Supreme Court upholds insurance policy’s contractual limitations period

You might not be familiar with the Employee Retirement Income Security Act. Nonetheless, if you work in private industry, ERISA standards probably govern any voluntarily established health or pension plans provided through your employer.

The United States Supreme Court recently issued an opinion that could affect you if you need to pursue an insurance bad faith claim. Under the precedent established by the case Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-Mart Stores, Inc., you might not have as much time as you think to take legal action if your insurance claim was wrongfully denied.

Clock starts running when policy says it does as long as it is reasonable

In Heimeshoff, the plaintiff was Senior Public Relations Manager for Wal-Mart Stores Inc. After serving as a Wal-Mart employee for nearly 20 years, she developed symptoms of fibromyalgia and other medical conditions that forced her to stop working. She was covered under a group long-term disability policy provided through Wal-Mart, and she applied for benefits.

Hartford Life & Accident Insurance Company was the administrator of the long-term disability plan, and initially requested more information from the plaintiff and her doctors. When Hartford did not receive the information, it denied the claim.

Ultimately, the plaintiff did get a reconsideration of her claim, provided the necessary information and underwent a medical evaluation by a physician hired by Hartford. Even so, her claim was still denied, as Hartford found she should be capable of performing her job.

Several years elapsed before the plaintiff filed an ERISA action concerning the claim denial. At the district court level and on appeal, it was determined that the case should be dismissed because the limitations period had expired. Finally, the case made it all the way to the Supreme Court for an ultimate determination of whether or not it was filed too late.

A statute of limitations or limitations period bars lawsuits if too much time has passed. The length of the limitations period may vary depending on the case, but the basic idea is that after a certain number of years, a legal claim concerning a given matter can no longer be brought. But when does the clock start ticking in an ERISA case?

Normally, a plaintiff must exhaust all levels of internal appeals before filing an ERISA lawsuit. The plaintiff in Heimeshoff argued that in this context, the statute of limitations should begin to run at the point when a claim could have been filed, i.e., after the internal appeals process has been exhausted. Hartford and Wal-Mart argued that because the insurance policy stated that the statute of limitations would begin to run at the point when proof-of-loss was due, this was the appropriate time to start the clock.

The Supreme Court held that the insurance plan contract represented a valid agreement to a particular limitations period. Such contracts are valid, according to the Court, so long as they are reasonable. Since this contract would have given the plaintiff in Heimeshoff adequate time to file an ERISA case if she had not waited several years to do so, her cause of action was barred since she filed outside of the stated limitations period.

Takeaway: Seek legal help immediately if your insurance claim has been denied

Heimeshoff has one significant takeaway for everyone: if you have a potential insurance bad faith claim, you need to talk to a lawyer about it immediately. If your insurance claim has been wrongfully denied, ensure you do not lose the right to sue and act as quickly as possible.