District Court Clarifies Standard for Providing Notice of Plan
Limitations Provisions
By Michael T. Graham and Joanna C.
Enstice
McDermott Will & Emery LLP, Chicago, IL
A recent decision from the U.S. District Court for the District of
Arizona raises important drafting and administrative issues for
employers to consider when adding a plan-based statute of limitations
provision to their benefit plans. In Solien vs. Raytheon Long Term
Disability Plan #590, the court refused to uphold a plan-based
one-year limitations period for challenging benefit claims in court
because the limitation period was not adequately disclosed in the
summary plan description (SPD) and was not communicated to the
participant as part of the plan's claim denial determination. Although
this is only one district court decision, the result should cause plan
sponsors to review how they have implemented any plan-based statutes
of limitations to ensure their enforcement by a
court.
Background
The Employee Retirement Income Security Act of 1974 (ERISA) does
not contain an express statute of limitations period within which
participants may bring lawsuits challenging benefit claim denials.
Consequently, to determine if an ERISA plan benefit denial lawsuit is
timely filed, courts have applied the applicable state law statute of
limitations for contract claims from the state where the court sits.
One problem with this approach is that the applicable limitations
periods widely vary--as some states apply as little as a two-year
limitations period while others apply as large as a 15-year
limitations period.
To avoid this confusion, many employers have included express
limitations periods in their benefit plans that require participants
to file suit challenging any benefit denial within a specific period
of time, which period is typically shorter than any applicable state
statute of limitations period. These plan-based limitations periods
generally have been upheld in litigation as long as the plan's
limitations period is reasonable and included in a plan's governing
documents. Prior to Solien, the majority of cases on this issue
have focused on the reasonableness of the limitations period. In fact,
limitations periods of 90 and 180 days have been routinely upheld by
federal courts, and even a 45-day limitations period was upheld by one
federal court in Iowa.
Case Analysis
On June 2, 2008, the U.S. District Court for the District of
Arizona in Solien refused to dismiss a participant's benefit
denial lawsuit, even though the plan contained a reasonable one-year
limitations period, because that limitations period was not clearly
set forth in the plan's governing documents or in the benefit denial
notices.
In Solien, the plaintiff claimed that her employer
terminated her benefits under its long-term disability plan in
violation of plan provisions and breached its fiduciary duty by
failing to notify her that she had a one-year time period from the
date of final denial of her benefits claim to file suit for benefits
under ERISA. The employer argued that Solien's claim was barred by the
one-year limitations period contained in the plan, whereas the
plaintiff argued that her claim was timely filed within the six-year
Arizona state statute of limitations. The court ruled in Solien's
favor, holding that although the plan's one-year period for filing a
claim under ERISA was reasonable, the plaintiff did not receive proper
notice of the limitations period to foreclose her lawsuit.
After reviewing the claims procedure provisions provided in the
plan's SPD, the court held that the plan's limitations period was not
enforceable based on where it was placed in the SPD. In addition, the
court determined that the language was not sufficiently clear, finding
that an average participate would have been unable to understand the
language explaining the limitations period. In this case, the language
used was typical language that has been inserted in SPDs in response
to earlier court decisions on this topic: “any action at law or
in equity must be commenced within one year of the denial of any
appeal from an initial claim denial, regardless of any state or
federal statutes establishing provisions relating to limitations of
actions.”
In addition, the court looked to an earlier case that had required
a plan administrator to include in a benefits denial notice any time
limitation for challenging the denial, even though the time limits
were included in the subject plan's SPD. Therefore, the court found
that it would have been “simple” for the plan
administrator in Solien to have included the one-year time
limit in the plaintiff's benefit denial letter. The court concluded
that a plan administrator does not act in the best interests of
participants and beneficiaries when it fails to provide express notice
of a plan's time limit requirements for benefits review procedures,
including the right to file suit under ERISA, to the attention of a
claimant because “the consequence of an untimely request is to
foreclose all external review of her
claim.”
Best Practices for Enforcement of Plan Limitation Periods
An employer should take the following steps in plan drafting and
claims administration to ensure that contractual limitation periods in
benefit plan documents will be enforced by the courts:
First, employers should include a plan limitations provision in all
governing plan documents, including SPDs, and the language should be
succinct and prominent (i.e., in bold type) so that a
participant will read the provision and be able to understand the
applicable limitation.
Second, the plan limitation language should be included not only in
plan administration sections, but also in all sections of the document
discussing claims procedures or administration.
Third, plan administrators should include the plan limitation
language in all claim and claim appeal determinations to ensure that
participants are on notice of the limitations period.
Providing notice of the limitation period for filing a lawsuit in
all governing plan documents and claims determinations that may
ultimately be challenged should provide the employer, plan, and plan
administrator with greater ammunition in court to enforce a reasonable
contractual limitations period so that untimely filed suits will be
dismissed.
For more information, in the Tax Management Portfolios, see
Author(s), 374 T.M., ERISA -- Litigation, Procedure, Preemption
and Other Title I Issuesand in Tax Practice Series, see ¶5530,
Fiduciary Duties and Prohibited Transactions.
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