A recent ruling from the 6th U.S. Circuit Court of Appeals, Rice v. Jefferson Pilot Financial Ins. Co., 2009 U.S.App.LEXIS 18962 (Aug. 24), explains the operation of contractual limitations periods in disability policies in a way that offers instruction and certainty to litigants facing similar issues. The plaintiff, Jerry Rice, alleged he became disabled in May 2002 on account of chronic fatigue syndrome. Although Rice qualified for Social Security disability benefits, he was denied benefits by his employer’s group disability insurer, Jefferson Pilot, in December 2002. Rice unsuccessfully appealed to Jefferson Pilot under ERISA’s pre-litigation appeal provisions and ultimately filed suit in November 2003. However, instead of the court resolving the matter, while the litigation was pending, Rice and Jefferson Pilot stipulated to a stay of the proceedings to allow for a remand for Jefferson Pilot to re-examine the case. The court entered an order granting the parties until April 30, 2005, to reopen the case. On remand, the insurer conducted surveillance that did not show Rice engaging in any activities; however, the insurer received reports from Rice’s brother-in-law and cousin that Rice was engaging in physical activities such as scuba diving and water skiing. When Rice failed to submit additional information, on April 20, 2005, Jefferson Pilot once again denied the claim. However, neither party moved to reopen the proceedings by April 30, 2005; and it was not until June 8, 2007, that Rice filed a second complaint in the district court seeking disability benefits from Jefferson Pilot. The court dismissed that action, finding the policy’s three-year contractual limitations period accrued on Sept. 24, 2003, the date of Jefferson Pilot’s final denial of the claim, giving him until Sept. 24, 2006, to file suit. Thus, the court concluded the complaint filed in 2007 was untimely.

The court of appeals affirmed, but on different grounds. While both parties concurred that the three-year contractual limitations period was applicable, the parties disputed when the limitations period began to run. Rice had initially argued in the district court that the limitations period accrued on Sept. 24, 2003; however, on appeal, Rice asserted the accrual date was April 20, 2005, the date on which the claim was denied after the remand of the initial suit by the parties’ agreement. The court found that Rice waived that argument by not arguing it before the district court, and noted: “In this case, Rice not only failed to argue that the accrual date was April 20, 2005, before the district court, but he vehemently argued that his claim accrued on a different date — September 24, 2003.” Because no excuse was given for the change in position, the court concluded Rice waived his argument that the claim accrued in April 2005.

However, even if there had been no waiver, the court went on to find the limitations period expired before Rice filed his second suit. The policy provided that “[n]o legal action may be brought more than three years after proof of claim is required to be given” (emphasis added). Consequently, the 6th Circuit applied the contractual limitations period which it found reasonable, and explained further: “The Jefferson Pilot plan provides a three-year statute of limitations, along with a fail-safe provision that an employee’s application is considered denied if no answer is received within ninety days, thus avoiding any situation in which the limitations period would prevent an employee from bringing suit.” Continuing its analysis, the court examined the contract and pointed out the policy of insurance required that proof of loss be given within 90 days after the end of the policy’s “elimination period”; i.e., the period of time following the onset date of disability when no benefits are due, which in this case was 180 days. The court then set out the following dates and calculations: Taking the claimed onset date of disability of May 22, 2002, and adding the 180 day elimination period plus an additional 90 days, accrual of the limitations period began on Feb. 16, 2003, giving Rice until Feb. 16, 2006 to bring suit. Since suit was filed on June 8, 2007, it was deemed untimely.

However, Rice had argued the limitations period was tolled while the first case was pending in the district court. Rejecting that contention, the 6th Circuit cited prior precedents for the proposition that a dismissal without prejudice does not toll the statute of limitations: “It is generally accepted that a dismissal without prejudice leaves the situation the same as if the suit had never been brought, and that in the absence of a statute to the contrary a party cannot deduct from the period of the statute of limitations the time during which the action so dismissed was pending.” Wilson v. Grumman Ohio Corp., 815 F.2d 26, 27 (6th Cir. 1987) (per curiam); see also Davis v. Smith’s Transfer, Inc., 841 F.2d 139, 140 (6th Cir. 1988) (per curiam) (finding that a plaintiff’s suit that was voluntarily dismissed and then re-filed did not toll the statutory time period).

The court likewise rejected plaintiff’s argument that the interests of justice required tolling, finding no evidence that Rice diligently pursued his rights. Quite the contrary, the court noted Rice failed to reinstate the case within the time provided in the initial dismissal order.

The 7th Circuit issued a ruling nearly identical to Rice in 2008. In Abena v. Metropolitan Life Ins. Co., 544 F.3d 880 (7th Cir. 2008), the plaintiff argued that the limitations period was tolled by the ERISA pre-litigation claim appeals; however, the court pointed out that seven months still remained after the appeals were exhausted within which to bring suit if the limitations period were deemed to have commenced following the expiration of the policy’s elimination period plus 90 days. Here, too, the plaintiff had ample time to re-file his suit, even after the court’s remand in 2005. Still, to avoid issues such as this, the approach taken in Mogck v. UNUM Life Insurance Co. of America, 292 F.3d 1025 (9th Cir. 2002), makes a great deal of sense. Since contractual limitations periods generally shorten statutory limitations periods, Mogck concluded that contractual limitations are not binding if the insurer fails to communicate to the insured when the limitations period expires.

Another interesting approach to limitations periods taken in disability benefits cases, since benefits accrue monthly, is the one taken in Knoepfler v. Guardian Life Insur. Co of America, 438 F.3d 287 (3d Cir. 2006), where the court ruled that limitations periods remain open throughout the entire length of the potential claim and a new limitations period accrues each month. However, that interpretation is not universal, and other courts have rejected that theory. See, Algayer v. Metropolitan Life Insur. Co., 2004 U.S.Dist.LEXIS 13268 (E.D.Pa. 7/12/2004); Miller v. Fortis Benefits Insur. Co., 363 F.Supp.2d 700 (D.N.J. 2002).

Finally, there is another issue of note tangentially related to what occurred in this case, which is offered as a caution to potential litigants in circumstances similar to what occurred here. When the suit was initially remanded, had the court ordered that the failure to reopen by case by April 30, 2005, would trigger either a dismissal with prejudice or a dismissal for want of prosecution, Rule 41(b) of the Federal Rules of Civil Procedure would likely have rendered the failure to reinstate the case an adjudication on the merits, and the second suit would have been barred by res judicata in addition to the reasons set forth in the 6th Circuit’s opinion.

This article was initially published in the Chicago Daily Law Bulletin.

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