Because the Employee Retirement Income Security Act (ERISA) statute lacks a specific limitation provision applicable to benefit claims, but the courts nonetheless enforce contractual limitations periods incorporated in benefit plans, courts frequently struggle with the question of when limitations periods accrue.
Novick v. Metro.Life Ins.Co., 2011 U.S.Dist.LEXIS 14505 (S.D.N.Y. Feb. 14, 2011) is an interesting new decision on how benefit plans can eliminate any doubt as to when the applicable limitations period accrues. There, the plaintiff, Karen Novick, a MetLife employee, became disabled in 2007 after receiving a tick bite and developing Lyme disease. She initially qualified for short-term disability benefits, but MetLife terminated the payments after a few months and Novick’s appeal was unsuccessful. In 2009, however, she applied for long-term disability (LTD) benefits, but MetLife never responded to the application, triggering Novick’s lawsuit. However, the insurer moved to dismiss the action on the grounds that the suit for the balance of short-term disability benefits was untimely and that Novick could not qualify for LTD if she did not receive the full 26 weeks of short-term disability payments. The court denied the motion.
As to the short-term disability, the court found the denial letter failed to communicate a contractual provision containing a six-month limitation period to file suit and the court further determined the short-term disability plan’s limitations period was unclear. The court pointed out that the ERISA regulations require the initial denial letter meet the following requirement:
[(1)] [T]he plan administrator shall provide a claimant with written or electronic notification of any adverse benefit determination ? set[ting] forth, in a manner calculated to be understood by the claimant ? (iv) [a] description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the act following an adverse benefit determination on review.
29 C.F.R. § 2560.503-1(g)(1). Although no other case had ruled on the issue, the court interpreted the regulation to require disclosure of the applicable time limit. The court acknowledged the regulation is not clear on that point, however, the court ruled the ambiguity had to be construed in favor of the plan participant. The court further noted that its decision was consistent with Solien v. Raytheon Long Term Disability Plan #590 , No. CV 07-456 TUC DCB, 2008 WL 2323915 (D. Ariz. June 2, 2008), which held that denial letters should set forth the time limit for filing a judicial action.
The court also cited secondary sources that recommended the inclusion of stated time limitations for bringing suit in all claim and claim appeal determinations. Because the plan failed to properly communicate the time limitation, rather than the plan’s contractual limitation period, the court applied the six-year New York limitations period for actions on written contractual agreements and found the action timely.
The court also found the LTD claim could proceed. Although MetLife argued that exhaustion of short-term disability benefits was a condition precedent to eligibility for LTD benefits, the court examined the plan and determined that no such condition exists. But even if there were such a requirement, based on the allegations of the complaint, the court ruled that due to the claimed unlawfulness of the short-term disability termination, “a condition precedent may be excused if the party whose performance is predicated on that condition somehow blocks its occurrence.” (citing Cross & Cross Properties, Ltd. v. Everett Allied Co., 886 F.2d 497, 501 (2d Cir. 1989)) (other citations omitted). The court also found the plan language creating the so-called condition precedent ambiguous.
Both issues discussed by the court have tremendous significance. By mandating inclusion of the limitations deadline in the denial letter, the court has imposed a simple rule that would have eliminated several recent appellate rulings on contested limitations periods because the accrual of the limitations period was confusing. Even if the wrong date is a communicated, so long as the plaintiff files suit prior to when the plan asserts the limitations period would expire, no plaintiff will be barred from proceeding with his or her claim.
Such a rule would avoid the situations that occurred in several recent appellate rulings. A recent ruling from the 7th U.S. Circuit Court of Appeals, Abena v. Metropolitan Life Ins.Co., 544 F.3d 880 (7th Cir. 2008) held that the limitations period accrues while the claim appeal is pending. Even more recently, the 2nd U.S. Circuit Court of Appeals similarly ruled in Burke v. Pricewaterhousecoopers LLP Long Term Disability Plan, 572 F.3d 76 (2nd Cir. 2009) and the 9th U.S. Circuit Court of Appeals held in Scharff v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899 (9th Cir. 2009) that the limitations period accrues prior to the exhaustion of presuit appeals; and in Abdel v. U.S.Bancorp, 457 F.3d 877 (8th Cir. 2006), the 8th U.S. Circuit Court of Appeals held that a limitations period accrued when an insurer notified the insured that a policy provision limiting the duration of benefit payments was applied to the claim, and that even though the insured appealed when the benefits terminated, the limitations period was not extended. However, in White v. Sun Life Assur.Co. of Canada, 488 F.3d 240 (4th Cir. 2007), the 4th U.S. Circuit Court of Appeals ruled the limitations period was tolled during the course of the claim appeal.
Given such inconsistency, and on account of the risk of uncertainty as to the accrual of the limitations period posed by the cases cited above, Novick is a particularly instructive ruling in its holding that the communication of the date the limitations period would expire leaves no doubt as to the parties’ rights.
On the second issue in Novick, the court recognized the risk to claimants of losing their right to even apply for LTD benefits when short-term disability benefits are wrongfully terminated prior to completion of the short-term disability benefit period. In ruling that receipt of the full period of short-term disability payments is not unambiguously a precondition to receipt of LTD benefits, it permits claimants to at least have the opportunity to pursue the benefits they were promised.
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