Long Term Disability Under ERISA – Claimants Beware

A basic tenet of Long Term Disability Plans (“LTD”) under the Employee Retirement Income Security Act ( ERISA) is that a plan participant may bring a lawsuit on a claim for wrongfully denied benefits only after exhausting the plan’s administrative claims process.

Recently, the United States Supreme Court has held that an ERISA plan can start the applicable limitations period as to a plan participant’s time to file a lawsuit seeking plan benefits while the plan’s administrative claims process is ongoing. In other words, the plan can delay the claim, if language in the plan allows for extensions to consider new evidence, which will surely happen.

In the case of Heimeshoff v. Hartford Life & Accident Ins. Co., the Court Supreme Court ruled that an ERISA plan can impose a “reasonable” time limitation on a participant’s opportunity to file a lawsuit in federal court challenging an unfavorable plan benefits determination notwithstanding that the time period to file suit in federal court begins to run prior to the end of the administrative claims process.

The case involved a Wal-Mart Stores, Inc. employee, Julie Heimeshoff (the “Claimant”), who participated in Wal-Mart’s LTD plan, which was governed by ERISA being an employer sponsored plan. The plan was administered by Hartford Life & Accident Insurance Company (Hartford), which is why the case is styled Heimeshoff v. Hartford. The plan document, which is the insuring agreement required participants to file a lawsuit to recover plan benefits no more than three years from the deadline for submitting “proof of loss.” The Claimant ceased working June 8, 2005 due to chronic fatigue and pain, and her claim for benefits was submitted in August 2005. The claim was supported by a statement from the Claimant’s rheumatologist. In December 2005, after previously informing the Claimant that it could not determine whether she was disabled because her doctor had not responded to its request for additional information, Hartford denied the claim because it said the Claimant failed to provide proof of her loss. Although Hartford initially informed the Claimant that she had 180 days in which to appeal, it later told her that it would reopen her claim, without an appeal, if it received the requested information from her rheumatologist.

The Claimant submitted additional medical evidence in October 2006. In November 2006, Hartford denied the claim again, this time on the grounds that she was not disabled. Following Hartford’s grant of her requested extension of the 180-day appeal period, the Claimant filed an appeal of the claim denial on September 26, 2007. Hartford denied the Claimant’s appeal on November 26, 2007. On November 18, 2010, within three years of the date her appeal was denied, but more than three years after she was required to submit proof of loss, the Claimant brought her lawsuit in federal court. Hartford filed a motion to dismiss the lawsuit on the ground that that the plan’s three-year time period for bringing a lawsuit had expired. The federal district trial court granted the motion, stating that the Claimant was outside the window to file suit. On appeal, the Claimant argued that, regardless of the plan’s terms, the limitations period for bringing a lawsuit under ERISA should not begin to run until after the participant has exhausted the plan’s administrative review process. The Second Circuit Court of Appeals rejected this argument and affirmed the ruling of the trial court. The Supreme Court agreed to hear the case to resolve a split in the appellate courts on this issue.

The Supreme Court stated that the claim was brought too late, and was thus barred by the applicable time limitation period in the plan, despite the plan setting the applicable time period in motion while her administrative claim was pending. The significance of this is that you are not allowed to proceed with a suit in federal court until you exhaust the plan’s administrative remedies. The Court characterized the plan as a contract whereby the plan sponsor, one party to the contract, and plan participants and beneficiaries, the other party, agreed to a three-year limitations period that begins to run at the time proof of loss is due. This contractual agreement must be respected, the Court found, unless (1) there is a “controlling statute to the contrary,” or (2) the period is “unreasonably short.”

Look for plan limitation’s periods to get shorter. I suspect plan sponsors will push the envelope until a court says the limitations period is unreasonable. Because ERISA LTD claims do not have statute of limitations, which apply federally, the most analogous state statute applies. One argument to be made is that the state statute of limitations is the “controlling statute,” which does not appear to have been tested yet.

The other, and in my opinion, the better option is to file suit in federal court citing the contract’s limitations period and argue that suit must be filed, and stayed pending exhaustion of the claimant’s administrative remedies.

About the Author: Rick Woods