ERISA's Limitation of Actions Period
ERISA does not identify a time frame for participants and beneficiaries to bring an action in federal court to challenge a denial of benefits. This is unfortunate given that claims from wrongful benefit denials are by far the most common type of claim brought under the statute. But earlier this week the U.S. Court of Appeals for the Fourth Circuit brought some greater predictability to the area in White v. Sun Life Assurance Co. of Canada, ___ F.3d ___, 2007 U.S. App. LEXIS 9467. It’s a pretty straightforward set of facts and legal issue. Margaret White submitted a disability claim to Sun Life on May 5, 2000. Sun Life denied the claim on August 15, 2000. White appealed that denial in October, 2000 and submitted additional medical records and arguments as to why her claim should be paid. Sun Life reviewed the appeal and denied it by letter dated March 28, 2001. White filed suit on March 26, 2004. The time frame within which she was required to file suit, her limitation of action, was identified in the insurance policy as three years from the date a proof of claim was required. The issue that took most of the attention of the court was whether the three years ran from the date of Sun Life’s initial denial (in which case White filed suit too late) or three years from the date Sun Life denied White’s appeal (in which case White squeaked in under the wire). Over a dissent, the court ruled that White’s Complaint was timely filed. One persuasive argument for the majority was the fact that White was required to file her pre-litigation appeal to Sun Life before she had the ability to file suit. It is well established under ERISA that a claimant must exhaust pre-litigation appeals before filing suit for recovery of denied benefits. To adopt the rule that Sun Life argued for would mean that the time frame within which White was required to bring suit would begin to run before the plan allowed her to do so. She would have to go through the pre-litigation appeal process first. And there is no time limit under ERISA to indicate when that process must be completed. This troubled the majority. If the pre-litigation appeal process was complex or took significant time for some other reason, it could leave a claimant with little or no time, after finally determining that the ERISA plan was not going to reverse its denial, to bring suit. The majority also was concerned that adopting the rule Sun Life urged would create “perverse incentives” for insurers to prolong the pre-litigation appeal process to the point where the insurer effectively runs out the clock on the claimant. While ERISA plans are given broad latitude to design their benefit plans in the way they see fit, the court ruled that this principle cannot be allowed to undermine two other important purposes of the statute. First, the statute is in place to provide to plan participants and beneficiaries “appropriate remedies, sanctions, and ready access to the Federal courts” (quoting 29 U.S.C. §1001(b)). To put into the hands of insurers the ability to unilaterally cut short the time frame within which claimants can bring suit by controlling the length of time it takes to carry out the preligation appeal process is an impermissible interference with this provision of the statute. Second, the court ruled that leaving the time frame for bringing suit variable would violate the important policy underlying the statute of ensuring that the written documents under which a plan is operated provide clear notice of all a participant’s rights and obligations. Tying the time frame to bring suit to the date of first denial, while at the same time requiring exhausting of pre-litigation appeal remedies, would place claimants in a Catch-22 of not knowing, or at the very least, not having control over, when the period to bring suit would begin. Sun Life tried to escape this time frame ambiguity by arguing that courts would have the power to determine on a case by case basis whether the time frame left to bring suit after final denial of pre-litigation appeals was “reasonable.” If so, and the claimant failed to sue in time, they would be precluded from litigation. If not, the court could allow more time for the claimant to file suit. But the majority cut this argument off at the knees. One of the primary purposes of putting in place and enforcing time frames beyond which litigation is not allowed is to provide clear notice to all interested parties of the periods within which they must act to preserve their rights. Another fundamental goal of such limitation periods is to provide predictability; to put in place time frames beyond which individuals may be confident they are no longer required to preserve records, set aside reserves for contingent liability, etc. Sun Life’s position would put in place a floating period for limiting suits under ERISA that would completely fail to impose that important notice and predictability. The rule the Fourth Circuit settles on in White is not particularly well-established at this point in the evolution of federal common law under ERISA. That is surprising given its logic, fairness and ease of application.