In this article, I want to highlight, once again, the importance of rendering timely responses to correspondence from your long-term disability insurance company. I also want to highlight the importance of paying attention to statutes of limitations. A long-term disability case that came before the United States Court of Appeals 11th circuit recently highlights these issues.
The foundation of this case began back in 1999. Stuart S. Johnson, a participant in a group disability policy issued by Unum Life Insurance Company of America (Unum), applied for long-term disability benefits. Unum denied his application. The administrative appeals process allowed him to request review of the decision three times. Johnson appealed three times and was denied each time.
He received final notification on March 22, 2001. At this time, Johnson did not pursue legal action. But several years later following a government investigation into Unum’s claim settlement practices, Unum agreed to reassess certain claims it had previously denied. Johnson was notified in January 2005 that Unum was willing to review his claim if he returned the form they sent him. Johnson did so within a week, indicating that he did want his claim reassessed. Unum acknowledge that they had received his letter and informed him that he would receive a reassessment information form in the mail.
Unum sent the form out in September 2005, nine months later. The instructions told Johnson to complete the form and return it within 60 days. Johnson did not return the form within the 60 days, so on May 1, 2006 Unum sent Johnson a letter advising him that because they had not received the form by the due date, they would take no further action on his claim.
Johnson sought counsel, and Unum and his attorney exchanged correspondence over the next several months. One telephone conversation with a Unum employee indicated that the file was still open. But on October 26, 2006, Unum mailed a letter to Johnson’s counsel stating that because Johnson had not submitted the reassessment information form in a timely manner, Johnson’s claim was closed.
Johnson filed suit in the United States District Court for the Northern District of Alabama almost 2 years later on October 22, 2008. Johnson asserted that two state laws had been violated.
- A breach of contract for failing to comply with the reassessment settlement agreement.
- A breach of covenant of good faith and fair dealing for failing to conduct the reassessment process in good faith.
The suit also sought to prevent Unum from asserting a statute of limitations defense based on language in the long-term disability insurance policy. And of course, the suit sought restitution for premiums that had not been paid and benefits which had been denied. Johnson also asserted that Unum’s conduct had been willful and/or wanton because it failed to properly implement the reassessment settlement agreement.
In addition to all this, Johnson also presented a federal claim asserting that Unum failed to perform its duties under the Employee Retirement Income Security Act (ERISA).
In response Unum moved for summary judgment. The District Court, upon review, determined that ERISA preempted the state laws regarding breach of contract. While the court upheld that a breach of covenant of good faith and fair dealing and a claim for willful and/or wanton misconduct was not preempted by ERISA, they ruled that the case was barred under Alabama’s statute of limitations. The District Court barred Johnson’s ERISA claims citing the statute of limitations as well. As a result of this decision, essentially Johnson had no case, and the court ruled in favor of Unum.
Johnson appealed, but the Appeals Court agreed with the District Court’s decision. Here is how they reached their decision.
First, the Appeals Court had to consider whether the District Court was correct in assigning ERISA preemption over state law. In order to do this, the judges had to evaluate whether preemption was appropriate. There are four elements the court uses to make this determination.
- Is there a relevant ERISA plan?
- Does the plaintiff have the right to sue under that plan?
- Is the defendant an ERISA entity?
- Is the complainant seeking compensatory relief comparable to that available under § 1132(a).
When the answer to all four questions is yes, complete or “super preemption” exists.
The Appeals Court found the District Court’s analysis – that Johnson’s claims for breach of contract, equitable estoppel and restitution were subject to super preemption, were well reasoned. In addition, the judges found that the state law claims were barred by Alabama’s statute of limitations, even if they did come under ERISA preemption.
The court applied Alabama’s two-year statute of limitations to the breach of covenant claim. Using the most generous timeframe available, Unum’s May 2006 notification that they would take no further action on his claim, Johnson’s claim would have had to be filed no later than May 2008. Johnson did not file his complaint until October 2008. The late filing barred the court from considering the claim.
And finally, the Appeals Court had to address whether Johnson’s ERISA claims were also barred by the statute of limitations. The court recognized that ERISA itself does not have a statute of limitations. But it is the practice of the court to borrow a limitation period that is comparable to the limitation made by the state or to use the limitation within the insurance contract as long as this is reasonable.
Applying this principle, the judges reasoned that Johnson had the right to take his case to court within three years of the initial denial, which they set at March 22, 2001 when Unum issued its final denial. Unum provided for a three-year limitation, which expired on March 22, 2004. This was more than four years before Johnson filed suit. They determined that even if the reopening of his case by the reassessment settlement agreement, reset the statute of limitations, Johnson did not argue in his appeal that this restarted of the statute of limitation period.
This was a grave error on Johnson’s counsel’s part. While the argument may not have persuaded the judges to overturn the District Court’s decision, in considering the appeal, the court used the failure to include this argument as a factor in its decision making process. Failure to include this argument guaranteed Unum’s victory.
There are two principles to remember here:
- Make sure you respond to any correspondence to your disability insurance provider promptly. They can and will use this as a reason to close your case.
- Don’t let an attorney fool you into thinking that the courts will overlook the statute of limitations within your state or the policy. While only an attorney can advise you about the fine details of disability insurance law, education yourself on the basic rules of the legal system, so you can be assured that your results can be better than Mr. Johnson’s.