. So, if the plan does not establish its own limitations period, courts use the forum state’s statute of limitations for breach of contract lawsuits and conclude that the limitations period begins running from the date of the final internal denial.
Before Heimeshoff, courts were divided over whether they could enforce a plan term establishing a “contractual statute of limitations.” Some appellate courts refused to do so, while others readily enforced “reasonable” limitations periods set forth unambiguously in the plan’s terms. In Heimeshoff, the Court resolved this split by resoundingly endorsing the enforceability of such “contractual” provisions. Accordingly, ERISA Administrators may now define both (1) how long the limitations period will be; and (2) when the limitations period will begin running. Plans no longer are tethered to the forum state’s statute of limitations for contract actions or ERISA’s default rule that the limitations period begins running only upon the final denial.
In Heimeshoff, the plan at issue provided that a benefits lawsuit must be brought “within three years after ‘proof of loss’ is due.” The plaintiff, however, did not file a lawsuit seeking denied plan benefits until five years after a “proof of loss” was due under the terms of the plan. The Court noted that Administrators and employers have “large leeway to design” plans “as they see fit.” It also noted that strictly enforcing a plan’s terms furthers a “system that is not so complex” that excessive administrative and litigation costs completely discourage employers from offering ERISA plans. The Court, therefore, unanimously held that the plan’s three-year contractual limitations period was enforceable because it was “reasonable” (and even intimated that a shorter one-year period would have been “reasonable” as well). Accordingly, the plaintiff’s lawsuit was dismissed as time-barred.
The federal courts have readily embraced Heimeshoff and its holding is winding its way through the lower courts. For example, relying on Heimeshoff, federal district courts in California and Missouri recently dismissed as time-barred benefits lawsuits brought more than two years after final internal appeals were denied because the plans provided that suit must be brought within two years after final denial. Similarly, a federal district court in Massachusetts dismissed as time-barred a large benefits lawsuit seeking recovery on 54 separate benefits claims in light of a plan provision like the one in Heimeshoff.
Now that all courts must honor a plan’s reasonable “contractual statute of limitations” for benefits lawsuits, Plan Administrators would be wise to ensure that their plans include such a provision as a measure to limit the plan’s liability for stale claims. Indeed, inclusion of a limitations provision may increase the odds of obtaining early dismissal of stagnant benefits claims and curtailing the expenses of protracted litigation. The alternative is that, absent such a provision, any lawsuit for plan benefits will be governed by the forum state’s contract statute of limitations — periods that are often lengthy (for example, Ohio’s and Michigan’s contract statutes of limitation are eight and six years, respectively). Accordingly, Plan Administrators and employers undoubtedly will benefit from drafting their own reasonable, shorter plan statutes of limitation.