That’s limitations as in “limitation periods”. A recent court case reminds ERISA plans to have such limitation periods and to communicate it to someone claiming a plan benefit.
Let’s start with the basics.
What’s a “limitation period”? In layman’s terms, it’s a law set forth in a State statute of limitations that sets time limits on how long a party has to file a civil lawsuit or how long the state has to prosecute someone for committing a crime. They are specific to each state and vary depending on the legal claim or crime involved.
The case referred to above is Mirza v. Insurance Administrator of America, Inc., which can be summarized as follows:
Facts: Dr. Neville Mirza, the Plaintiff, received an assignment to receive benefits from an ERISA welfare benefit plans for surgery expenses for a covered participant. The claim was denied but the denial letter failed to state that he had one year from the date of the final benefit denial to seek judicial review. Dr. Mirza sued 19 months after getting the denial letter.
Issue: Was Dr. Mirza barred from filing his suit because of the Plan’s limitation period?
And the not surprising answer is No.
Here’s what this ERISA consultant gleaned from the decision:
- The Plan substantially reduced the State statute of limitations from six years to one which the Court found reasonable as a matter of contract law.
- ERISA regulations require that “the administrator must disclose the plan’s applicable time limits.”
- The Court held that “‘When a letter terminating or denying Plan benefits does not explain the proper steps for pursuing review of the termination or denial, the Plan’s time bar for such a review is not triggered.”.”
- The Court instead applied New Jersey’s six-year statute of limitations pertaining to breach of contract actions.
Decision
Dr. Mirza timely filed suit, even though he filed 19 months after the final denial of his claim for benefits.
Takeaways
This case provides us two takeaways.
The first one the Court provided:
One very simple solution, which imposes a trivial burden on plan administrators, is to require them to inform claimants of deadlines for judicial review in the documents claimants are most likely to actually read—adverse benefit determinations.
The second one would have the specific limitation period in a document that participants are required to have, the Summary Plan Description.
What’s Reasonable?
It starts with the Plan document, of course. Many Plan Sponsors use a three-year limitation period that recognizes the recent Supreme Court decision, Heimeshoff v. Hartford Life & Accident Ins. Co. The Supreme Court held that an ERISA disability plan’s three-year limitations period, running from the date of proof of loss, was enforceable even though the statute of limitations began to run before the participant’s cause of action accrued.
Considering that that there has been no guidance yet from the Internal Revenue Service or Department of Labor as to what’s “reasonable”, discussing the matter with legal counsel would seem like the prudent thing for Plan Sponsors to do.