In Heimeshoff v. Hartford Life & Acc. Ins. Co., 571 U.S. __ (Dec. 16, 2013) , the Supreme Court held that a contractual limitation provision under which the clock begins to run before administrative remedies are exhausted  is enforceable under ERISA, as long as a reasonable time is left after exhaustion is expected to occur.

Julie Heimeshoff filed a claim with Hartford for benefits under a disability plan established by WalMart. The plan provided that litigation must be commenced within three years after proof of loss was due. The Court noted that, under applicable ERISA regulations, the typical ERISA claim would be fully administered in about a year, perhaps as long as 16 months. Thus, one would ordinarily expect a claimant to have 1-1/2 to 2 years to bring suit after a claim was fully administered.

When Heimeshoff’s claim was fully administered, she had about 1 year left under the limitation provision to sue. But she waited almost three years, making her suit almost 2 years late under the contractual provision. Hartford and WalMart moved to dismiss Heimeshoff’s action as untimely, and the District of Connecticut agreed, applying Second Circuit precedent enforcing an identical limitation provision. Heimeshoff appealed, and the Second Circuit affirmed on the same basis. The Supreme Court granted certiorari to  resolve a split in the circuits regarding the enforceability of a contractual limitation provision that starts to run before administrative remedies are exhausted. (The District Court and the Second Circuit also found that Heimeshoff could not establish a basis for equitable tolling of the limitation period; the Supreme Court declined to grant certiorari on that question).

The Supreme Court unanimously affirmed the dismissal of Heimeshoff’s action.

The Court began by observing that an ERISA claim “typically does not accrue until the plan issues a final denial.” Though Congress, when it specified limitation provisions in other statutes, typically started the clock running when the claim accrues, the Court stated that “we have recognized that statutes of limitation do not inexorably commence upon accrual.” Ultimately, however, the Court found that the considerations that applied to interpretation of a statute of limitations enacted by Congress do not apply where “the parties have agreed by contract to commence the limitations period at a particular time.” Instead, the Court found that the rule for interpreting contractual limitations provisions governed. That rule states:

“[I]n the absence of a controlling statute to the contrary, a provision in a contract may validly limit, between the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself shall be a reasonable period.” Order of United Commercial Travelers of America v. Wolfe, 331 U. S. 586, 608 (1947).

Heimeshoff argued that this rule applied only to the length of a limitation period, and did not permit parties to agree to begin the clock before the claim accrued. The Supreme Court rejected that argument:

The Wolfe rule necessarily allows parties to agree not only to the length of a limitations period but also to its commencement. The duration of a limitations period can be measured only by reference to its start date. Each is therefore an integral part of the limitations provision, and there is no basis for categorically preventing parties from agreeing on one aspect but not the other.

After stating that general rule, the Court observed that “[t]he principle that contractual limitations provisions ordinarily should be enforced as written is especially appropriate when enforcing an ERISA plan” given the centrality of plan language in ERISA claims. Thus, the Court held that “[w]e must give effect to the Plan’s limitations provision unless we determine either that the period is unreasonably short, or that a ‘controlling statute’ prevents the limitations provision from taking effect. Wolfe, 331 U. S., at 608. Neither condition is met here.”

The Court had little trouble rejecting any argument that the limitation provision was unreasonably short, given that administrative procedures ordinarily would be completed within about a year, “leaving the participant with two years to file suit.” The Court left open the possibility that the evaluation could change if substantially less time was expected to remain at the end of a proceeding. Specifically, after distinguishing a case in which the Court refused to enforce a 12 month limitation provision in employment cases when the EEOC took as much as 2 years to complete administrative review, the Court held: “[i]n the absence of any evidence that there are similar obstacles to bringing a timely §502(a)(1)(B) claim, we conclude that the Plan’s limitations provision is reasonable.”

Next, the Court rejected the argument that ERISA is a controlling statute that precludes enforcement of the contractual limitation. Heimeshoff and the government (as amicus) had argued that ERISA precluded enforcement of the provision because enforcing it would undermine ERISA’s two-tiered remedial scheme. But, the Court found, it was extremely unlikely that a participant would short-circuit the administrative review tier to increase the amount of post-administration time she had to commence the litigation tier. Among other things, the rules limiting the evidence in lawsuits to the administrative record and requiring arbitrary and capricious review would give participants “much to lose and little to gain by giving up the full measure of internal review in favor of marginal extra time to seek judicial review.”

The Court also rejected the argument that administrators would drag their heels in order to prevent participants from having enough time to sue. Administrators are required by regulation to meet certain deadlines, and the penalty for failing to do so “is immediate access to judicial review for the participant” under the “deemed denied” provisions in the regulations. Moreover, an intentional failure to timely administer a claim “may implicate one of the traditional defenses to a statute of limitations.”

The Court rejected the argument by the government that “even good-faith administration of internal review will significantly diminish the availability of judicial review[.]” As the Court explained, “[f]orty years of ERISA administration suggest otherwise. The limitation provision at issue is quite common[.] … But there is no significant evidence that limitations provisions like the one here have similarly thwarted judicial review.” After discussing several cases in which a claim was untimely, the Court noted that those cases involved “participants who have not diligently pursued their rights.” Thus, “[t]he evidence that this 3-year limitations provision harms diligent participants is far too insubstantial to set aside the plain terms of the contract.”

Even so, if a participant’s claim is late despite her diligence, or if an administrator improperly frustrated her ability to timely sue, then the doctrines of waiver, estoppel or equitable tolling can salvage the claim.

The Court also  rejected Heimeshoff’s argument (made for the first time in the Supreme Court) that the limitation provision should be automatically tolled until administrative remedies are exhausted. The Court held that this argument “reconstitutes the contractual revision we declined to make. As we explained, the parties’ agreement should be enforced unless the limitations period is unreasonably short or foreclosed by ERISA. The limitations period here is neither.” The Court also ruled that it is irrelevant whether state law would toll the limitation period during the exhaustion process, because of the existence of a contractual limitation provision: “where there is no need to borrow a state statute of limitations there is no need to borrow concomitant state tolling rules.”