ERISA plan administrators must notify claimants of contractual suit-limitations periods

The administrator of a health insurance plan governed by ERISA violated its regulatory obligations by failing to include in a denial-of-benefits letter the plan’s one-year deadline for filing suit, the U.S. Court of Appeals for the Third Circuit ruled. Accordingly, the court set aside the plan’s deadline and borrowed the statute of limitations from the most analogous state-law claim, which the parties agreed was New Jersey’s six-year deadline for breach of contract actions. Because the claimant in this case had filed his complaint well before the expiration of this six-year period, his suit was not untimely.

Background. An employee who was a participant in her employer’s ERISA plan underwent an endoscopic discectomy as treatment for a herniated disc. She assigned her rights under ERISA to her surgeon, Dr. Neville M. Mirza, who then submitted a claim for $34,500 to Insurance Administrator of America, Inc., the company that processed claims under the ERISA plan. However, the administrator denied the claim. On August 12, 2010, upon exhaustion of the internal review process, the administrator sent a letter to Mirza denying his final appeal. According to the administrator, the medical procedure that Mirza had performed was not a covered benefit because it was medically investigational. Neither the letter nor any of the administrator’s previous denials mentioned that under the plan, Mirza had one year from the date of the final benefits denial to seek judicial review.

On March 8, 2012, almost 19 months after receiving the final denial letter, Mirza sued the administrator for unpaid benefits. Based on the plan’s one-year suit limitations provision, however, the district court dismissed his suit as untimely. Mirza appealed.

Suit limitations clause. The ERISA plan provided that “no legal action may be commenced or maintained to recover benefits under the Plan more than 12 months after the final review/appeal decision by the Plan Administrator has been rendered.”

Regulatory requirements. The regulations that implement ERISA provide that when a plan administrator denies a request for benefits, it must set forth “[a] description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the Act following an adverse benefit determination.”

In the court’s view, the most important word in this regulation is “including.” It modifies the word “description,” which is followed by a prepositional phrase explaining what must be described—the plan’s review procedures and applicable time limits for those procedures. If the description of the review procedures must “includ[e]” a statement concerning civil actions, then civil actions are logically one of the review procedures envisioned by the Labor Department, which issued the regulation. As with any other review procedure, the administrator must disclose the plan’s applicable time limits. Two other federal appeals courts—the First and Sixth Circuits—have addressed this issue, and both agreed with this interpretation.

The administrator’s interpretation—that notice of the right to sue is in addition to and entirely separate from the notice of the plan’s review procedures—would allow administrators to “hide the ball and obstruct access to the courts.” The plan at issue here was 91 pages, and the one-year time limit was buried on page 73. In contrast, the letter denying Mirza’s final appeal was only 5 pages, leading the court to ask: Which is a claimant more likely to read—a 91-page description of the entire plan, or a 5-page letter that just denied thousands of dollars in requested benefits? Moreover, by not creating a statute of limitations for ERISA actions, Congress, in effect, delegated that authority to plan administrators and fiduciaries to provide their own suit limitations deadlines. The Labor Department obviously thought it important to make sure that claimants were aware of any plan-imposed limitations periods that were substantially shorter than the analogous state statute of limitations. According to the court, a very simple solution is to require administrators to include that notice in the documents that claimants are most likely to read—adverse benefit determinations—and the regulation does just that.

In sum, the regulation requires that adverse benefit determinations set forth any plan-imposed time limit for filing suit. Without it, a notification is not in substantial compliance with ERISA. In this case, therefore, the administrator violated the regulation by not including in the denial letter the plan’s one-year deadline for bringing a civil action.

Remedy. The district court found that Mirza was not entitled to equitable tolling because he’d had notice of the plan’s one-year deadline. However, if administrators were allowed to respond to untimely suits by arguing that claimants were either on notice of the contractual deadline or otherwise failed to exercise reasonable diligence, administrators would have no reason at all to comply with their obligation to include contractual time limits for judicial review in benefit denial letters.

Because the denial letter did not comply with the regulatory requirements, the plan’s one-year deadline for judicial review was not triggered. Instead, the appeals court borrowed New Jersey’s six-year deadline for breach of contract actions. Because Mirza filed his complaint well before that time period expired, his suit should not have been dismissed as untimely. Accordingly, the district court’s order was vacated, and the case was remanded for further proceedings.

SOURCE: Mirza v. Insurance Administrator of America, Inc., (CA-3), No. 13-3535, August 26, 2015.

Visit our News Library to read more news stories.