In an interesting opinion concerning a dispute over long-term disability (“LTD”) insurance benefits due under an ERISA plan, a District Court held that an ERISA administrator cannot rely on a contractual limitation period to defeat an insured’s claim where it failed to provide the insured with sufficient documentation and/or notice of the existence of the limitation period. The decision in Barnett v. California Edison Co. LTD Plan, U.S. Dist. LEXIS 71345 (E.D. Cal. May 20, 2013) emphasizes that administrators of ERISA-governed policies must first discharge their fiduciary duty to fully inform the insured of existing contractual limitation periods before attempting to enforce provisions to defeat a lawsuit initiated by a plan participant.
Barnett involves a Plaintiff who was an employee of Southern California Edison and a participant in Edison’s long-term disability insurance plan (“Plan”). Significantly, the Plan contained a contractual limitation period requiring that a plan participant institute legal action no later than 180 days after a final decision is rendered on his or her appeal. The Plaintiff applied for disability benefits under the Plan and was initially approved. However, Plaintiff’s LTD benefits were terminated following an independent medical examination after the examining physician opined that he was no longer disabled under the terms of the Plan. The Plaintiff appealed the decision twice, and but the administrator upheld the original denial decision both times.
The Plaintiff then filed a lawsuit against the Plan alleging three causes of action. However, the Plaintiff’s complaint was filed after the expiration of the 180-day contractual limitation period. The parties filed cross Motions for Summary Judgment. The Plaintiff sought a declaratory judgment barring the Plan from relying on the 180-day contractual limitations period. The Plan’s opposition and counter-motion argued that the Plaintiff was time barred by the contractual limitation.
The relevant portion of the policy provides:
If your appeal is denied, in whole or in part, you may bring a civil action in federal court. However, no action may be brought . . . until you have exhausted the claim and appeal procedures in this Handbook. Further, no legal action may be brought . . . more than 180 days after the final decision has been rendered . . . on the appeal of your claims for benefits under the terms of the respective plans.
The Court first focused on the issue of the Plan’s fiduciary duty toward the Plaintiff. The Court cited to 29 U.S.C. section 1004(a)(1) and found that the Plan had a fiduciary duty under ERISA to deal with plan participants “fairly and honestly.” The Court then addressed a specific request made by the Plaintiff to the Plan, following the denial of his appeal, for all documents relevant to his claim for benefits including “the plan, with all amendments and the Summary Plan Description and all amendments.”
In response to the Plaintiff’s demand, the Plan’s contract administrator, Jacobs, sent a letter to Plaintiff stating that “enclosed you will find copies of Your Benefits Handbook for the Plan, accompanying plan change notices, and the applicable LTD trust documents. There are no . . . separate documents in relation to the LTD Plan.” However, what Jacobs sent to the Plaintiff was only a thirteen-page excerpt from a much larger Plan document which did not contain the limitation period clause that was in the larger document. As such, not only did the Plan fail to provide Plaintiff with notice of the limitation period clause, but also misrepresented the terms of the Plan by stating that the excerpt constituted the entire Plan document.
The Plan raised two arguments in support of its contention that had not breached its fiduciary duty. First, it argued that the summary Jacobs provided referenced the larger Plan document and thus Plaintiff was on notice that there was a larger Plan document. The Court found this argument to be unpersuasive because, the reference to the larger document does not overcome Jacobs’ blatant misrepresentation that the summary was the complete Plan document. Second, the Plan argued that Plaintiff had access to the complete Plan because it was available online and that a summary of the Plan was distributed to all plan participants. The Court found these arguments to be equally unpersuasive because online access does not overcome Jacobs’ misrepresentation and the fact that a summary was distributed to all plan participants is irrelevant because the summary did not contain the limitation period clause.
Based on all of the above, the Court held that the Plan breached its fiduciary duty by providing the Plaintiff with a thirteen-page summary the Plan document while representing that it was the complete document. As a result, the Court enjoined the Plan from relying on the 180-day contractual limitations period.
The Court’s decision in Barnett is significant in that it increases the burden on insurers and other ERISA administrators to fully disclose and inform insureds of contractual limitation periods and other important provisions in ERISA-governed plans before relying on them to prevent insureds from pursuing and prevailing in legal actions. Moreover, the Court in Barnett emphasized that insurers cannot excuse misrepresentations made by its agents and employees with regard to the contents of a Plan document by asserting that the information is available to the insured elsewhere.