Managing Claims for ERISA Benefits

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Very few areas involve more tax rules and more controversies (with many more opponents than just the Internal Revenue Service) than the area of employee benefits.  You may know this better as the realm of ERISA and ERISA plans.  Occasionally, I will be contributing posts to this blog from the perspective of controversies, tax and otherwise, involving ERISA matters.  This is my first.

There are a variety of ways that an ERISA plan can end up in court.  ERISA provides three basic jurisdictional paths to the courthouse, the most commonly used of which is a suit by a participant or beneficiary for benefits payable by an ERISA-covered benefit plan under section 502(a)(1)(B) of ERISA, 29 USC section 1132(a)(1)(B).  The jurisprudence governing suits of this nature is long and surprisingly complex, and it will provide grist for this blog on multiple occasions in the future.

The U.S. Supreme Court recently addressed a recurring problem area in the jurisprudence under section 502(a)(1)(B) of ERISA in a 9-0 opinion released on December 16, 2013.  In that opinion, the Court determined that a statute of limitations written into a plan document can be enforceable.   Heimeshoff v. Hartford Life & Accident Insurance Co.,  571 U.S. ___ , 2013 WL 6569594 (S. Ct. Dec. 16, 2013).

Julie Heimeshoff was covered under a long term disability plan  insured by Hartford and sponsored by Wal-Mart Stores, Inc.  On August 22, 2005, she filed a claim for LTD benefits under the plan.  For a lot of valid reasons, the final denial of her benefits was not issued until November 26, 2007.  Ms. Heimeshoff then filed suit for the unpaid benefits on November 18, 2010, almost three years to the day after the final denial was issued.  Experienced lawyers among you would look at a claim first asserted in 2005 and at a suit filed on that claim more than 5 years later and think, there has to be a statute of limitations defense in these facts.  You would be correct, but not as clearly as you might suspect.

ERISA has a statute of limitations provision for some lawsuits, but has no stated statute of limitations for actions brought under section 502(a)(1)(B) of ERISA.  The courts have developed a process for providing a statute of limitations for these suits to fill this statutory void.  Like many of its counterparts, the Wal-Mart LTD plan also had reacted to the void by creating its own statute of limitations for these suits.  It contained a provision that stated:  “Legal actions cannot be taken against The Hartford … [more than] 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.”  Ms. Heimeshoff’s lawsuit was filed more than three years after proof of loss was required, but within three years (barely) after the date of the last denial in the plan’s internal administrative review process under section 503 of ERISA.  The question answered by the U. S. Supreme Court was whether after considering these plan terms, Ms. Heimeshoff’s suit was filed too late.  The answer was, yes, it was filed too late.  This three year statute of limitations (that accrued on the date written proof of loss was required) was enforceable so long as the length of the limitations period was “reasonable” and there was no controlling statute to the contrary.

Here are some potentially intriguing action items for consideration:

(1) Seriously consider reviewing any of your existing ERISA plan terms that create a contractual statute of limitations for claims under section 502(a)(1)(B) of ERISA for that statute’s compliance with the requirements of Heimeshoff.  Be sure that during your review, you are differentiating between the plan’s deadline for initially filing a claim for benefits under the plan and the plan’s deadline for filing a lawsuit to attempt to recover unpaid, denied benefits. Only the latter has been affected by Heimeshoff.   Your plan’s new statute may overlap with the period of time needed to exhaust the plan’s administrative remedies under section 503 of ERISA, but it must leave time afterwards for filing suit, so integrate your plan’s new statute of limitations carefully with its internal administrative review procedures and time frames.  The fact that three years was a reasonable length for the statute does not mean that three years or fewer will always be reasonable or that longer than three years will always be unreasonable.  The fact that 9 Justices agreed that three years was reasonable in these circumstances provides no small amount of comfort that three years ought to be reasonable again.

(2)  In cases where it does not already exist in your ERISA plans, seriously consider adding a plan-based statute of limitations for suits brought under section 502(a)(1)(B) of ERISA to seek benefits under your ERISA plan.  In doing so, be careful to select an accrual date trigger (a start date) that will yield consistent results in a variety of circumstances, is as objective and easily discernable by a participant and court as possible and will be viewed by a disinterested trier of fact as being a reasonable way to begin the statute’s running.  For some insured plans, the trigger accrual date used in Heimeshoff – the “time written proof of loss is required” – will work for some insured plans, but not in all such plans, and it is more troublesome as an accrual date for an ERISA plan that is not funded with insurance.

(3)  Heimeshoff said that if the results from applying a plan’s statute of limitations were viewed as too harsh, equitable principles could be used to mitigate the impact.  Not too long ago, the U.S. Supreme Court said in U.S. Airways v. McCutchen that ERISA plans could by their terms limit the application of equitable principles to the plan.  Should your ERISA plan take up the invitations of Heimeshoff and McCutchen and revise its plan terms accordingly?

(4) Consider whether Heimeshoff can be extended to allow your ERISA plan to add and enforce a statute of limitations for suits brought under section 502(a)(3) of ERISA.