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When the Clock is Ticking: The Interplay of the Contractual Limitations Period and the Statute of Limitations in a Disability Insurance Case

Archives for December 26, 2017

The Employee Retirement Income Security Act of 1974, otherwise known as ERISA, governs most employer-sponsored benefit plans, including short and long-term disability benefits, life benefits, accidental death and dismemberment benefits and others.  ERISA was enacted to protect employer-sponsored benefits provided to employees.  As such, ERISA requires that the plan administrator, typically the insurer or employer, adhere to strict standards and deadlines.  However, while ERISA does set strict internal deadlines for the appeals process, it does not specify a time limit to bring a lawsuit for wrongfully denied benefits.  In this article, we discuss the statute of limitations and the contractual limitations periods in ERISA benefits cases and a relatively recent and plaintiff-friendly case decided by District Court judge Michael Fitzgerald out of the Central District of California.

What is a Statute of Limitations?

A statute of limitations refers to the amount of time a party has to initiate a lawsuit based on a certain harm or injury.  The statute of limitations that governs a claim varies depending on the type of relief a party seeks, as well as where the relief is sought.  For example, California Code of Civil Procedure Section 339 sets the relevant statute of limitations for filing an insurance bad faith action at two years.  Other states provide for a different statute of limitations.

What is the Statute of Limitations for an ERISA Benefits Claim under Section 502?

A participant in an employer-sponsored benefit plan covered by ERISA may bring a civil action under section 502(a)(1)(B) to recover benefits due under the terms of the plan.  While courts have generally required that a participant exhaust the plan’s administrative remedies before filing a lawsuit to recover benefits, ERISA does not specify a statute of limitations for filing suit under section 502(a)(1)(B).  Because ERISA does not establish a time limit for such claims, the courts typically fill the gap by applying the “most analogous” state statute of limitations.  In the Ninth Circuit, the “most analogous” statute of limitations is the state’s contract limitations period.  In California, that is the four-year statute of limitations for written contracts established by California Code of Civil Procedure Section 337.

Heimeshoff v. Hartford Life & Accident Insurance Co.

In Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S.Ct. 604, 611(2013), the United States Supreme Court found that a contractual statute of limitations period will be enforceable so long as it is (1) reasonable or not “unreasonably short” and (2) it is not contrary to controlling state statute.  To determine whether a given plan’s statute of limitations is reasonable depends on the specific factual circumstances of the action.  In Heimeshoff, the Court found the time limit reasonable because it gave the participant a year to file suit from the date the insurer denied the claim on appeal.  However, because ERISA requires that a claimant exhaust her administrative remedies before she files a lawsuit, in some cases, the time it takes to complete that internal review process may prevent a participant from bringing a Section 502(a)(1)(B) action within the contractual limitations period.  But, in that event, a court may consider an equitable doctrine that would otherwise allow the participant to proceed.

As to the second question, regarding a controlling statute to the contrary, a United States District Court for the Central District of California recently discussed this issue and the application of California statutes in Gray v. United of Omaha Life Ins. Co., 251 F.Supp.3d 1317 (C.D. Cal. 2017).  In an opinion very favorable to ERISA disability plaintiffs, the court discussed the proper analysis of the statute of limitations and the contractual limitations period in detail.  In determining whether an ERISA claim is timely, one must first look to whether it violates the controlling statute of limitations and second, whether it violates the contractual limitations period.

In its analysis of the applicable statute of limitations, the court found the four-year statute of limitations controlled and begins to accrue at the date of denial on appeal.  In other words, a plaintiff would have four years from the date of the denial on appeal to file a lawsuit under ERISA.

In its analysis of the contractual limitations period applicable, the court first looked to Hemeshoff, finding that it must give effect to the plan’s contractual limitation provision unless unreasonable or prevented by a controlling statute.  The Group Policy at issue contained the following contractual limitations provision: “No legal action can be brought until at least 60 days after [United has] been given written proof of loss. No legal action can be brought more than two years after the date written proof of loss is required.”  Both parties agreed that California Insurance Code section 10350.11 must be read into the contract to extend the limitations term to three years after the date written proof of loss is required.  Next, the court compared the Group Policy’s applicable limitations period to provisions of the California Insurance Code to determine which was more favorable (the more favorable provision would control).  The applicable Group Policy terms set the time to file suit as, at most, four years and 180 days from the first date of disability.  In comparison, the California Insurance Code section 10350.7 set the time as “90 days after the termination of the period for which the insurer is liable.”  Siding with the majority of jurisdictions that had interpreted the model language after which section 10350.7 was taken, it interpreted “the insurer is liable” to include an entire, ongoing period of disability, because the court found the latter provision more favorable, and thus read it into the Group Policy.

In sum, the application of the contractual limitations period and the statute of limitations period can be complicated and understanding the interplay of these important limitations periods is critical when an insurer challenges the timing of the filing of an action against it.

The Employee Retirement Income Security Act of 1974, or ERISA, governs most employer-sponsored benefit plans.  ERISA establishes protections for employees in the administration of their employer-sponsored benefits, requiring that the administrator adhere to certain requirements when determining a plan participant’s eligibility for benefits.  In ERISA cases, typically the plan’s terms govern.  However, ERISA does recognize certain “equitable” doctrines for situations not necessarily covered by the terms of the employer-sponsored plan.  One of those equitable doctrines is “waiver,” which the courts have established as the intentional relinquishment of a right under the plan.  In this article, we address Cohorst v. Anthem, No. CV 16-7925-JFW (SKX), 2017 WL 6343592 (C.D. Cal. Dec. 12, 2017), a recent decision from the Central District of California, which rejected a health plan administrator’s decision to approve, and then later deny, an employee’s benefits based on a theory of waiver. 

What are the equitable doctrines under ERISA?

ERISA section 502(a)(3), 29 U.S.C. section 1132(a)(3)(B), permits a plan participant or beneficiary to bring a civil action against fiduciaries to obtain “other appropriate equitable relief,” including the equitable remedies of reformation, waiver and estoppel, and surcharge, i.e., make whole relief.  Unlike a benefit claim, requesting equitable relief relies on the fiduciary relationship between the plan or claims administrator and the participant.  Under ERISA, a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

Waiver under ERISA?

A court will find waiver where a party intentionally relinquishes a right or acts so inconsistently with an intent to enforce the right that it induces a reasonable belief that the right has been extinguished.  For example, in Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 938 (9th Cir. 2017), the court found waiver where the administrator accepted premium payments, but later denied a death benefit because participant failed to provide “Statement of Health” as required for eligibility.  Furthermore, the insurer or plan administrator may not argue ignorance of a lack of coverage where its agent had such knowledge, as the court found in Salyers.

Cohorst v. Anthem

In Cohorst, supra, Plaintiff Aubrey Cohorst sued Anthem Health Plans of Kentucky, Inc., (Anthem) for its denial of a benefits claim under an employer-sponsored health plan governed by ERISA.  The underlying dispute involved Anthem’s denial of coverage for Cohorst’s artificial disc replacement surgery, which required the use of a “Mobi-C” device.  Cohorst’s doctor determined the surgery medically necessary, and consequently sought Anthem’s prior approval.  In this initial approval process, Anthem confirmed its approval of the surgery, but did not specify the medical device that would be used.  Anthem’s internal documents mirrored its initial approval, describing the surgery as “medical necessary” and meeting “criteria guidelines.”

When Cohorst’s physician contacted Anthem to confirm which medical device had been approved for surgery, Anthem told the doctor it approved the “Pro Disc-C” and not the “Mobi-C.”  Shortly after this conversation, Anthem created a new reference number allegedly based on the request to use the “Mobi-C” device and overturned its original approval, finding the procedure to be “Experimental” or “Investigative” and thus not medically necessary under the terms of the plan.  Ultimately, Cohorst underwent the surgery and Anthem refused to cover the costs associated with the surgery, a total of $140,434.25, of which, $130,000 was attributed to the cost of the surgery and $5,434.25 to the cost of the Mobi-C device.

Under a de novo standard of review, the court first evaluated the plan and the relevant exclusionary language, determining that the procedure did fall within the exclusion.  Despite this, the District Court still found for Cohorst based on a theory of waiver.  Emphasizing Anthem’s inconsistent behavior, the court held that Anthem waived its right to assert the exclusion when it first approved the surgery as medically necessary.  That the “Mobi-C” device was not specifically approved was irrelevant, when a party intentionally relinquishes a right, as Anthem did in Cohorst, the doctrine of waiver applies.

If your ERISA claim has been denied, having an experienced disability, health and life insurance attorney matters to the success of your claim.  Fill out our free consultation form today to set a time to discuss your claim with the McKennon Law Group’s attorneys, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

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