Must denial letters inform the claimant, seeking ERISA-governed benefits, about the contractual limitations provision?

A recent court trend, like with the First, Third and Sixth Circuits, requires denial letters to inform the claimant of the Plan’s contractual limitations provision. See, e.g.,  Santana- Díaz v. Metropolitan Life Insurance Co., No. 15-1273, 1st Cir. (March 14, 2016) (“Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit.”)

Other courts have rejected arguments that ERISA regulations impose an affirmative duty to include the length of the limitation period for filing suit in claim denial letters. Scharff v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899 (9th Cir. 2009); Wilson v. The Standard Ins. Co., No. 11- 2703, 2014 U.S. Dist. LEXIS 12111 (N.D. Al., Jan. 31, 2014); (holding that a claim-denial letter complied with the regulation despite omitting the civil action limitations period); Koblentz v. UPS Flexible Emp. Benefits Plan, No. 12-CV-0107-LAB, 2013 WL 4525432, at *4 & n.5 (S.D. Cal. Aug. 23, 2013) (same).

The evolving “best practice”: add information regarding the contractual limitations period in the denial letter.

And…here is some good news: sometimes you can use the contractual limitations defense even if the contractual limitations period was not disclosed in the denial letter.

Here’s the case of Upadhyay v. Aetna Life Insurance Company, __Fed. Appx. __ (9th Cir. March 23, 2016).

FACTS: Upadhyay sought ERISA-governed disability benefits.  The Plan stated: “No legal action can be brought to recover any benefit after 3 years from the deadline for filing claims.” Upadhyay was required to file her claim for benefits by July 1, 2007, making the date by which to file a lawsuit at July 1, 2010.  But she did not file her lawsuit until March 4, 2013.

Aetna denied the claim, but the denial letter failed to inform Upadhyay of the Plan’s contractual limitations period for filing suit.

9th Circuit Court of Appeals HELD: Summary Judgment for Aetna Affirmed.

  1. “[P]arties may ‘agree[] by contract to commence the limitations period at a particular time.’” Op. at 3.
  2. Aetna did not waive its contractual limitations defense despite failing to inform Upadhyay, in its denial letters, of the Plan’s contractual limitations period for filing a lawsuit under ERISA.”  Op. at 2.
  3. “Under California law, an insurance company cannot waive a contractual limitations provision defense when the limitations period has already run.” Op. at 2-3 (Emph. added).
  4. “Even if Aetna could waive the contractual limitations period, Upadhyay [failed to show] ‘an element of detrimental reliance or some misconduct’ on the part of Aetna.”  Op. at 2-3.
  5. Aetna’s contractual limitations defense was not “an impermissible attempt to circumvent California’s notice-prejudice rule.”  Op. at 4.
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Photo of Mike Reilly Mike Reilly

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment…

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment advice, and has represented clients in more than 75 jury trials, arbitrations, bench trials and claims before the EEOC and Washington State Human Rights Commission.

Small and large employers retain Mike for his strategic advice and decades of experience in employment issues and litigation, business decisions and litigation avoidance. Mike provides advice in claims involving discrimination, retaliation, wrongful discharge, disability accommodation, ERISA and non-ERISA employee benefit claims, and wage/hour claims. He served as lead counsel in an employee raiding/trade secret case as reported in the Wall Street Journal, and defends employers in class action claims.

Mike’s remarks on employment issues have been quoted in NewsweekCorporate Legal TimesSeattle TimesEmployee Relations Law JournalPuget Sound Business JournalCFO.com, and other professional journals and management publications. Chambers USA’s Guide to America’s Leading Lawyers for Businessrates Mike in the top ranking (band one) for his work in labor and employment law, and has described him as “one of Seattle’s top-rate attorneys” who is “truly phenomenal [with] superb legal instincts” and “an amazingly assertive litigator.” His clients include Nordstrom, Seattle Seahawks, Home Depot, KeyBank, Starbucks, Fred Hutchinson Cancer Research Center, Red Robin and Seattle Chamber of Commerce, among others.