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A Pro-Insurer Decision Provides Guidance for Insureds on the Application of Estoppel and Waiver to Statute of Limitations Defenses in Disability Insurance ERISA Cases

At times, decisions that appear favorable to insurers can also have unexpectedly positive take-aways for policy holders.  Gordon v. Deloitte & Touche, __ F.3d ___, 2014 U.S. App. LEXIS 6688 (9th Cir. April 11, 2014) is just such a case.  Although, the Ninth Circuit in Gordon ruled in favor of the insurer in finding that the insured’s ERISA action was barred by the California four-year statute of limitations, the Court also reaffirmed and clarified the standards for evoking waiver and estoppel arguments to prevent insurance companies from raising a statute of limitations or contractual limitations defense.

The plaintiff in Gordon was an insured under a long-term disability plan (the “Plan”) governed by ERISA.  The plan was insured and administered by MetLife.  The insured sought disability benefits under the Plan due to depression.  After initially paying benefits to the insured, MetLife terminated benefits.  The insured subsequently filed two appeals.  In 2004, MetLife denied the insured’s second appeal, but indicated in the denial letter that she had 180 days to appeal the decision.  The insured did not file an appeal and took no action for more than four years.  Then, in 2009, after receiving a request from the California Department of Insurance to reevaluate the claim, MetLife reopened her claim.  However, MetLife upheld its original decision to terminate benefits.  MetLife’s denial letter advised the insured that she had 180 days to appeal and, that if the appeal was denied, she would have the right to bring a civil action under ERISA section 502(a).

In January 2011, the insured filed a complaint in federal district court.  The district court granted the Plan’s motion for summary judgment, finding that the insured’s action was barred by the applicable four-year statute of limitation and the Plan’s three-year contractual limitation.  The insured appealed arguing that MetLife’s limitation defense does not bar her action because:  (1) reopening the claim file reset the statute of limitation; (2) the insurer waived its limitation defense; and (3) the insurer was estopped from asserting a limitation defense.  All three arguments were ultimately rejected by the Ninth Circuit who affirmed the district court’s decision.  However, in reaching this decision, the Court provided valuable edification of the limits placed on the use of time bars as a defense to claim brought under ERISA.  As an initial matter, given the nearly seven years that had passed between the filing of the complaint and when the 180 day period to file an appeal expired, the court found that the statute of limitations had clearly ran and did not consider whether the three-year contractual limitation period applied.

The Court then addressed the insured’s argument that reconsideration of her claim in 2009 revived the statute of limitations pursuant to California law regarding creation of a new cause of action resulting from acknowledgment of debt.  However, the Court reiterated that federal law governs determination of the accrual of an ERISA action and the Court found that reopening the claim file by itself is not sufficient to revive the statute of limitations.  Next, the Court considered the insured’s estoppel argument.  Significantly, the Court definitively acknowledged that, as a general rule, an insurance carrier will be estopped from relying on a statute of limitations defense when its own prior representations or conduct have caused the plaintiff to run afoul of the statute and equity justifies holding the defendant responsible for the outcome.  However, the Court found that in this particular case, the statute of limitations had already run when MetLife informed the insured in its 2009 denial letter that she could bring an ERISA action.

Finally, the Ninth Circuit addressed for the first time in this case, whether a waiver argument can be used by insureds to prevent insurers from raising a limitation defense in ERISA cases.  Turning to California law for guidance, the Court concluded that, based on a review of California decisions, an insurance company cannot waive the statute of limitations after it has run.  Nevertheless, adopting the position taken by the Seventh Circuit, the Court found that even if waiver or estoppel were available in this case, the insured would have to show either detrimental reliance or some misconduct by the insured.  Here, the Court held the insured had simply not shown any detrimental reliance or unfair conduct by MetLife.  However, it is important to note that the Court in Gordon did not address the United States Supreme Court’s recent decision in Heimeshoff.  In that decision, which was discussed in our prior blog article, the Supreme Court explicitly reserved for their use traditional equitable remedies including equitable tolling, waiver and estoppel.  Given, the Supreme Court’s clear position on this issue, the Ninth Circuit will likely be more inclined to allow waiver arguments to be used to prevent insurers from raising a limitation defense in the future.

The Gordon decision highlights many of the potential pitfalls for insureds in dealing with navigating often complex rules regarding statute of limitations and contractual limitations.  More importantly, it reaffirmed that estoppel can still prevent insurers from raising a limitations defense.  The decision leaves open whether waiver may be used as well to prevent insurance companies from using contractual limitation periods as a defense if the insured can show detrimental reliance or self-serving misconduct by the insurer.  However, given the Supreme Court’s affirmation of the applicability of traditional equitable remedies in ERISA cases in Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-mart Stores, Inc., 134 S. Ct. 604 (Dec. 16, 2013) courts in the Ninth Circuit will likely allow insureds to use waiver and estoppel to overcome statute of limitation defenses in certain limited situations.  The Gordon decision should serve as a reminder to insureds to act immediately if their claims are denied and to contact an attorney to ensure that they do not forfeit their right to file a lawsuit.  This is especially true in dealing with disability LTD insurance, health insurance and life insurance matters.

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