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September 2011

Withrow v. Bache Halsey Stuart Shield, Inc., Salary Protection Plan (Ltd) ? California's 4 Year Statute of Limitations Applies to ERISA Claim

Plaintiff's Action Regarding the Calculation of Her ERISA Disability Benefits Was Not Barred by California's 4 Year Statute of Limitations or Her Policy

2011 U.S. App. LEXIS 17526; 11 C.D.O.S. 10750 (9th Cir. 2011)

The Ninth Circuit Court of Appeals reversed the California District Court's decision in favor of an ERISA plan dismissing plaintiff Valerie Withrow's action regarding the proper calculation of her long term disability ("LTD") benefits as untimely, holding Withrow's ERISA claim was not barred by California's 4 year statute of limitations or the policy's contractual limitations provision.

In 1979, Withrow was employed by Bache Halsey and was paid on a commission basis.  She had LTD coverage under the Bache Halsey Stuart Shield, Inc. Salary Protection Plan ("Plan"), which was insured by Reliance Standard Life Insurance Company ("Reliance").

Withrow was periodically disabled due to degenerative disc disease and other conditions beginning in 1982, and became totally disabled from her employment on December 6, 1986.  She applied for LTD benefits on January 15, 1987.  In early 1987, she spoke with Reliance employee Dominic Lorenzo, regarding her belief that she should have been receiving the maximum benefit under the Plan of $5,000 per month, rather than the $3,950 that Reliance determined she was due.

Withrow called Reliance on August 14, 1990, claiming there was an error in the amount of her benefits.  Reliance advised her to put her concerns in writing, but did not inform her of any deadlines to do so.  On October 1, 1990, Withrow wrote a letter to Lorenzo stating she was "not convinced" she was receiving the proper benefits. 

Withrow did not receive a response to her letter.  On November 5, 1990, she sent another letter to Lorenzo asking him to respond. A Reliance employee noted on that letter that someone at Reliance called Withrow after November 5, 1990, and left a message, stating Reliance's "original determination of [her] salary" remained the same.

There were no communications between Withrow and Reliance, except for her receipt of monthly benefits, for twelve years.  In January 2002, Withrow called Joseph Tierney, a Benefits Manager at Bache Halsey about her underpaid benefits.  Tierney spoke to someone at Reliance, who stated the benefits calculation was correct.  No one contacted Withrow after her communication with Tierney.

Five months later, Withrow wrote to Tierney, asking him to restore her lost income "to its proper level" and enclosed disability payment documents.
A week later, Withrow wrote to Rob Loy, Manager of LTD claims at Reliance, asking him to restore a significant underpayment of her benefits.  No one responded.

On June 28, 2002, Withrow called Joseph C. Fischer, Jr., a Senior Managing Benefit Consultant at Reliance, to request help obtaining an audit for her claim.  Loy responded and stated Reliance needed more time to complete its research and that someone would call her in a few days.

On October 16, 2002, Withrow wrote to Loy again and provided him with more information to support that her benefits were miscalculated.  After receiving no response, she wrote Loy on November 12, 2002, stating that if a reasonable settlement was not obtained within 20 days, she would have her attorney take action.

On February 12, 2003, Loy sent Withrow a letter denying her claim, stating Reliance's calculation of her benefits was correct, and that she could appeal.
On July 21, 2003, Withrow appealed.  On January 14, 2004, someone from Reliance left her attorney a message indicating Reliance was upholding its denial.  Reliance never issued a written decision.

On February 16, 2006, Withrow filed a complaint in district court seeking benefits under ERISA § 502(a)(1)(B).  The district court dismissed her complaint as untimely under the applicable statute of limitations and the policy, finding she had reason to know in 1990 that her claim regarding miscalculated benefits was denied.

Withrow appealed.  The Court of Appeals reversed and remanded the district court's decision, holding that to determine if an ERISA claimant's action is timely, it must determine if the action is barred by the applicable statute of limitations, and then if the action is contractually barred by the limitations provision in the policy.

The Court of Appeals held that California's four-year statute of limitations for contract disputes applied but that under federal law, an ERISA cause of action accrues "either at the time benefits are actually denied, or when the insured has reason to know that the claim has been denied."  A claimant has a "reason to know" when the plan communicates a "clear and continuing repudiation of a claimant's rights under a plan such that the claimant could not have reasonably believed but that his or her benefits had been finally denied."

The Court of Appeals stated the only evidence of Reliance's response to Withrow's call and letters in 1990, was a handwritten note by a Reliance employee, noting someone left a message for Withrow stating the "original determination of salary stays the same."  The Court of Appeals held this response was insufficient to constitute a "clear and continuing repudiation" of Withrow's claim. Further, in 2002, Reliance encouraged her to submit additional documentation to prove the benefits were miscalculated.  Withrow repeatedly contacted Reliance regarding her concerns and "was met with indications that the Plan disagreed but also with encouragement to her to continue communicating with the plan and to provide more information."

The Court of Appeals held Withrow's benefits were "actually denied" on January 14, 2004, when Reliance informed her attorney by phone that her appeal was denied, and that her claim accrued at that time.  Withrow timely filed her action on February 16, 2006, within the four-year statutory limitations period.

The Court of Appeals held that Withrow's action was not barred by the limitations provision in the policy because it was "meaningless" when applied to disputes over the calculation of monthly disability benefits, as opposed to disputes over entitlement to benefits.

Accordingly, the Court of Appeals reversed and remanded district court's decision.

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This opinion is not final.  Though it has been certified for publication, it may be modified on rehearing, or granted review by the United States Supreme Court.  If any of these events occur, the opinion would be unavailable for use as authority in other cases.

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