The United States Supreme Court recently held in Julie Heimeshoff v. Hartford Life & Accident Insurance Co. that a long-term disability plan may enforce a provision that requires a participant to bring suit within three years after the due date for proof of disability, despite the fact that a participant has to first exhaust his or her administrative remedies during that three-year period.        

Under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), a participant must exhaust a plan’s internal review procedure before commencing a claim for judicial review. Although ERISA does not provide a statute of limitations for non-fiduciary claims, courts generally apply the state statute of limitations that is most analogous to the plaintiff’s claim.  Some long-term disability plans, however, provide a limitations period that begins to run from the time that proof of loss is due.  In such a case, because proof of loss is due before a participant can exhaust the internal review process, the limitations period begins to run before the cause of action accrues.  Therefore, the time period during which a participant may seek judicial review is shortened.  Prior to the Heimeshoff decision, the Courts of Appeals were split as to whether such a contractual statute of limitations was enforceable.

Petitioner Julie Heimeshoff stopped working for Wal-Mart Stores, Inc. on June 8, 2005, after being diagnosed with lupus and fibromyalgia.  On August 22, 2005, Heimeshoff filed a long-term disability claim with Hartford Life & Accident Insurance Co. (“Hartford”), the administrator of Wal-Mart’s Group Long Term Disability Plan (the “Plan”).  Hartford denied the claim for failure to provide satisfactory proof of loss, but gave Heimeshoff the opportunity to reopen her claim, without an appeal, if she produced certain information from her physician.  

In October 2006, Heimeshoff submitted additional medical evidence to support her disability claim.  Hartford denied her claim after its own physician concluded that Heimshoff was able to work.  On September 26, 2007, Heimeshoff filed a timely appeal of Hartford’s benefit claim denial.  Hartford denied her appeal on November 26, 2007.

On November 18, 2010 (more than three years after the proof of loss was due), Heimeshoff filed suit in federal court for review of her denied benefit claim.  Hartford moved to dismiss, claiming that Heimeshoff’s complaint was time barred by the Plan’s three-year statute of limitations, which begins to run on the date that proof of loss was due.  The District Court agreed with Hartford and dismissed the claim.  The Second Circuit affirmed the lower court’s ruling.  Heimeshoff appealed the decision to the Supreme Court.

Heimeshoff argued that the limitations period violates the general rule that a statute of limitations commences upon accrual of the cause of action.  The Court, however, found for Hartford, holding that unless the statute of limitations period is unreasonably short, or a controlling statute prevents the provision from taking effect, the Plan’s limitation provision is lawful.  The Court noted that even though the internal review process was longer than usual in this case, Heimeshoff had approximately one year after her administrative exhaustion to file suit.  Heimeshoff did not dispute that a one year period to seek judicial review is reasonable.  The Court noted that there is no basis for preventing parties from contractually agreeing to the length of a limitations period and its commencement date. 

The Court rejected Heimeshoff’s argument that participants likely will shortchange the internal review process mandated by ERISA to have more time to file suit.  The Court reasoned that because the courts generally limit the record for judicial review to the administrative record, and because courts give discretion to the plan administrator’s claim determination, it would not benefit a participant to shorten the internal review process.

This opinion reaffirms that employers have a large amount of discretion in designing disability and other welfare plans.  Adding a statute of limitations provision to your plans may help to manage the litigation process.  However, such limitations periods must be reasonable and must not run afoul of a controlling statute.