Recently, the Ninth Circuit Court of Appeals ruled that an ERISA administrator must make a “clear and continuing repudiation” of a claim, in compliance with its duties of proper notification under ERISA, in order for a claim to “accrue” and thus start the statute of limitations clock on filing a lawsuit.  In Withrow v. Basch Halsey Stuart Shield, Inc. Salary Protection Plan, __ F.3d. __ (9th Cir. 2011), the United States Court of Appeals for the Ninth Circuit  held that a telephone call and resulting voicemail message made by the administrator, which was otherwise undocumented, did not constitute proper notice to a claimant that a benefits decision constituted an irrevocable and final determination.  The court explained that such a notification was deficient, and therefore cannot serve as the basis for an argument that a complaint was untimely filed.

As presented by the Ninth Circuit, the facts of Valerie Withrow’s lawsuit are fairly straightforward.  In 1979, Withrow began working at Bache Halsey.  In December 1996, after periodically missing work due to a variety of disabling conditions, Withrow became permanently disabled and began receiving benefits from Reliance Standard Life Insurance Company (“Reliance Standard”), the claims administrator for the Bache Halsey disability insurance plan offered to employees.  In 1987, Withrow (who continues, to this day, to receive disability benefits) contacted Reliance Standard and asserted that she should be receiving $5,000 per month, the maximum allowed under the plan, rather than the $3,950 she was receiving.  At that time, Reliance Standard attempted to explain to Withrow how her benefits were calculated and why $3,950 was the proper monthly benefit amount.  In 1990, Withrow again contacted Reliance Standard to discuss her monthly benefit amount, but was again advised, via a message left on her answering machine, that the determination of her monthly benefit amount was correct.

For 12 years, there was no communication between Reliance Standard and Withrow, other than Withrow’s monthly receipt of her disability check.  Then, in 2002, Withrow contacted a benefits manager at Bache Halsey (which by then had changed its name to Prudential Securities) to discuss her concerns that she was being underpaid.  After a series of communications with Prudential Securities and Reliance Standard, including a formal denial of Withrow’s claim and her subsequent appeal, in January 2004, Reliance Standard left a message for Withrow’s attorney indicating that Reliance Standard was upholding its decision that $3,950 was the proper monthly benefit amount.

In 2006, Withrow initiated a lawsuit against the Plan, however the District Court granted the Plan’s   motion to dismiss based upon a statute of limitations defense.  The Ninth Circuit began its analysis by indicating that there were two issues presented by the appeal:

There are two parts to the determination of whether a claimant’s ERISA action is timely filed: we must determine first whether the action is barred by the applicable statute of limitations, and second whether the action is contractually barred by the limitations provision in the policy.  See Wetzel v. Lou Ehlers Cadillac Group Long Term Disability Ins. Program, 222 F.3d 643 (9th Cir. 2000) (en banc).

First, citing to Wetzel, the Ninth Circuit explained that “district court must apply the state statute of limitations that is most analogous to an ERISA benefits recovery program,” and that in this ERISA case “California’s four-year statute of limitations for contract disputes applies.”  Next, the Ninth Circuit explained that federal law governs when an ERISA cause of action accrues and triggers the start of the four-year clock.  Under Wetzel, an ERISA cause of action accrues “either at the time benefits are actually denied, or when the insured has reason to know the claim as been denied.”  Citing Wise v. Verizon Communications, Inc., 600 F.3d 1180, 1188 (9th Cir. 2010), the Ninth Circuit explained that the phrase “reason to know” means when the plan communicates a “clear and continuing repudiation of a claimant’s rights under a plan such that the claimant could not have reasonably believe but that his or her benefits had been finally denied.”

After finding that Withrow’s claim was “actually denied” in 2004 when her attorney was informed that Reliance Standard was standing by its original determination, the Court turned to when Withrow had a “reason to know” her claim was denied.  While Reliance Standard argued, and the District Court agreed, that Withrow had a reason to know that her claim was denied in 1990, the Ninth Circuit disagreed.  Specifically, the Ninth Circuit found that the events of 1990 were unclear, and Reliance Standard’s records failed to provide clear evidence of who made the call in 1990, what exactly was said and whether Withrow was provided with guidance as to how to submit her claim for review.  Thus, there was insufficient evidence to support Reliance Standard’s position that it communicated a “clear and continuing repudiation” of Withrow’s claim.  Accordingly, Withrow’s claim did not accrue in 1990, and her lawsuit was timely filed.

Finally, the Court turned to the issue of whether Withrow’s claim was time-barred by the plan’s internal statute of limitations period.  The plan required that legal actions must be initiated with three years of “the time written proof of loss is required.”  After holding that “contract limitation provisions in benefit policies still have force independent of ERISA in long-term disability cases,” the Ninth Circuit held that such provisions are “meaningless as applied to disputes over the proper calculation of the amount of monthly benefits, as opposed to disputes over whether the applicant is entitled to benefits at all.”

With this opinion, the Ninth Circuit is again informing ERISA administrators that, when informing a claimant that a claim for benefits is being denied, that message must be presented in such a manner that there can be no question that the decision is final and binding.  If the administrator fails to meet this standard, it will be barred from relying on the applicable statute of limitations as a defense to any lawsuit.