A federal court in Arizona recently held that the state’s one year statute of limitations for certain employment disputes barred an ERISA plan’s claim for reimbursement.
On September 24, 2013, the United States District Court for the District of Arizona held that because the ERISA claim was brought more than one year after the plan member settled his underlying case, the plan’s reimbursement was time-barred under the statute of limitations for employment disputes. The Court determined that the reimbursement claim was governed by the one-year statute of limitations for employment matters, rather than the six-year filing limit for breach of a written contract.
The injured plan member received health coverage through his spouse’s employer, Blood Systems, Inc. His underlying tort claim was settled for $100,000 and the ERISA qualified health plan paid approximately half that amount in medical benefits. The Court had the option of applying either the six year general statute of limitations or the one year limit on bringing employment claims. In equating the ERISA reimbursement claim to a claim for benefits and relying on persuasive precedent from two federal appellate courts, the District Court held that the one-year limit on filing employment contract disputes was the most relevant state statute of limitations for this ERISA reimbursement claim. The Court’s ruling stated that its holding would not impede federal interests as the parties to a health plan could always contract for a longer limitations period.
It is well accepted that when there is a cause of action based on benefits entitlement or other ERISA rights (rather than fiduciary claims which have a specific statute of limitations under ERISA) federal courts have looked to the most closely analogous state filing limit. Additionally, the Supreme Court has held that when Congress does not set a statute of limitations for claims arising under federal law, courts should normally apply the most appropriate state limit on the timeframe for filing suit. Because an ERISA plan’s right to recovery is controlled exclusively by the terms of a written plan the most appropriate and analogous state statute has usually been determined to be the statute of limitations governing contract disputes.
The statute of limitations starts to run on the claim for reimbursement once the underlying tort settlement is reached. The right of reimbursement is based upon, and a material condition of, a third party recovery. Until that recovery occurs the right of reimbursement is nonexistent. This also makes sense considering that ERISA only allows for equitable relief, which stems from the settlement proceeds rather than legal relief, which would stem from the plan member’s general assets.
While this case is limited in direct application to Arizona, it can arguably be applied to any state which has a specific statute of limitations pertaining to employment based, contractual disputes. If no such statute exists then the general statute of limitations for written contracts would apply as a default. We anticipate future discussion may revolve around whether a plan’s claim for reimbursement is properly categorized as a “claim for benefits."