In a highly anticipated decision, a unanimous United States Supreme Court held that insureds with employer-sponsored plans are contractually bound by the limitations periods set forth in their plan documents.  These limitations periods, which specify when insureds must file any legal actions under the Employee Retirement Income Security Act of 1974 (“ERISA”), are enforceable so long as they are not unreasonably short.  The Court held in Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-mart Stores, Inc., __ U.S. __ , 2013 U.S. LEXIS 9026 (Dec. 16, 2013), that the Plan’s contractual limitations period governs when a participant/beneficiary may file a legal action.  The Court concluded that the Plan’s contractual statute of limitations period was enforceable and that the time spent in the administrative claims process did not toll the running of the statute.

Heimeshoff involved plaintiff Julie Heimeshoff (“Heimeshoff”), a Senior Public Relations Manager for Wal-Mart, who sought long-term disability benefits from her employer-sponsored plan issued by Respondent Hartford Life & Accident Insurance Co (“Hartford”) to Wal-Mart employees.  The Plan imposed a three-year statute of limitations from the date proof of claim is due for legal action brought against the Plan, which commenced on the date proof of loss was to be submitted.  Hartford required Heimeshoff’s proof of loss by December 2005, but she failed to submit the requisite documents and Hartford denied her claim.  Hartford issued its second denial in November 2006, and denied her final appeal in November 2007.  Heimeshoff brought suit to recover her benefits in November 2010 within three years after the final denial, but almost six years after the proof of loss was due.  The district court dismissed her suit, finding the Plan terms explicitly prohibited legal action beyond the three-year limitations period.  The Second Circuit Court of Appeals affirmed.

The Supreme Court granted certiorari to determine whether the Plan’s limitations provision, which began before the administrative review process ended, was enforceable.  Prior to Heimeshoff, the majority rule, including in the Ninth Circuit, was the statute of limitations begins to run when the cause of action “accrues,” which was typically when the appeal was denied.  In ERISA actions, a claimant cannot file suit until he or she has exhausted the plan’s internal administrative process.  While ERISA imposes requirements on plans to respond and decide claims within certain periods of time, practical obstacles, such as difficulties obtaining medical information or proof of loss, can delay this process.

Heimeshoff first argued that the Plan’s limitations provision would undermine the internal review process because participants will sacrifice the benefits of internal review to preserve time for filing suit.  However, the Court rejected this contention because participants failing to develop evidence during the first review run the risk of forfeiting use of that evidence at trial.  Secondly, the Court believed participants are unlikely to prioritize judicial review over internal review.

Next, Heimeshoff contended that permitting plans to initiate limitations periods prior to completion of the review process endangers judicial review.  However, the Court noted ERISA regulations require administrators to act in good faith and take prompt action in their internal reviews.  If administrators fall short, the participant can directly seek judicial review.  Furthermore, if administrators unreasonably delay, participants can raise equitable defenses to the statute of limitations.  In addition, the United States argued, as amicus curiae, that if the limitations provision is enforced, good faith administration will also diminish the availability of judicial review.  The Court disagreed, stating the three-year limitation provision is required by most states and no significant evidence showed the provision impedes judicial review.  Importantly, the Supreme Court reassured claimants that lower courts can apply waiver, estoppel or equitable relief if claimants are stalled in the internal review process.  The Court explained:

Moreover, even in the rare cases where internal review prevents participants from bringing §502(a)(1)(B) actions within the contractual period, courts are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed. If the administrator’s conduct causes a participant to miss the deadline for judicial review, waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense. See, e.g., Thompson v. Phenix Ins. Co., 136 U. S. 287, 298–299 (1890); LaMantia v. Voluntary Plan Adm’rs, Inc., 401 F.3d 1114, 1119 (CA9 2005).  To the extent the participant has diligently pursued both internal review and judicial review but was prevented from filing suit by extraordinary circumstances, equitable tolling may apply.  Irwin v. Department of Veterans Affairs, 498 U. S. 89, 95 (1990) (limitations defenses “in lawsuits between private litigants are customarily subject to ‘equitable tolling’”).

The Court quickly addressed two additional arguments.  First, it rejected Heimeshoff’s argument that the limitations period should be tolled during internal review, stating this constituted contract revision.  Next, the Court rebuffed Heimeshoff’s argument that state law should toll the limitations period during the internal process.   In doing so, the Court explained the parties clearly “agreed” [this is a misnomer as ERISA plans are classic contracts of adhesion] to a limitations period and did not seek to borrow the State’s limitations period.  Ultimately, the Court ruled that Plan’s limitations provision controlled the question of when a claimant could pursue litigation.

Certainly, the Court’s decision favors insurance companies and other plan/claim fiduciaries who have the ability to delay processing claims.  However, ERISA imposes strict timelines on actions by insurance companies and other plan/claim fiduciaries and as a result, these rules will serve to mitigate the potentially harsh consequences of this decision.  Furthermore, the Court clearly limited its holding to limitations provisions which are reasonable.

The best part of this decision for plan participants and beneficiaries who typically have life, health and disability insurance claims, as discussed above, the Court explicitly reserved for their use traditional equitable remedies including equitable tolling, waiver and estoppel to ensure Heimeshoff does not cause harsh results when the actions of insurance companies and other plan/claim fiduciaries cause delays or their actions otherwise result in unfairness to plan participants.  As long as claimants and their attorneys act promptly to hold insurance companies and other plan/claim fiduciaries accountable to the timelines applicable to the claim review process and/or if they otherwise act diligently, Heimeshoff will not act as a bar to their litigation.  Indeed, administrators are required by ERISA regulations governing the internal review process to take prompt action, and the penalty for failure to meet those deadlines is immediate access to judicial review for plan participants.  See 29 CFR §2560.503–1(l).