Contracts for Health Benefits: Entire or Divisible?

To determine when the statute of limitations has run in relation to benefits contracts, the classification of the contract as “entire” or “divisible” may turn out to be crucial. If the contract is entire, the statute may start running on, for example, a certain date when the employer made a single contractually binding promise to provide health care for its employees, typically once a year. If the contracts is divisible, the contract may extend further into the future and run from, for example, ongoing times when the employee makes monthly premium payments under the plan.

The Eleventh Circuit Court of Appeals notes that in Georgia, a contract is entire if “the whole quantity, service, or thing, all as a whole, is of the essence of the contract, [] if it appears that the contract was to take the whole or none,” and if the contract “involves a single sum certain.” In contrast, a divisible contract is one that involves “successive performances” and is “for an indefinite total amount which is payable in installments over an uncertain period.” (See Wood v. Unified Government of Athens – Clarke County, Ga. 2016 WL 1376443. ).

In the dispute before the court, the panel found that although the employer had made a single contractual promise for retirement healthcare benefits, the contract was divisible because the employer could only perform its promise by successive performances throughout the uncertain span of each retiree’s life. This was furthermore the case because of the unpredictable fluctuations in each retiree’s healthcare costs, the contract requiring the payment of many successive payments, and because the employees had no immediate claim for the entirety of the contract if the contract were entire. Thus, the statute of limitations ran separately as to each premium payment when it became due.