The U.S. Court of Appeals for the First Circuit certified a question to the Rhode Island Supreme Court on whether a limitations period for filing a lawsuit over a Prudential disability policy is contrary to Rhode Island public policy.
Brian Smith sued Prudential Insurance Co. of America for breach of fiduciary duty after the company terminated his long-term disability benefits under an insurance policy. That policy had a three-year limitations period to file a lawsuit. The First Circuit said the company inexplicably started the limitations clock as of the date that Smith was required to submit proof that he was not disabled, rather than on the date that Prudential allegedly breached the policy by stopping payment. By the time Smith sued, the limitations clock had already run out, according to the opinion.
Smith filed suit in the U.S. District Court for the District of Rhode Island against Prudential for breach of fiduciary duty on March 12, 2021. Judge Mary S. McElroy ultimately granted Prudential's motion for summary judgment on the company's timeliness defense.
Smith appealed that order and asked the First Circuit to reverse based on three arguments that were not addressed by the district court, one of which the court called "potentially winning." That argument contended that enforcement of the limitations scheme in this case would violate Rhode Island public policy.
"There are compelling reasons for concluding that the limitations scheme here may indeed run contrary to Rhode Island public policy, and holding so would mean a ruling in Smith's favor," Circuit Judge Julie Rikelman said. "But because we believe that reversing and remanding on that ground arguably would amount to an expansion of Rhode Island law, we certify the public policy question to the Rhode Island Supreme Court."
The certified question asked if "in light of Rhode Island General Laws § 27-18-3(a)(11) and Rhode Island public policy (including Rhode Island Constitution article I, section 5), would Rhode Island enforce the limitations scheme in this case to bar Smith's lawsuit against Prudential?"
Smith is a Rhode Island resident who worked as an accountant, and a vice president for tax operations for Comverse Technology. In 2015, he began experiencing symptoms of cognitive decline and was subsequently diagnosed with mild cognitive impairment. An occupational physician determined that he could no longer work as a tax professional and Smith left his job in October 2015.
Smith then filed a claim for benefits under his long-term disability policy with Prudential, which was approved. For nearly two-and-a-half years, he received a monthly benefit of $3,000 until he was notified on May 3, 2018, that his benefits had been terminated effective the next day. Smith exhausted his rights to internal appeals with Prudential and then received a final denial notice on Aug. 28, 2019.
"Smith's insurance policy does not include a single, stand-alone provision specifying a date by which Smith had to sue Prudential after a denial or termination of benefits," Rikelman said. "Instead, it includes a mystifying six-step calculation requiring Smith and other beneficiaries to piece together disparate provisions and information from four documents.
"We have previously characterized limitations schemes nearly identical to the one in this case as 'labyrinthine' and 'designed to confuse,'" Rikelman added.
In his brief, Smith stated that the "rub" of the limitations scheme is that Prudential can initially approve benefits after the limitations period has already begin to run. Then, it can terminate them anytime afterward, before the "confusing" limitations scheme expires, according to the opinion.
However, Rikelman stated that Smith's first two arguments have no merit. The judge said that despite his express waiver of his claims based on the Employee Retirement Income Security Act of 1974 (ERISA), he continued to allege that the limitations scheme in his policy is invalid under federal law which he supports by invoking ERISA.
"In particular, he points to the provision stating that the policy's specified limitations period applies 'unless otherwise provided under federal law,'" Rikelman said. Smith argued that the phrase imports the ERISA requirements into his policy. However, the judge noted, that position ignores the fact that he expressly waived his argument that ERISA covers his policy or that Prudential was otherwise required to apply ERISA procedures to his claim.
Smith's second argument relied on a Rhode Island Supreme Court decision in Webster Bank v. Rosenbaum, to argue that Rhode Island's 10-year statute of limitations for breach of contract claims should apply and not the policy's limitations scheme.
"Smith's argument likely overreads Webster Bank," Rikelman said. "But even on Smith's reading, the policy here is unlike the mortgage agreement at issue in that case."
In Smith's final argument, he contended that Rhode Island law should apply to his long-term disability policy with Prudential, and that if it does, the limitations scheme would be in violation of that policy.
"We agree that Rhode Island law likely governs the policy," Rikelman said. "Applying Rhode Island law, we also conclude that Smith has raised a non-frivolous argument that enforcing the limitations scheme to bar him from even filing suit would violate Rhode Island public policy.
"But because there is no controlling precedent directly on point, the public policy question is dispositive of this appeal, and reversal on this ground arguably would expand Rhode Island law, we certify the question to the Rhode Island Supreme Court," Rikelman concluded.
Judges Kermit V. Lipez and O. Rogeriee Thompson joined Rikelman in certification of the question.
Counsel for Smith, George E. Lieberman of Gianfrancesco & Friedemann, did not immediately respond to a request for comment. Counsel for Prudential, Ian H. Morrison of Seyfarth Shaw, declined to comment for this story.