Significance of Plan Documentation and Communication
Two recent court decisions bear noting in that they both highlight the importance of clear and accurate plan documentation and communication.
Plan terms govern timing for lawsuit challenges
The U. S. Supreme Court has ruled that clear plan terms specifically relating to contractual limitations on bringing a challenge in a claim determination will be honored as long as the contractual limitation set forth in the plan is reasonable (Heimeshoff v. Hartford Life & Accident Life Ins. Co., No. 12-729, (Dec. 16, 2013)). This determination resolves a split amongst the Circuit Courts surrounding this issue.
As background, generally, ERISA does not include a statute of limitations for bringing an action. ERISA and the Affordable Care Act do impose specific rules relating to claims, appeals and external reviews. Beyond that, the plan, according to this decision, can set a timeframe for commencing legal action. In the Heimeshoff case, the plan imposed timeframe is three years from the date that “proof of loss” was due. The Supreme Court has opined that this is a reasonable period of time and thus would be honored.
ERISA plan sponsors may want to review relevant plan documents and clarify contractual limitation language.
Plan Sponsor Liability – Question of Fiduciary Breach
The case of Killian v. Concert Health Plan (2013 WL 5942703 (7th Cir. 2013)(en banc) centers on the issue of a plan sponsor’s liability for a potential breach of fiduciary duty as a result of its insurer’s failure to properly communicate correct plan information to a participant. In this case, the insurer erroneously advised a participant’s spouse that coverage for an emergency surgery performed by out of network providers would be covered by the plan. Prior to the event, the participant and his spouse had not been provided with a list of participating providers nor a summary plan description outlining coverage and benefits restrictions when services are performed out of network. Instead, when the need for urgent surgery developed, they relied upon plan information provided by the insurer’s call center, as well as information contained in their ID membership card. Because the plan’s coverage for out of network services was limited, the couple was left with $80,000 in unpaid medical bills. The participant initiated a lawsuit against both the plan sponsor and the insurer seeking payment of benefits and for breach of fiduciary duty for failure to provide clear and accurate plan information. Currently, the 7th Circuit Court of Appeals en banc panel of judges has determined that this matter be returned to the trial court to review whether a fiduciary breach has occurred.
Again, this case reminds us of the importance of clear and accurate plan communication. Failure to do this could result in a fiduciary breach.