At the center of Employee Retirement Income Security Act (ERISA) benefit claim litigation is the ERISA plan, and in the plan, employers have flexibility to define the obligations required of plan participants before an employer must pay benefits. Careful drafting of an ERISA plan can provide an employer a greater likelihood of success in benefit claim litigation. Part one of this three-part series on preparing an ERISA plan for litigation addressed exhaustion of administrative remedies, gaining the benefit of discretionary decision-making and setting the litigation forum. Part two addresses how defining the statute of limitations and the benefit claim accrual date can increase clarity, predictability and the plan’s likelihood of success in ERISA benefit claim litigation.     

Setting the time: Statute of limitations

A statute of limitations sets the maximum amount of time after an event that a legal action may be initiated. ERISA does not state a statute of limitations for a denial of a benefit claim (note that ERISA does state a limitations period for a breach of fiduciary duty claim). Because ERISA is silent as to the statute of limitations for a benefit denial claim, federal courts will borrow the most analogous state statute of limitations. In most cases, the federal courts borrow the state limitations period for a breach of contract claim; however, states have widely divergent limitations periods for contract claims, so the statute of limitations will vary greatly depending on the location the litigation is initiated. For example, North Carolina has a three-year statute of limitations for breach of contract, while the statute of limitations in Ohio for the same cause of action is 15 years. As a result, employers with employees in multiple states will be subject to varying statutes of limitations on identical types of benefit claims depending on the location in which the plan participant chooses to litigate.

Court have typically allowed ERISA plans to set the statute of limitations, and the plan-defined statute of limitations may be shorter than the statute of limitations typically borrowed from state law. Indeed courts have enforced limitation periods as short as 90 days. The requirements for the plan to dictate the statute of limitations are:

1. The limitations period must not be “manifestly unreasonable”

2. The limitations period must be “published,” which means stated in the documents provided to the plan participants – typically the summary plan description

By setting the statute of limitations for challenging a benefit claim denial, ERISA plans will not be subject to litigation years after a claim review is completed, and the plans will not be subject to the uncertainties of procedural rules across varying jurisdictions.        

Starting the countdown: Accrual of a cause of action

A slightly more controversial issue that the Supreme Court is set to decide in the next term is whether an ERISA plan can specify the accrual date triggering the start of the limitations period. Unlike the borrowing that occurs when a federal court determines the state statute of limitations analogous to a denial of benefits claim, claims accrual or the date when the statute of limitations begins to run, is determined by federal common law. Under federal common law, the discovery rule governs claims accrual. Under the federal discovery rule, a cause of action for a denial of benefit claim accrues when a participant discovers, or with due diligence should have discovered, the injury that forms the basis for the litigation. In cases involving claims for ERISA benefits, the discovery rule has typically required the plan to have made a clear repudiation of the benefit and that the repudiation is known or should be known to the plan participant. In some circumstances, a clear repudiation occurs only after a complete plan administrative process and formal denial; in other circumstances, a clear repudiation may occur much earlier. Understanding the date the statute of limitations starts to run is as important as understanding the length of the limitations period, yet courts have not been uniform in setting the claim accrual date in benefit claim denials.

Compounding the confusion, even though courts routinely enforce plan-defined limitations periods, plan-defined accrual periods have not enjoyed consistent enforcement. For example, some courts have determined that a plan could require its participants to initiate litigation no more than three years after the participant was required to submit proof of loss to the plan—a trigger for the countdown to the claim filing deadline that is typically well before all plan appeals are exhausted. In other cases, however, courts have refused to uphold similar provisions. In part because of this split in the courts, the Supreme Court will weigh in on the accrual issue next fall. Assuming the court approves plan-specified accrual periods, for the sake of uniformity and predictability, ERISA plans should include language defining when a benefit claim accrues.  

Having an ERISA plan ready for litigation can make benefit claim litigation more orderly and predictable. Part III of this series will discuss subrogation, reimbursement and repayment (or whether your plan has a money back guarantee).