One of the most confusing aspects of ERISA litigation is the determination of when a cause of action accrues. As the defendant learned to its detriment in’ Withrow v. Bache Halsey Stuart Shield Inc. Salary Protection Plan, 2011 U.S.App.LEXIS 17526 (9th Cir. August 23, 2011), the failure to effectively trigger an accrual of a cause of action prevented a statute of limitations from running for about 25 years. The case involved a stockbroker, Valerie Withrow, who became employed by Bache (now Prudential Securities) in 1979. As a benefit of her employment, Withrow received long-term disability insurance coverage under a policy underwritten by Reliance Standard Life Insurance Co. Withrow suffered from chronic low back pain; and her condition began degenerating in 1982 and continued a downhill spiral until she could no longer work as of December 1986. Withrow applied for disability benefits shortly thereafter, and her claim was immediately approved. However, Withrow disputed the benefit amount, claiming she was entitled to $5,000 each month rather than the $3,950 that was being paid.

Although Reliance employees orally explained to her that the discrepancy had something to do with “how the timing worked” for ERISA claims, the plaintiff was never informed that she had a right to formally appeal. Nonetheless, Withrow wrote several letters to Reliance challenging the benefit calculation that went unanswered, including a letter dated Nov. 5, 1990 demanding a response. When none was sent, 12 years then elapsed before Withrow once again brought her concerns to Prudential Securities. A Prudential benefits manager called Reliance, which informed him the benefit calculation was correct, but no one followed up with Withrow. Five months later, Withrow wrote to Prudential and then sent a letter to Reliance asking for a benefit adjustment. Then, in June 2002, Withrow called Reliance and demanded an audit of her claim. She followed up three months later threatening suit. Reliance responded by informing Withrow in February 2003 that after researching the matter, it had determined the calculation was correct. However, Reliance invited Withrow to appeal if she disagreed. On July 21, 2003, Withrow presented an appeal; and on Jan. 14, 2004, Reliance orally notified plaintiff’s attorney in a telephone message that the insurer was upholding its decision. However, no written denial was ever issued. On Feb. 16, 2006, Withrow filed suit. Following a bench trial, her claim was dismissed on limitations grounds.

The appeals court reversed. The court explained that in evaluating the timeliness of an ERISA action, the court looks both to the applicable statute of limitations as well as to any contractual limitations provisions in the policy. The district court determined that Withrow’s claim was barred under both; however, the appeals court disagreed. First, the court looked to the applicable ERISA statute of limitations. Because the claim was brought under 29 U.S.C. § 1132(a)(1)(B), the court acknowledged the ERISA statute contains no applicable limitations period. Instead, the courts must apply the most analogous state law provision. The court determined the most analogous state law provision was California’s four-year statute of limitations for contract disputes. However, federal law governs when an ERISA cause of action accrues and therefore triggers the start of the limitations period.

Under guiding precedent, an ERISA cause of action accrues “either at the time benefits are actually denied, or when the insured has reason to know that the claim has been denied.” *8 (citation omitted). The court further pointed out that a claimant has a “reason to know” under the second prong of the accrual test “when the plan communicates a ‘clear and continuing repudiation of a claimant’s rights under a plan such that the claimant could not have reasonably believed but that his or her benefits had been finally denied.'” (citation omitted). Hence, the court determined, “Withrow’s benefits were ‘actually denied’ on Jan. 14, 2004, when her attorney was informed by phone that her appeal had been denied.” (citation omitted).Thus, her claim was timely under the borrowed statute of limitations because it was filed within four years of the date the claim accrued.

The court next turned to the question of whether a clear repudiation may have occurred earlier. The district court had ruled the claim accrued in 1990 because Withrow had reason to know at that point in time that the benefit calculation was incorrect; and upon further inquiry, Withrow was informed that the benefit payments would not be increased. The appeals court disagreed with that finding, though, because it was contradicted by other findings made by the district court. In particular, the district court had pointed out the record was unclear as to whether Reliance responded to Withrow’s earlier inquiries. The appeals court concurred that the record did not show what occurred when Withrow made her earlier inquiries. Thus, the evidence was “insufficient to constitute a ‘clear and continuing repudiation’ of Withrow’s claim such that she ‘could not have reasonably believed’ that the plan had not finally denied her claim.”

The court distinguished an earlier ruling, Chuck v. Hewlett Packard Co., 455 F.3d 1026, 1031 (9th Cir. 2006), which held that only an “unusual combination of circumstances” would warrant a finding that a claim was time-barred despite a plan’s failure to comply with its duties of proper notification and review under ERISA. The court determined the plaintiff in Chuck had received actual notice that the plan’s decision was final. The court distinguished the circumstances presented here:

Here, Withrow’s situation is similar in only one respect: she knew as early as 1987 that Reliance was taking the position that its calculation of her disability benefits was correct. However, Withrow’s circumstances diverge from Chuck’s at that point. Chuck was provided with actual notice that any acceptance of benefits would be irrevocable. Although Withrow knew that Reliance had taken the position its calculation was correct, she was never provided with anything from Reliance that would give her reason to know that her acceptance of continued payment of benefits amounted to an irrevocable or final determination by Reliance of the amount of her benefits and a denial by it of a claim concerning that calculation. Further, when Chuck contacted his plan to raise the issue of his benefits after he accepted their payment, he was told unequivocally that he would receive no further benefits. Withrow’s experience with Reliance was very different. In fact, in 2002, 12 years after Withrow’s first conversations with Reliance about the underpayment of her benefits, Reliance encouraged her to submit more documentation and to prove the benefits calculation was wrong.

The court added that Withrow’s actions belied any subjective belief she might have had which would have convinced her that further appeals would have been futile. Instead, she was encouraged to submit additional information and take further action if she disagreed. Hence, the claim was timely.

The court also ruled the claim was timely filed within the limitations period stated in the policy: “after the expiration of three years … after the time written proof of loss is required to be furnished.” Because attorneys for Reliance conceded that provision does not apply to situations where the amount of benefits is challenged, the court ducked the thorny issue of how to apply that provision in the policy.

It still remains to be determined whether Withrow was indeed underpaid all these years; however, this may turn out to be an expensive lesson for an insurer that could easily have prevented this issue from even surviving for more than 25 years.

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