First Circuit Finds Plaintiff Waived Argument that ERISA Applied to Long-Term Disability Policy, But Certified to State Supreme Court Whether Policy’s Contractual Limitations Clause Violated Public Policy

In Smith v. Prudential Ins. Co. of Am., No. 23-1168, __F.4th__, 2023 WL 8446510 (1st Cir. Dec. 6, 2023), Plaintiff brought suit against his long-term disability (LTD) insurer, Prudential Insurance Company of America, alleging breach of fiduciary duty after Prudential terminated his LTD benefits. The United States District Court for the District of Rhode Island granted Prudential’s motion for summary judgment, and Plaintiff appealed. The First Circuit Court of Appeals affirmed the decision on two of the three legal arguments but certified to the Rhode Island Supreme Court Plaintiff’s public policy argument about the validity of the policy’s limitations scheme under Rhode Island law.

Plaintiff sued Prudential for breach of fiduciary duty after it terminated his LTD benefits under an insurance policy it issued. Although the policy specified a three-year limitations period to file a lawsuit, it also, inexplicably, started the limitations clock on the date Plaintiff was required to submit proof that he was disabled, not on the date Prudential allegedly breached the policy by stopping payment. As a result, the clock had already run out by the time Plaintiff sued. Plaintiff appealed the entry of summary judgment against him seeking reversal based on three arguments not addressed by the district court at summary judgment: (1) that the policy’s limitations scheme is invalid under federal law, specifically ERISA, because his denial letter omitted the deadline by which he had to sue; (2) applying state law, that Rhode Island’s ten-year statute of limitations for breach of contract claims, not the policy’s limitations scheme, should apply here, making his claim timely; and (3) that enforcing the limitations scheme in this case would violate Rhode Island public policy.

Reviewing all three grounds for appeal, the First Circuit held that Plaintiff’s first two arguments lacked merit. The Court concluded that Plaintiff expressly waived his argument that ERISA covered his policy or that Prudential was otherwise required to apply ERISA procedures to his claim. On the second argument regarding the applicability of Rhode Island’s catch-all ten-year statute of limitations, the Court found that it did not apply in place of the LTD policy’s limitations scheme. The Court concluded that New York did not bear a “substantial relationship” to the insured, insurer, and policy, but rather Rhode Island had the most significant relationship to the policy, as required for applicability of Rhode Island law in this action. However, because the policy does contain a contractual limitations period, albeit a very confusing one, the catch-all provision did not apply.

Finally, because the court found that Rhode Island law likely governs, it certified Plaintiff’s remaining argument to the Rhode Island Supreme Court. The Court concluded that there were compelling reasons for concluding that the limitations scheme in the policy may indeed run contrary to Rhode Island public policy, and holding so would mean a ruling in Plaintiff’s favor. However, because the Court believed that reversing and remanding on that ground arguably would amount to an expansion of Rhode Island law, it certified the public policy question to the Rhode Island Supreme Court.

If Prudential or your insurer has denied or terminated your disability insurance claim, contact us for assistance.