The highest court in our land has decided that it is perfectly permissible for an insurance company to use a limitation of action provision in its policy to bar a claim. This provision will be very hard for many people to follow or understand because it involves a policy analysis and application of specific facts. A limitation of action provision acts as a statute of limitations or a time bar to filing a lawsuit. It sets a time limit to let you know that you must act on your rights by a certain date or else your case will be thrown out and barred by law. These bar dates or statute of limitation dates in most types of cases are easy to understand and follow. For example, if you suffer an injury in an automobile accident, you have 2 years from the date of that accident to file a lawsuit to protect your rights and seek a recovery. However, in ERISA cases, especially those involving insurance companies, that precise date is very difficult to understand and follow. The Supreme Court however says it is permissible to have this confusing provision in a policy.
Let me explain more about the problem. Many policies, especially for long term disability claims and life insurance claims, state that you have to file suit within 3 years of the date that “proof of loss” is required. Then you have to turn to the “proof of loss” provision in the policy and it often says “proof of loss” has to be given within 90 days of the date that you suffered the loss. If it was not possible for you to give proof during that time period then no later than 1 year after the loss is acceptable. For many people this means that if you make a claim for long term disability benefits, you will have 3 years and 90 days or perhaps 4 years to file a lawsuit regardless of whether there is a final decision on your claim. The problem, besides this being challenging for many people to follow, is the fact that the insurance company may not have made a final decision when it is time to file suit. Also, the claim may be paid for some or all of that time. For the time to file suit to begin while a claim is being paid is contrary to reasonable expectations.
This is a very complicated matter when the individual is placed on claim and then benefits are paid for a while and then terminated. One does not think about suing an insurance company when it is paying a claim. The Supreme Court however stated that this is permissible and this creates a trap for the unwary. It would not be unusual for an insurance company to pay a claim and then terminate it with only months left to file suit and still require the individual to go through an appeal process with the insurance company.
In justifying this decision, the Supreme Court noted that it is not necessary for the claim to accrue, which means that there has been a wrong or harm to the individual. Normally, a wrong or harm is necessary to “start the clock” for when a lawsuit must be filed. In other words, you could actually be on claim, in some circumstances, when the clock actually starts for when you must file a lawsuit. After separating these two concepts when the claim “accrued” and when the statute of limitation period commences, the court then moved on to a second justification. This is the provision that is in the plan. The court has always required a plan administrator to enforce the terms of the plan. The court did not want to interfere with an agreement between an employee claiming the benefit and the plan administrator even though the employee had nothing to do with the drafting of the plan and was basically powerless to negotiate its terms.
The next justification for the court was that a lower court could still review the limitations period for “reasonableness”. For example, if a limitations period was set at just a few weeks, a claim of reasonableness might well arise. Absent showing that the limitation period was unreasonable on its face; however, the Supreme Court would not interfere. Of course this is hindsight, which gives little assurance to a claimant before a lawsuit must be filed.
Next the court noted that there was a claim procedure process established by the Department of Labor, which set forth time frames for decisions and appeals. If the insurance company did not follow the time frames, then the participant was free to consider the claim procedure exhausted and proceed with filing a lawsuit. The problem there; however, has been that many courts have not deemed this to be a “penalty” on the plan administrator for failing to follow the time procedures, but rather courts often have remanded the case back to the plan administrator to give them another chance to decide the claim long outside of these time frames required by law. That is hardly fair when it is the individual who has been without benefits for an extended period of time now. Perhaps lower courts will note that the Supreme Court did describe the right to immediate access to judicial review when a claim is unreasonably delayed as a “penalty” for failure to meet the claim regulation deadlines. If it is to be a penalty that would implicate that a remand would not be appropriate which would really be a reward for a late decision. The Supreme Court would have done better to note that the lower court in that instance should not remand the case back to the plan administrator, but decide the case in the first instance and strip the plan administrator of right to decide the claim at that point. The court did note that the employee had best take full advantage of that claim process because a district court often reviews only the evidence that was developed during the claim process in making its decision.
The Supreme Court further justified its decision by noting that the limitations of action provisions are often based upon state law. For example, Alabama Code § 27-19-14 and 27-20-5(7)(2007) requires long term disability policies to have similar proof of loss provisions as found in this Hartford policy. However, the statute is much more explicit than what is usually contained in a policy. For example, under the statute, it is easier to understand that if someone is on claim, then the date proof of loss was required would go back to the last date that the claim was paid. This helps in those instances where an individual is being paid properly. Some policies do not contain this terminology and so may be in violation of state law in that regard. That is certainly something that a claimant will want an ERISA attorney to investigate.
Finally, the Supreme Court ended its justification for its unanimous decision by noting that if there is a voluntary second appeal, and then the limitations period should be tolled during that specific portion of the internal review. The court also noted that lower courts are well equipped if there is other unfairness that arises to invoke the doctrines of waiver and estoppel.
The net result here is that there is no bright line for claimants in understanding the statute of limitation. Rather it requires an in depth analysis of the policy, application of the facts, and interpretation of the law. Very few claimants will find the process easy enough to follow without the engagement of counsel. In this swamp land known as ERISA, rather than taking steps toward sure footing, we have instead ventured deeper into the bog.