ERISA claim practitioners generally have the concept of exhaustion of administrative remedies engrained in our thought process. They know well that claimants are required to exhaust their administrative remedies before they can sue over a benefit determination. Given the focus on this exhaustion requirement, it may surprise some to know that, in many circuits, the statute of limitations clock can begin to run well before administrative remedies are exhausted.
We start with the fact that ERISA does not prescribe a limitations period for actions to recover benefits payable under a plan. Therefore, courts will apply the limitations period specified in the most analogous limitations statute for the state in which the action is brought. See Burke v. PriceWaterHouseCoopers LLP Long Term Disability Plan, 572 F.3d 76, 78 (2d Cir. 2009). Typically, this is the limitations period for breach of contract.
Most states permit parties to a contract (and specifically to an insurance policy) to shorten the limitations period. When it comes to disability insurance policies, most states have statutes requiring insurers to include in their policies a provision that legal actions cannot be brought after the expiration of three years after the time written proof of loss is required to be furnished. Wetzel v. Lou Ehlers Cadillac Group Long Term Disability Ins. Program, 222 F.3d 643, 647 (9th Cir. 2000) (Forty-two states, Puerto Rico and the Virgin Islands all have statutes requiring identical or virtually identical language in certain insurance contracts). Adding in the time permitted to file proof of loss (usually 90 days after the expiration of the elimination period, which could be anywhere from 90 to 180 days after the onset of disability), and these statutes typically would require litigation to be brought less than four years from the date of disability.
As discussed above, courts generally require claimants to exhaust administrative remedies before they can sue. Exhaustion of remedies requires filing proof of loss, complying with requests for information, obtaining a benefit determination, then administratively appealing and getting a benefit determination on review. So, the question arises, does the limitation clock start running when proof of loss is due, or when administrative remedies are exhausted? (There is also the question whether the clock starts running on the initial benefit denial, but we will not address that here).
Five circuits (2d, 6th, 7th, 8th and 10th) have held that the contractual limitations provision is enforceable, meaning that the limitations clock starts running when proof of loss is due, as long as the contractual limitations period is enforceable under the law of the state where the action is pending. Burke v. Pricewaterhouse-Coopers LLP Long Term Disability Plan (We join the Fifth, Sixth, Seventh, and Eighth Circuits in upholding written plan terms including limitations periods which may begin to run before a claimant can bring legal action); Rice v. Jefferson Pilot Fin. Ins. Co., 578 F.3d 450, 456 (6th Cir. 2009) (“Because the parties have not provided any reason to ignore the plain language of the contract, and because we cannot find one, we hold that the clear repudiation rule does not apply and that the language of the contract governs”); Abena v. Metro. Life Ins. Co., 544 F.3d 880, 884 (7th Cir.2008) (“Abena still had seven months following the conclusion of the internal appeals process in which to file his suit in the district court. … In these circumstances, application of the contractual limitations period is not unreasonable”); Blaske v. UNUM Life Ins. Co. of Am., 131 F.3d 763, 764 (8th Cir.1997), cert. denied, 525 U.S. 812 (1998) (“If Mr. Blaske was entitled to benefits after the expiration of the one hundred eighty day exclusion period, his right to such benefits vested on September 28, 1992, and a three year statute would require suit by September 28, 1995. The policy is more liberal than the Minnesota Statute”); Salisbury v. Hartford Life And Acc. Co., 583 F.3d 1245, 1249 (10th Cir. 2009) (“We are not persuaded, however, by … reasons [advanced] for refusing to enforce the contractual limitations provision simply because the plan allowed the claimant’s cause of action to accrue before the end of the administrative process”).
The 5th Circuit arguably adoped this rule in Harris Methodist Fort Worth v. Sales Support Servs. Inc. Employee Health Care Plan, 426 F.3d 330, 337-38 (5th Cir.2005) (“This plan requires that any action to recover benefits be commenced within ‘three (3) years from the time written proof of loss is required to be given.’ … There is no dispute among the parties that three years is a reasonable time period”). But the court subsequently stated, in an unreported decision, that it had not been necessary to reach that question in Harris because the parties did not dispute the reasonableness of the limitations period. Baptist Mem’l Hosp.—DeSoto Inc. v. Crain Auto. Inc., 392 F. App’x 288, 295 (5th Cir. 2010).
Only one circuit – the 4th – has squarely held that a contractual limitations period cannot start to run before administrative remedies are exhausted. White v. Sun Life Assur. Co. of Canada, 488 F.3d 240, 247 (4th Cir. 2007) (refusing to “permit an ERISA plan to start the clock ticking on civil claims while the plan is still considering internal appeals”).
The 2d, 6th and 10th circuits expressly rejected the reasoning of White. In Burke, the 2d circuit explained:
Recently, the Fourth Circuit refused to enforce a policy-prescribed limitations period that would begin to run before a claimant may bring suit. White v. Sun Life Assurance Co. of Can., 488 F.3d 240, 247 (4th Cir.2007). The White court’s concern, as in Mitchell, was the possibility a plan administrator would use the administrative process to “undermine[ ] and potentially eliminate[ ] the ERISA civil right of action.” Id. The Fourth Circuit considered the DOL regulations but concluded, depending on the plan limitations period, a plan administrator could “eat up the entire limitations period.” Id. at 251. In light of a court’s authority to determine the reasonableness of a policy-prescribed limitations period, however, and its authority to toll that period should the facts of a given case require such a result, that possibility does not trouble us.
The Fourth Circuit was convinced a “reasonableness” fact-dependant standard is unworkable as it would “run counter to the values of certainty and predictability … of most accrual and limitations rules,” and “be particularly incompatible with ERISA, given its written plan requirement.” White, 488 F.3d at 250. Our holding enforces the written plan requirement in its entirety. Contrary to the Fourth Circuit’s position, enforcing a policy-prescribed limitations period as written, including the date upon which it will begin to run, will provide clear notice to plan participants of the time in which they must bring suit: for example, in this case, three years from the date Burke was required to provide Defendants with Proof of Loss.
The 6th circuit stated in Rice:
Although there are situations in which a contractual accrual date for ERISA claims could be unreasonable, see White v. Sun Life Assurance Co. of Canada, 488 F.3d 240, 246 (4th Cir.2007), there is nothing in the language of the contract in this case to suggest that the contractual accrual date is unreasonable. The Jefferson Pilot plan provides a three-year limitations period, along with a fail-safe provision that an employee’s application is considered denied if no answer is received within ninety days, thus avoiding any situation in which the limitations period would prevent an employee from bringing suit. See id. at 247-48 (finding a contractual accrual date unreasonable because the statute of limitations could expire before an employee knew that his application was denied and thus before he could file suit in federal court). Because the parties have not provided any reason to ignore the plain language of the contract, and because we cannot find one, we hold that the clear repudiation rule does not apply and that the language of the contract governs.
The 10th circuit explained in Salisbury:
We recognize that a benefits claimant must pursue the administrative process to its conclusion before filing an ERISA suit. We are not persuaded, however, by White ‘s reasons for refusing to enforce the contractual limitations provision simply because the plan allowed the claimant’s cause of action to accrue before the end of the administrative process. See 488 F.3d at 246-53. Less drastic remedies that would take account of both the Plan’s right to set a limitations period and the claimant’s need to exhaust administrative remedies would be to allow a claimant at least a reasonable time after exhaustion of administrative remedies or to apply equitable tolling during the pendency of the administrative review process. See Wilkins, 299 F.3d at 949; see also Doe, 112 F.3d at 876 (“[I]f the defendant through representations or otherwise prevents the plaintiff from suing within the limitations period, the plaintiff may add to the remaining limitations period the entire period during which the defendant’s action was effective in delaying the suit.”). But we need not decide in this case whether to endorse such remedies. The parties do not raise the issue, and in any event, Mrs. Salisbury filed her lawsuit more than three years after Hartford’s September 19, 2003, denial of her administrative appeal.
As of the date of this post, the 1st, 3d, 9th, 11th and DC circuits have not directly addressed this issue.
The courts enforcing the contractual limitations provisions generally all recognize that, if the contractual limitation gave a claimant an unreasonably short time to file suit after administrative remedies were exhausted, a court could equitably extend that claimant’s time to sue. The 4th circuit, in contrast, precluded any enforcement of the contractual limitation because it might be unreasonable in some situations.