LawyersUSA

A contractual limitations clause in a group health insurance plan barred the issuer of the policy from suing under ERISA to rescind coverage for a particular insured, the 6th Circuit has ruled in affirming a summary judgment.

The insurer provided group health insurance to the employees of an Ohio firm.

It sued under ERISA seeking to rescind the coverage for the defendant – one of the firm's employees – after a 2004 audit revealed that the employee had failed to disclose that her son suffered from hemophilia when she submitted an insurance application several years earlier.

The employee argued that the suit was barred by a contractual limitations clause in the plan.

The clause provides a general three-year statute of limitations for actions in "law or equity," and further states that, with respect to claims other than those for the recovery of benefits, "[n]o action … may be brought more than two (2) years from the date the cause of action arises."

The court agreed that the clause barred the claim, rejecting the insurer's contention that the "discovery rule" rendered its suit timely because the company first learned of the alleged fraud within the limitations period.

The court explained that the plaintiff "is a sophisticated insurance company that had in its hands for more than three years before it filed suit sufficient information to place it on notice of the possibility of fraud. [The insurer] did not provide any evidence that would explain why it was not capable of conducting an audit prior to 2004, nor did it indicate that it had access to information in 2004 to which it previously did not have access. …

"We conclude that [the insurer's] claims accrued in February 2002, when it began paying claims for [the son's] hemophilia treatment and should have discovered that it had a cause of action."

U.S. Court of Appeals, 6th Circuit. Medical Mutual of Ohio v. k. Amalia Enterprises Inc., No.07-4422. Dec. 2, 2008. Lawyers USA No. 993-240. Click here for the full text of this opinion.