Opinion analysis: ERISA limitations periods are enforceable
on Dec 16, 2013 at 2:43 pm
This morning the Court, in a unanimous opinion by Justice Thomas, affirmed the court of appeals in Heimeshoff v. Hartford Life & Accident Insurance Co., holding that when a plan under the Employee Retirement Income Security Act of 1974 (ERISA) specifies a limitations period, that period – including the date it begins to run – is enforceable unless it is “unreasonably short.” Because the period in this case (three years from the date proof of loss was due) was not shown to be unreasonably short, the Court held that it was enforceable.
To recap: ERISA regulates certain employee benefit plans, including disability benefits. Under ERISA, beneficiaries file claims to receive their benefits. Plan administrators must adopt internal claim review procedures, and internal appeals processes as well, to administer those claims. If a plan beneficiary is dissatisfied with the results of that internal process, then the beneficiary can sue the provider under ERISA Section 502(a)(1)(B) to recover the benefits due. But before the beneficiary sues, she has to exhaust the internal process. And she has to file suit within the applicable limitations period – a period that is not set forth in the statute, but instead typically specified in the plan documents themselves.
Petitioner Julie Heimeshoff,the beneficiary of an ERISA disability benefits plan, became ill and had to stop working. Respondent Hartford Life & Accident Insurance Co. (Hartford) administered her plan. The plan stated that any suit had to be filed within three years from the date that “proof of loss” was due. Although there is a dispute in this case about exactly when proof of loss was due, it is typically due close to the start of the internal claims process. Thus, close to the time that Heimeshoff submitted her claim (in August 2005), the statute of limitations started to run.
In Heimeshoff’s case, due to an extended back and forth between Hartford and her, the internal process took longer than usual. Hartford finally denied her claim in November 2007. So under the plan terms, she might have had approximately one year to sue. But Heimeshoff waited until November 2010 to sue. The lower courts held that her suit was time-barred, and today the Court agreed.
The Court explained that although a statute of limitations typically begins to run when a cause of action accrues (which in this case did not occur until Heimeshoff exhausted the claims process), that is only a default rule, which can be modified by contract. Under the Court’s precedents, parties generally can contract for a shorter limitations period, provided both that the period is not unreasonably short and that a controlling statute does not require a contrary result. The Court reasoned that because parties can agree to the length of the limitations period, it naturally follows that they can also agree as to the date when the limitations period starts to run. It stated that this rule is “especially appropriate when enforcing an ERISA plan,” because plan documents are the “linchpin” of the ERISA scheme; indeed, the beneficiary’s rights flow from those very documents.
Having determined that contractual statutes of limitations generally should be enforceable, the Court went on to ask whether the period in this case was unreasonably short, or whether the ERISA statute itself prohibited the parties from adopting it. It concluded that the answer to both questions was “no.”
The period was not unreasonably short because, in the ordinary case, the internal process would be resolved within a year, leaving the parties with two years to sue. Heimeshoff had conceded at oral argument that a one-year period would be sufficient to sue, and so the Court reasoned that even if the review process ran unusually long, the period in Heimeshoff’s plan would still afford sufficient time. The Court also noted that there was no evidence that claimants generally were having a hard time filing suit within applicable plan limitations periods.
The Court also determined that the plan’s limitations period was not contrary to ERISA itself. Heimeshoff, supported by the United States, had argued that by allowing the statute of limitations to run during the internal review process, the plan encouraged beneficiaries to retain counsel early, or to attempt to short-circuit the internal process in order to ensure that they made it to court before the statute of limitations elapsed. On the flip side, Heimeshoff argued, plan administrators have an incentive to prolong the internal process before denying a claim, thus making it more difficult for beneficiaries to sue.
The Court found these arguments unpersuasive, deeming the premise “that participants will sacrifice the benefits of internal review to preserve additional time for filing suit” to be “highly dubious” in light of the benefits of internal review, and also recognizing that the evidence has not borne out the claim that plan administrators are using the internal process to thwart judicial review. Specifically, the Court concluded that if a beneficiary found her lawsuit time-barred, it was likely because the beneficiary had not been diligent. And in an exceptional case, traditional equitable doctrines like tolling would permit the beneficiary to circumvent the statute of limitations.
The Court also rejected Heimeshoff’s argument that the statute of limitations should have been tolled in this case. It first rejected her contention that the statute of limitations should always be tolled during the internal limitations period, deeming that approach to be inconsistent with the terms of the contract. It also rejected her argument that courts should look to state law to determine when the limitations period accrues, again citing the language of the parties’ agreement.
In our argument analysis, we speculated that the Justices did not seem terribly concerned that the enforcement of ERISA limitations periods poses a serious obstacle to beneficiaries getting their day in court. Today’s result verifies that assessment. Running through the Court’s opinion is a clear sense that Heimeshoff could have sued earlier, and indeed that any ERISA beneficiary who truly deserves to be in court has ample time to file a lawsuit, or ample ability to make the case for equitable tolling. It’s also not surprising that the Court’s decision is unanimous. After a tepid oral argument, it was not clear which way the case would go, but it seemed unlikely that the decision would provoke a passionate dissent.
For practitioners and Court-watchers, an interesting take-home point is that the Chief Justice’s questions at oral argument may not reliably signal how he will vote. At argument, the Chief Justice was perhaps the only member of the Court who clearly signaled a strong view on the case, and he appeared to favor Heimeshoff. But today he quietly joined Justice Thomas’s majority opinion rejecting her claim.