California: Often Overlooked, but Effective, Provisions to Consider for your Benefit Plans
The Issue: When benefits under welfare plans – such as health plans and disability plans – are denied, litigation frequently results. In the context of “self-funded” plans (in contrast to “fully insured” plans, which are administered by insurance companies), that litigation can be time consuming, expensive and disruptive.
The Solution: Companies that sponsor self-funded welfare benefit plans should consider including choice of forum provisions, and clauses that shorten the time in which a lawsuit may be filed.
Analysis: Many large companies self-fund their welfare benefits. That is, rather than obtain an insurance policy to cover such things as health claims and disability claims, companies elect to self-fund those benefits. Those companies should consider incorporating “choice of forum” provisions, and provisions that require lawsuits to be filed within a shorter period of time than the law might otherwise require.
“Choice of forum” provisions require plan participants whose claims are denied to file a lawsuit in a particular court. For example, the provision may require lawsuits to be filed in the federal district court in the district where the company is headquartered. Several courts have upheld these provisions, and dismissed cases filed in courts other than the court specified in governing plan documents.
“Contractual limitations” provisions shorten the time that employees whose claims are denied have to file a lawsuit challenging the denial. The United States Supreme Court recently upheld just such a provision. In the absence of such a provision, lawsuits need to be brought within the time prescribed by the most analogous state statute of limitations – which in California is the four year statute of limitations for breach of written contract.
Employers who sponsor and self-fund their welfare benefits should review their plans, and consider including these helpful provisions as part of a strong risk management program.