In an era when lawsuits appear to be targeting fiduciaries, one of the areas that is becoming more important for fiduciaries is the practice of implementing steps to reduce litigation risk. One such practice which has been challenged and upheld in the courts is the inclusion of a limitation period in the documents governing the plan. The limitation period provision limits the period of time during which a participant or beneficiary can bring suit. The idea behind such limitation periods is to protect fiduciaries so that they are not subjected to a risk of lawsuit any longer than they have to be under the law.
Such a limitation period was recently upheld in the Second Circuit in the case of Burke v. PriceWaterhouseCoopers LLP Long Term Disability Plan, et al. The Plan’s limitation period prohibited a claimant from bringing legal action more than “three years after the time written Proof of Loss is required to be furnished." The Second Circuit stated that they were joining the Fifth, Sixth, Seventh, and Eighth Circuits in upholding the limitation period.
If the plan had not included the limitation period, then the case would not have been dismissed. A longer limitation period of 6 years provided under New York law would have applied.
With the assistance of legal counsel, plan sponsors may want to examine the applicable law in their circuit and determine whether inclusion of such a limitation period in the plan documents would be beneficial. Results vary from circuit to circuit as to (1) the extent to which a limitation period will be upheld, and (2) the length of the limitation period that is deemed permissible.
Certainly, if a limitation period is drafted into the plan document,it should also be communicated to participants and beneficiaries in the summary plan description and in any claims procedures communication materials as well. In the case of Solien v. Raytheon Long Term Disability Plan #590 decided last year, a district court found a one year Plan-imposed limitations period to be reasonable, but refused to enforce it since it had not been communicated to participants sufficiently.
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