Archive for December, 2013

The U.S. Supreme Court Unanimously Holds that ERISA Plans’ Limitation of Actions Provisions Must be Enforced as Written – Heimeshoff v. Hartford Life Insurance Company

Tuesday, December 17th, 2013

Today, in Heimeshoff v. Hartford Life Insurance Company, 571 U.S. __ (2013), the U.S. Supreme Court unanimously affirmed a Circuit Court ruling that dismissed an action for benefits on the ground that the plaintiff failed to commence her action timely as required by her employee welfare benefit plan’s limitation of action provision. Unlike most statutes of limitations which start the clock on the date the claim accrues, the plan’s limitations period required that lawsuits concerning benefit claims be brought within three years from the date proof of loss is due. Justice Clarence Thomas delivered the opinion of the Court, reaffirming the importance of written plan terms in cases brought under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1001, et seq.

The Supreme Court accepted certiorari in Heimeshoff to resolve a split between the majority of circuits – which have held that plan limitation of actions periods running from the date proof of loss is due are enforceable as written – and the Third, Fourth and Ninth Circuits – which have held that ERISA-plan limitations periods must be tolled until participants complete all internal claim review and appeal procedures, regardless of the plan terms. Notably, ERISA does not have a statute of limitations for benefit claims.

Julie Heimeshoff (“Heimeshoff”) was a participant whose lawsuit for benefits under ERISA § 502(a)(1)(B) was barred by her plan’s three-year limitation of actions period that ran from the date proof of loss was due. Heimeshoff actually had at least one year (from the date she exhausted her internal review and appeal remedies) to commence her lawsuit, but still failed to file her claim in a timely manner pursuant to the plan’s terms. On appeal to the Supreme Court, Heimeshoff argued that the plan’s three-year “clock” should not start until the internal claim and appeal process had been completed. Heimeshoff argued that the application of this rule would bring uniformity to limitations periods under ERISA, and enforcing plan limitation of action terms running from the date proof of loss is due leads to a lack of uniformity because the administrative review and appeal process takes varying amounts of time from case to case, leading to unequal time for participants to file their lawsuits depending on when the administrative process concludes. Heimeshoff argued that the Court can rectify this problem by ruling that no plan limitations period could start running before claimants had exhausted their internal administrative remedies. The Court resoundingly rejected Heimeshoff’s arguments, holding that ERISA plan terms must be enforced as written. The Court also analyzed the governing Department of Labor regulations providing for a full and fair review under ERISA, and noted that the time it takes for claimants to complete the plan’s internal review and appeal process generally will leave more than sufficient time for them to commence a lawsuit in compliance with the plan’s limitation provision. (Slip op., at 10-11).

This holding is entirely consistent with the Court’s recent rulings, which emphasize the importance of the “written plan rule” in ERISA cases. Relying on its recent prior precedents in U.S. Airways, Inc. v. McCutchen, 569 U.S. __ (2013), Conkright v. Frommert, 559 U.S. 506 (2010) and Kennedy v. Plan Administrators for DuPont Sav. and Investment Plan, 555 U.S. 285 (2009), the Court again held that courts must enforce ERISA plan terms as written. (Slip op., at 8).

The Court also reaffirmed the importance of the internal claim and appeal review process, noting that the reviewing court must defer to the determination of the ERISA plan’s claim fiduciary when the fiduciary has discretionary authority to make such decisions under the terms of the plan. The Court explained that it is important for claimants to participate fully in the plan’s internal claim and appeal process in order to “develop evidence during internal review, [or] they risk forfeiting the use of that evidence in district court.” 571 U.S. at __ (slip op., at 11). The Court also encouraged claimants to focus their effort on the internal claims and appeal procedure, stating “[i]n short, participants have much to lose and little to gain by giving up the full measure of internal review in favor of marginal extra time to seek judicial review.” Id. (slip op., at 12).

The Court recognized only a few exceptions to enforcing an ERISA plan’s limitation of actions provision: first, where a controlling statute does not allow for a contractual limitations period (571 U.S. at __ (slip op., at 9)); second, if the plan’s prescribed period is unreasonably short (id.); and third, when the administrator’s conduct causes a participant’s untimely filing (slip op., at 15). In these circumstances, the Court found that a reviewing court may fashion a remedy, noting that equitable tolling also would apply if the administrator chooses to offer another level of review after the mandatory administrative appeal has been exhausted, which is required by ERISA’s regulations. None of these exceptions were present in Heimeshoff.

The Supreme Court’s decision undoubtedly will be welcomed by plans and plan administrators. The decision brings uniformity and predictability when writing ERISA plans. It now also brings the minority of circuits into harmony with those other circuits that had enforced plan limitation of actions provisions as written.

Insured May Retain Rights to Insurance Proceeds for Covered Losses Predating Foreclosure

Tuesday, December 10th, 2013

In Peacock Hospitality, Inc. v. Association Casualty Ins. Co., — S.W.3d —, 2013 WL 6188597 (Tex. App-San Antonio Nov. 13, 2013), a Texas appellate court overturned a summary judgment ruling in favor of an insurer, Association Casualty Insurance Company, on the grounds that an insured may retain its rights under a property insurance policy for losses predating foreclosure, and an insurer does not have the right to enforce a covenant in an insured’s deed of trust divesting the insured’s rights under the policy to its mortgagee.

Association Casualty’s insured, Peacock Hospitality, Inc. (“Peacock”), sued for the alleged underpayment of a claim for water damage under its property insurance policy.  However, subsequent to the loss and the payment of the insurance claim, Peacock’s mortgagee had foreclosed on the subject property.  Association Casualty argued that, as a result of the foreclosure, Peacock did not have a cause of action under the policy and, pursuant to its deed of trust with the mortgagee, Peacock divested any rights it may have had under the policy upon foreclosure.

The appellate court ruled that an insured may retain certain rights under its insurance policy in the event a foreclosure occurs after a covered loss.  A loss-payable clause in the policy provided that Association Casualty would pay the mortgagee for covered losses even if the mortgagee had initiated foreclosure proceedings on the insured building.  The court noted that loss-payable clauses in insurance policies protect mortgagees’ security interests, but only to the extent of the insured’s indebtedness under the deed of trust.  Thus, the court reasoned, when the proceeds of a foreclosure and the covered losses from a pre-foreclosure loss fully satisfy a mortgage debt, the mortgagee no longer has a right to further insurance proceeds for the pre-foreclosure loss.  In that event, the insured is entitled to the remaining insurance proceeds and may bring an action against the insurer for underpayment, because any excess value in the property at the time of the loss is the property of the insured.  Because the court could not ascertain the extent to which the proceeds of the foreclosure and the covered losses for the pre-foreclosure loss satisfied Peacock’s debt, it found that a genuine issue of material fact existed regarding whether Peacock had a cause of action under the policy.

The court further noted that, although the insured had divested its rights under the policy to the mortgagee upon foreclosure, because the insurer was neither a party to nor a third-party beneficiary of the deed of trust, it was not entitled to rely on the covenants in that contract to defend against Peacock’s claims.


Webinar Series: The State of Bad Faith

Wednesday, December 4th, 2013

Sedgwick’s 2013 webinar series explored the current state of insurance bad faith law and practical issues impacting the defense of bad faith cases in Washington, California, Florida, New York, New Jersey, Texas and Illinois.

The Washington program was presented by Sedgwick Seattle’s Bob Meyers on  June 12, 2013.

The California program was presented by Alex Potente (Sedgwick San Francisco) and on July 10, 2013.

The New York/New Jersey program was presented by Sedgwick New York’s on August 21, 2013.

The Florida program was presented by Ramón Abadin (Sedgwick Miami) and Al Warrington (Sedgwick Miami) on September 25, 2013.

The Texas program was presented by Sedgwick Dallas’ Lisa Henderson on October 30, 2013.

The Illinois program was presented by Sedgwick Chicago’s and on November 13, 2013.


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Sedgwick’s insurance attorneys regularly present to clients and other industry professionals on a wide range of topics. For a complete list of our attorneys, click here.
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