In a unanimous opinion delivered by Justice Clarence Thomas, the U.S. Supreme Court recently addressed whether a three-year contractual limitations period, which ran from “the time written proof of loss is required to be furnished,” was enforceable. In Heimeshoff v. Hartford Life & Accident Insurance Co., the Court held that, absent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limitations period – even one that starts to run before the cause of action accrues – as long as the period is reasonable. This decision resolves a split among the U.S. Circuit Courts of Appeals on the enforceability of this common contractual limitations provision.
On Aug. 22, 2005, petitioner Julie Heimeshoff, an employee of Wal-Mart, filed a claim for long-term disability benefits with respondent Hartford Life & Accident Insurance Co., the administrator of Wal-Mart’s group long-term disability plan. In December 2005, Hartford denied the claim on the grounds Heimeshoff had not provided satisfactory proof of loss. Additional medical evidence was provided to Hartford and the claim was again denied in November 2006. Heimeshoff requested and received an extension to file an administrative appeal. On Sept. 26, 2007, Heimeshoff submitted an appeal, which was denied Nov. 26, 2007. On Nov. 18, 2010, Heimeshoff sued Hartford seeking review pursuant to ERISA of her denied claim. Hartford moved to dismiss on the grounds Heimeshoff’s claim was time-barred. The U.S. District Court granted the motion to dismiss and the Court of Appeals for the Second Circuit affirmed.
The group long-term disability plan at issue provided that “[l]egal action cannot be taken against Hartford . . . [more than] 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.” The plan further provided that written proof of loss is required “90 days after the start of the period for which [Hartford] owes payment.” Heimeshoff argued that, because the contractual limitations period began to run before her cause of action accrued – i.e., proof of loss was due before her administrative remedies were exhausted – the contractual limitations period was not enforceable.
On Dec. 16, 2013, the Court disagreed. Consistent with the well-settled rule that parties to a contract can agree to a limitations period, the Court noted that parties also may agree to the commencement of a limitations period. Thus, the Court held that the limitations provision in the plan must be given effect unless prohibited by statute or unless the limitations period is unreasonable. The Court explained that most claims are resolved within one year and that, even if the administrative process takes an unusually long time, such as two years, a claimant would still have one year to file suit.
Heimeshoff argued that even if a three-year limitations period is reasonable, it is prohibited by ERISA because the limitations provision would “undermine ERISA’s two-tiered remedial scheme,” the first being the internal review process and the second being judicial review. Heimeshoff contended that plan participants will “shortchange” their rights during the internal review process to have more time to file suit.
The Court disagreed for two reasons. First, plan participants have an incentive not to shortchange the internal review process since that is where evidence is developed and judicial review is usually limited to the administrative record. Second, participants are unlikely to value judicial review over the internal review process since many plans, including the plan at issue, vest administrators with discretion over benefit determinations and courts ordinarily review such determinations only for abuse of discretion.
Heimeshoff also argued that administrators may, in bad faith, attempt to delay resolution of claims in an effort to prevent judicial review. The Court found that this argument lacked merit because ERISA requires administrators to take prompt action and, if they do not, participants can immediately file suit. Moreover, even if an administrator causes a participant to miss the deadline for filing suit, the doctrines of waiver or estoppel “may prevent the administrator from invoking the limitations provision as a defense.” Similarly, if a participant diligently pursued internal and judicial review but was prevented from timely filing suit due to extraordinary circumstances, the doctrine of equitable tolling may apply.
The Court rejected Heimeshoff’s contention that the limitations period should be tolled as a matter of course during internal review, reiterating that this would effectively rewrite the contractual limitations period. Moreover, ERISA regulations require tolling during internal review only when a plan offers voluntary internal appeals beyond what is permitted by regulation, a “limited tolling requirement” that would be superfluous if the regulations contemplated tolling throughout the process. 29 C.F.R. §2560.503-1(c)(3)(ii).
The Court also disagreed that state law should toll the limitations period, holding there is no basis to borrow state law tolling rules where the parties had contractually agreed to a limitations period and therefore had not borrowed a state statute of limitations period.
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