First Circuit: Benefit Denial Letters must Explain Plan's Deadline for filing a Lawsuit
The U.S. Court of Appeals for the First Circuit, in Santana-Diaz v. Metro. Life Ins. Co, has ruled that an ERISA-covered employee benefit plan's three year limitation period for filing a lawsuit to contest adverse determinations did not apply because the plan administrator's benefits denial letter did not notify the claimant about the deadline.
Applicable Law. ERISA allows plan sponsors to limit the time period during which a claimant may sue to challenge an adverse benefit determination. Specifically, a plan sponsor may add a contractual limitations provision to their plan to achieve this result. In fact, the Supreme Court, in Heimeshoff v. Hartford Life & Acc. Insur. Co., held that these contractual limitations provisions are valid and enforceable.
DOL regulations require plan administrators to provide a notice of adverse benefit determination to a claimant. This notice must include a description of the plan's review procedures and a statement about the claimant's right, under ERISA, to file a lawsuit to contest the adverse decision.
Prior to Santana-Diaz, plan administrators in the First Circuit satisfied this requirement by including a description of any applicable limitation period for filing suit in the plan document and SPD. As a best practice, many plan administrators provided notice to claimants about any plan-imposed limitation period in benefit denial letters.
Recently, the Third and Sixth Circuit Courts of Appeals have issued decisions in favor of ERISA plaintiffs, holding that the DOL regulations require denial letters to include an explanation of any applicable contractual limitation period for filing a lawsuit under ERISA.
Background. In Santana-Diaz, the employer's LTD plan imposed a two-year benefit limit on benefits for mental or nervous disorders. The claimant, who had been receiving mental disorder LTD benefits for two years, requested an extension of his LTD. The plan administrator denied the claimant's extension request and sent the claimant a benefit denial letter. While the plan administrator's benefit denial letter explained the claimant's right to sue under EIRSA, it did not notify the claimant about the plan-imposed deadline for doing so.
After the plan's three-year contractual limitation period had expired, the claimant sued under ERISA. Upon hearing the matter, the district court sided with the plan administrator and dismissed the lawsuit, finding that it was barred by the plan's limitations period. In turn, the claimant appealed to the First Circuit, arguing that the plan's limitation period should be tolled because the plan administrator's benefit denial letter did not explain the plan's deadline for filing the lawsuit.
First Circuit Review. The First Circuit ruled in favor of the claimant, finding that that the applicable DOL regulations required the plan administrator's benefit denial letter to include an explanation of the plan's three-year limitation period for lawsuits.
The plan administrator had argued that the DOL regulations only required notice of the time limits for a plan's internal appeal processes and not the deadline for filing a lawsuit. The First Circuit, however, rejected this argument, finding that there was no authoritative guidance to support this interpretation of the DOL regulations.
Outcome. The First Circuit concluded that the plan administrator's failure to include information in the benefit denial letter about the plan's three-year limitation period for filing suit rendered the deadline inapplicable. Accordingly, the First Circuit held that the claimant's lawsuit was timely filed, and sent the case back to the district court for further consideration.
Interestingly, the First Circuit did not rule on whether the DOL regulations at issue require plan administrators' benefit denial letters to explain the applicable state's statute of limitations where the plan itself does not impose a time limit for filing suit under ERISA.
Takeaway for Employers. In the wake of Santana-Diaz, plan sponsors in the First Circuit who wish to limit liability for denied benefit claims by relying on their plans' limitation periods must be sure that their benefit denial letters clearly explain the deadline for filing lawsuits. Accordingly, employers that operate plans which contain contractual limitations periods should carefully review all adverse benefit determination communications sent to claimants to ensure that they provide adequate notice about their plan's limitations period.