The Fourth Circuit (which includes North and South Carolina) recently affirmed a lower court finding that the remedial framework of ERISA does not permit a plan to start the statute of limitations period on a plaintiff’s cause of action prior to the plaintiff being entitled to file a lawsuit pursuant to a denial of benefits. After ruling that the plaintiff’s claim was not time-barred, the court proceeded to affirm the lower court’s grant of summary judgment in favor of the plaintiff that the insurer erred in denying the plaintiff’s disability benefits. This article focuses on the procedural statute of limitations issue discussed in this case. ERISA does not provide a specific statute of limitations for a cause of action for benefits due under a plan and it does not specifically state when a limitations period begins to run. However, the court did state that it “could not agree more that ERISA generally affords plans the flexibility to set limitations periods” and that it did not “take issue with those decisions enforcing contractual limitations periods of varying lengths [implicitly agreeing with periods of as little as 90 days].”
In this case, the plaintiff, a long-time employee of the company, filed an application for long-term disability benefits on May 5, 2000, and the insurer issued its final denial on March 28, 2001. The plan document stated that no legal action could start more than 3 years after the time the “Proof of Claim” is required. The plaintiff filed suit for benefits due under ERISA on March 26, 2004, within three years after the final denial was made. The insurer claimed that the cause of action was time-barred as the statute of limitations began to run on August 9, 2000, the day her “Proof of Claim” was due under the terms of the plan.
The court disagreed with the insurer and stated that a benefit plan cannot start running the statute of limitations on a plan participant’s action for benefits until the plan has reached a final decision denying benefits. The court argued that the ERISA accrual rule is unconditional—that an ERISA cause of action does not accrue until a claim for benefits has been made and formally denied after the plaintiff has exhausted all administrative remedies. The court stated that allowing the insurer to start the clock on the statute of limitations before the final denial is made undermines the purpose of having a judicial course of action. Additionally, the court rejected the insurer’s alternative argument for a case-by-case review of the “reasonableness” of the time available for the plaintiff to file suit, stating that this approach provides perverse incentives to delay the resolution of claims and is at odds with ERISA’s purpose in providing plan documents that clearly state a participant’s rights and obligations under a plan.
This case reminds employers that while they can define the statute of limitations period for a cause of action in the plan document, the commencement of the period cannot be earlier than when the plaintiff may file suit (i.e., it cannot commence when the claim is still being considered in the internal review process). This rule provides participants with fair notice of the timeline available to file suit and is consistent with ERISA’s remedial structure.