The U.S. Court of Appeals for the Third Circuit held that, under the “clear repudiation” rule, a claim for benefits under an ERISA-governed plan arises when the plan fiduciary makes known to the participant that he or she is not entitled to benefits. Miller v. Fortis Benefits Insurance Co., No. 05-2539 (3d Cir. January 29, 2007)

The clear repudiation rule does not require a formal administrative denial of the participant’s claim by the plan’s fiduciary. An event other than a denial will trigger the statute of limitations if the repudiation is clear and made known to the participant. As a result, the six-year statute of limitations can start to run before an administrative claim has been lodged or denied.

In this case, Miller began receiving long term disability benefits in 1987. It was not until 2002 that he realized the benefit amount was incorrect and that he had been underpaid for all those years. Miller filed an administrative claim for benefits, which was denied, and then he filed suit. Miller argued that the limitations period began to run when his administrative claim for benefits was denied by the plan administrator (ie. 2003).

Miller′s argument was rejected. Applying the “clear repudiation” standard, the Court held that each of Miller′s underpayments was a clear repudiation. The underpayments were a repudiation because they were effectively a partial denial of benefits. Here, those underpayments were a clear repudiation because Miller should have known that his benefits were incorrect since they were a percentage of his pay (ie., a calculation that Miller could have easily performed himself). Thus, the statute of limitations began to run in 1987 when Miller′s benefit payments commenced, rather than when the plan administrator denied his claim for benefits. As a result, Miller′s suit was thrown out because it was filed beyond the six-year limitations period.

The Court also rejected application of the “continuing violation” theory under which a new cause of action is said to arise each time that the participant receives a benefit payment. The Court held that the continuing violation theory was inconsistent with the very purpose of statutes of limitations.

The case is good news for plans and plan fiduciaries in New Jersey, Pennsylvania, Delaware, and the Virgin Islands--states and a territory within the Third Circuit. Bottom line: if a participant makes a claim for additional benefits where payments commenced more than six years earlier, the plan may avoid liability on statute of limitations grounds.

We note that the Third Circuit’s application of the clear repudiation rule in the Fortis case is not consistent with the holdings of other courts. For example, the court in the aestern district of New York required that a plan formally deny a participant′s request for adjustment before the statute of limitations begins to run. Therefore, this case may not be applicable elsewhere and it may be appealed to the United States Supreme Court.