By:  Mark Casciari and Ada Dolph

On an issue it described as “undecided,” the Second Circuit held on November 3, 2011 that a pensioner’s ERISA Section 502(a)(3) claim of an underpayment of benefits under an ERISA plan accrues “when there is enough information available to the pensioner to assure that he knows or reasonably should know of the miscalculation.”  Novella v. Westchester County, No. 09-4061-cv(L), 09-3826-cv(XAP) (2d Cir. Nov. 3, 2011).

In arriving at what it termed a “case-by-case reasonableness” standard and “third approach,” the Second Circuit first rejected the defendants’ approach that the claim accrued upon the first incorrect payment of benefits.  The court found that placing the burden on a potentially less-sophisticated pensioner to determine the correctness of a complicated pension award upon receipt of the first payment of benefits would be “too harsh.”  The Second Circuit then rejected the plaintiffs’ approach, adopted by the district court, that the claim accrued once “a prospective class member inquires about the calculation of his benefits and the Plan rejects his claim” because it imposed no obligation on the participant to inquire regarding whether a benefit calculation was correct and would undermine the purpose of the statute of limitations. 

The Second Circuit also rejected the application of the continuing violation doctrine, which it characterized as involving claims “based on a single decision that results in lasting negative effects” as distinguished from “separate violations of the same type, or character, [] repeated over time.” 

Because a participant generally must first bring a claim for the benefit under the plan’s claims procedures before filing suit, plan sponsors should consider adding certainty by including a definition of when the claim accrues in the plan’s procedures. 

The Second Circuit then vacated the related class certification order because it could not determine if the class members’ respective claims were timely, and whether numerosity existed, absent individualized determinations “whether, and if so when, each class member had information by which he knew or should have known of the miscalculation.”  The court recognized that its approach in the context of class certification could result in a “resource-intensive, claimant-by-claimant inquiry,” which “may in turn, lessen the value, and indeed the availability, of class actions in this kind of litigation.”  The Second Circuit also suggested that the “fact-intensive nature” of its approach could make it difficult for class representatives to meet the typicality requirement in Fed. R. Civ. P. 23(a)(3), but declined to address the issue on the record before it.

Although this opinion was issued in the context of a small purported class of 24, it will provide a basis to oppose class certification in ERISA cases on individualized limitations grounds. 

As discussed in our October 22, 2011 post,  it also appears that the Second Circuit has joined a growing number of courts that consider the “clear repudiation” limitations accrual standard a flexible one.  It is noteworthy that the Second Circuit stated that its “know or reasonably should know” standard was “consistent” with the clear repudiation standard set forth in Miller v. Fortis Benefits Insurance Co., 475 F.3d 516 (3d Cir. 2007) because even the Third Circuit contemplated that its rule “would vary in its application to the facts of any individual case.”  (Why Novella was styled as an ERISA Section 502(a)(3), as opposed to 502(a)(1)(B), case is beyond the purview of this article.)