ERISA Plan’s Three-Year Limit On Filing Suit Is Enforceable Despite Its Start Before Exhaustion Of Internal Review Process

An ERISA plan’s three-year limitations period for judicial review of an adverse benefit determination is enforceable, the Supreme Court has ruled unanimously. The long-term disability plan’s limitations provision, which required that any lawsuit to recover benefits pursuant to the judicial review provision in ERISA Sec. 502(a)(1)(B) be filed within three years after “proof of loss” was due, was reasonable. In addition, there is no controlling statute that prevents the provision from taking effect. As such, the Court affirmed the Second Circuit’s decision that a plan participant’s claim for benefits was untimely because she filed her action outside the policy-prescribed, three-year statute-of-limitations period. The case is Heimeshoff v. Hartford Life & Accident Insurance Co. (No. 12-729).

Background. On Aug. 22, 2005, Julie Heimeshoff, a senior public relations manager for Wal-Mart Stores, filed a claim for long-term disability benefits with Hartford Life and Accident Company, the administrator of Wal-Mart’s Group Long Term Disability Plan (Plan). In December 2005, Hartford denied the claim for failure to provide satisfactory proof of loss. After Heimeshoff exhausted the mandatory administrative review process, Hartford issued its final denial on Nov. 26, 2007.

On Nov. 18, 2010, almost three years later (but more than three years after proof of loss was due), Heimeshoff filed suit in district court seeking review of her denied claim. Hartford and Wal-Mart moved to dismiss on the ground that her complaint was barred by the Plan’s limitations provision, which stated, “Legal action cannot be taken against The Hartford . . . [more than] three years after the time written proof of loss is required to be furnished according to the terms of the policy.” The district court granted the motion to dismiss. On appeal, the Second Circuit affirmed, finding that because the policy language unambiguously provided that the three-year limitations period ran from the time that proof of loss was due under the plan, and because Heimeshoff filed her claim more than three years after that date, her action was time barred.

Contractual limitations. The Court found that a contractual limitations period is enforceable and must be given effect as long the period is reasonable and there is no “controlling statute” that prevents the period from taking effect. The principle that contractual limitations provisions should ordinarily be enforced as written is especially appropriate in the context of an ERISA plan because ERISA authorizes a participant to bring suit “to enforce his rights under the terms of the plan.” Parties can agree to both the length of a limitations period and to its commencement.

ERISA Sec. 502(a)(1)(B) does not specify a statute of limitations. Here the parties agreed by contract to a three-year limitations period, and Heimeshoff did not claim that the period was unreasonably short on its face. Although the administrative review process in this case required more time than usual, Heimeshoff was left with approximately one year in which to file suit. “We cannot fault a limitations provision that would leave the same amount of time in a case with an unusually long internal review process while providing for a significantly longer period in most cases,” the Court wrote.

ERISA’s two-tiered remedial scheme. Heimeshoff contended that even if the Plan’s limitations provision was reasonable, ERISA is a “controlling statute to the contrary.” She argued that the limitations provision would undermine ERISA’s two-tiered remedial scheme. The first tier is the internal review process required for all ERISA disability benefit plans. Upon exhaustion of the internal review process, the participant is entitled to proceed to the second tier, judicial review.

The Court rejected arguments that plan participants would shortchange their own rights during the internal review process in order to have more time in which to seek judicial review. Participants who fail to develop evidence during internal review risk forfeiting the use of that evidence in district court. In addition, participants are not likely to value judicial review of plan determinations over internal review. “In short, participants have much to lose and little to gain by giving up the full measure of internal review in favor of marginal extra time to seek judicial review.”

The Court also rejected arguments that judicial review would be endangered by allowing plans to set limitations periods that begin to run before internal review is complete. The limitations provision at issue is common, and 40 years of ERISA administration suggests that the good-faith administration of internal review will not diminish the availability of judicial review.