Including Limitations Periods in Denial Letters: From “Best Practice” to Necessity
Sponsors of group health plans in the First Circuit must now describe any contractual limitations period, if the plan applies one, in the letter advising a participant of a final adverse benefit determination. In light of the decision of the U.S. Court of Appeals for the First Circuit in Santana-Diaz v. Metro. Life Ins. Co., No. 15-1273, 2016 WL 963830 (March 14, 2016), the failure to include such a description would preclude the application of a contractual limitations period. ERISA does not prescribe a statute of limitations for initiating a civil action. However, as discussed in our 2015 Mid-Year Client Advisory, a plan sponsor may limit the amount of time a participant has to initiate a lawsuit under ERISA by adding a contractual limitations period to its plan. The limitations period should be included in the plan document and the SPD and, until recently, it was a "best practice" to make the limitations period known in adverse benefit determination letters. Following Santana-Diaz, however, including a description of the applicable limitations period in the final benefit determination is now a necessity for plan sponsors in the First Circuit.
The decision in Santana-Diaz turns on the Court's interpretation of a DOL regulation, 29 C.F.R. § 2560.503-1(g)(1)(iv), which requires that a notice of adverse benefit determination include a "description of the plan's review procedures and the time limits applicable to such procedures, including a statement of the claimant's right to bring a civil action." Until recently, Circuit Courts of Appeal were split on the question of whether a description of the limitations period must be included in the final adverse benefit determination. CompareMoyer v. Metro. Life Ins. Co., 762 F.3d 503 (6th Cir. 2014) (regulatory language mandates a description of the limitations period) with Wilson v. Standard Ins. Co., No. 14-10825, 2015 WL 3477864 (11th Cir. June 3, 2015) (regulatory provision ambiguous, declining to equitably toll a plan's limitations period when benefit determination advised of the right to sue but did not describe the plan's limitation period). Recently, however, the Courts of Appeals have begun to align in favor of ERISA plaintiffs as the Third Circuit in Mirza v. Ins. Adm'r of Am., Inc., 800 F.3d 129 (3d Cir. 2015) and now the First Circuit in Santana-Diaz have concluded that the regulation requires plan administrators to provide participants with a notice of the right to bring a civil action and the time limit for filing the action in final denial letters.
Following Mirza, the First Circuit reasoned that to interpret the regulation as imposing two separate requirements – (1) notice of review procedures and the timing that applies to such procedures, and (2) a separate notice of the right to sue under ERISA – would be reading the word "including" out of the regulatory language. The First Circuit also noted ERISA's intent to provide fair opportunity for judicial review and explained that when attempting to identify a limitations period claimants are more likely to read a denial letter than to examine the plan documents they may have received years earlier. Because the First Circuit concluded that the plan administrator's failure to comply with the language of the regulation was per seprejudicial, it found the contractual limitations period to be without effect and applied a much longer state statute of limitations period.
Employers should take note of the decision in Santana-Diaz and heed the warning it provides – if you hope to limit liability for denied benefit claims by including a contractual limitations period, you must include a description of the period in the final adverse benefit determination. Describing the limitations period in the plan document and SPD is no longer enough. Employers should review all adverse benefit determination communications produced in-house and by third party administrators to ensure they include a notice of the limitations period outlined in the plan.