When do Employee Retirement Income Security Act statutes of limitations accrue? The question does not have an easy answer since the ERISA statute contains no limitation periods applicable to benefit claims.

Thus, limitations issues that arise in ERISA benefit cases must be determined in accordance with limitations periods that are borrowed from state laws.

A Dec. 6 ruling from the U.S. Court of Appeals for the First Circuit, Smith v. Prudential Insurance Co. of America,[1] found the plaintiff, Brian Smith, waived any argument that his claim was governed by ERISA; however, the ruling nonetheless has implications for future ERISA cases.

The lawsuit was brought against Prudential as a breach of fiduciary duty claim following Prudential’s termination of Smith’s long-term disability benefit payments. The policy at issue contained a three-year contractual limitations period that stated the limitations clock commenced when Smith was required to initially submit proof of disability and not on the date when benefits were terminated.

Consequently, Prudential successfully argued in the U.S. District Court for the District of Rhode Island that the limitations period had run out prior to the time Smith filed suit.

Smith appealed claiming, among other things, a public policy argument relating to a Rhode Island statute of limitations. Because the issue had not been definitively resolved by the Rhode Island courts, the First Circuit certified the public policy question to the Rhode Island Supreme Court in accordance with Rule 19 of the Supreme Court rules.

According to the First Circuit’s opinion, due to a cognitive impairment, Smith initially qualified for disability benefits under a group long-term disability policy covering members of the American Institute of Certified Public Accountants. Prudential paid Smith monthly disability benefits for 2 ½ years until it notified him on May 3, 2018, that he no longer qualified to receive benefits. Smith appealed that determination, but his appeal was unsuccessful.

The court quoted the policy provisions that dealt with limitations and remarked that the provisions were so opaque that even “an accountant could find it challenging to piece this formula together.” Applying the provisions, which included tolling of the limitations period for appeals of claim denials, the court acknowledged that Smith would have been left with only about eight weeks to sue Prudential after his appeals were concluded.

What troubled the court was that the limitations provisions in the policy failed to take into consideration that a beneficiary would not even have a cause of action on which to sue until benefits had been denied or terminated.

Based on that concern, the court acknowledged a potential public policy issue grounded in the Rhode Island Constitution and noted in several Rhode Island Supreme Court decisions: that enforcing a limitations period that begins to run before a cause of action accrues is improper.

Although the policy specified that it was governed by New York law, the court applied a conflict of law analysis to find the policy’s choice of law provision unenforceable and held that Rhode Island law governed since “New York bears ‘no substantial relationship to the parties or the transaction,’ and Prudential has not offered any ‘other reasonable basis for the parties’ choice.”[2] The court also determined that Rhode Island had the “most significant relationship” to the contract.[3]

The court next explained that “fundamental principles of Rhode Island law” might prohibit enforcement of Prudential’s contractual provisions. The court observed the Rhode Island Supreme Court had “condemned the ‘Alice in Wonderland effect’ of allowing a limitations period to begin to run before a cause of action even exists,” deeming such a provision “‘palpably unjust.'”

The court further noted the Rhode Island Supreme Court had stated that as a “general rule … a contract action accrues at the time the contract is breached.”[4] Thus, under Rhode Island law, not only would it be illogical,[5] but also a “matter of ‘fundamental [in]justice’ to totally ‘bar adjudication of a claim even before it arises.'[6]

Prudential countered these points by citing the U.S. Supreme Court’s 2013 ruling in Heimeshoff v. Hartford Life & Accident Insurance Co.,[7] an ERISA case that addressed a contractual limitations period similar to Prudential’s. The Supreme Court found such a limitation period reasonable and not contrary to any controlling statute.

However, the First Circuit distinguished Heimeshoff on the ground the matter before it was not governed by ERISA. Further, although Heimeshoff instructed courts to apply traditional doctrines, like estoppel, waiver or equitable tolling[8] to address questions of timeliness in claims brought under ERISA, Smith did not seek relief under any of those doctrines.

Hence, the First Circuit certified a question to the Rhode Island Supreme Court asking whether Rhode Island law would permit enforcement of the policy’s contractual limitation period to bar Smith’s suit.

Although Smith was not an ERISA case, the First Circuit’s ruling has ERISA implications even in the face of Heimeshoff. Limitations issues arise in ERISA benefit claim cases only in situations like the one in Smith, which involves a termination of ongoing benefit payments rather than an initial application for benefits.

The Supreme Court may also have decided Heimeshoff as it did because the plaintiff still had one year left in which to file suit after claim appeals were exhausted. Had the clock run out before benefits had been terminated, that case would likely have had a different outcome due to the absurdity of enforcing a limitations period that expires before a justiciable claim even accrues.

It is also possible that this issue may never arise again. The ERISA claim regulations were amended in 2018 to require that plans providing disability benefits must notify claimants at the time their claim appeal is denied of the limitations period set forth in the policy and the calendar date on which the plan administrator believes the contractual limitations period expires.[9]

If the issue should recur, however, the First Circuit’s concern about allowing a limitations period to accrue before a cause of action is even viable is warranted. The ERISA statute deems exculpatory plan provisions “void as against public policy.”[10] Thus, any plan provision that would preclude a plan participant from exercising rights under ERISA Section 502(a)[11] by running out the time to file a lawsuit before a litigable claim even exists is prohibited.

While plan sponsors are given broad leeway to draft benefit plans as they see fit, such terms must still comply with ERISA’s remedial provisions, and sponsors may not draft terms that would preclude judicial enforcement of ERISA rights.[12] The First Circuit was therefore spot on in recognizing and setting forth the public policy concerns that arise if a limitations period is permitted to accrue prior to the existence of an actual claim or controversy on which relief may be sought.

Mark DeBofsky is a shareholder at DeBofsky Law Ltd.

This article was first published by Law 360 on December 13, 2023.

[1] Smith v. Prudential Insurance Co. of America, 2023 U.S. App. LEXIS 32223, 2023 WL 8446510 (1st Cir. December 6, 2023).

[2] Citing Restatement (Second) of Conflict of L. § 187(2)(a) (Am. L. Inst. 1971)).

[3] Citing Restatement (Second) of Conflict of L. § 188(2) (Am. L. Inst. 1971).

[4] See, Am. States Ins. Co. v. LaFlam, 69 A.3d 831, 841 (R.I. 2013) (quoting Berkshire Mut. Ins. Co. v. Burbank, 422 Mass. 659, 664 N.E.2d 1188, 1189 (Mass. 1996)).

[5] Id.

[6] Citing Kennedy v. Cumberland Eng’g Co. Inc., 471 A.2d 195, 198-199 (R.I. 1984).

[7] Heimeshoff v. Hartford Life & Accident Ins. Co., 571 U.S. 99, 107-08, 134 S.Ct. 604, 187 L.Ed.2d 529 (2013).

[8] 571 U.S. at 114, 134 S.Ct. 604.

[9] 29 C.F.R. § 2560.503-1(J)(4)(ii).

[10] 29 U.S.C. § 1110(a).

[11] 29 U.S.C. § 1132(a).

[12] See, generally, Brief for the United States as Amicus Curiae Supporting Petitioner filed in Hemeshoff v. Hartford Life, available at https://www.dol.gov/sites/dolgov/files/SOL/briefs/heimeshoff_2013-12-16.pdf.

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