Policyholders Need to Be Wary of Insurer Conduct Leading Them Into Suit Limitation Traps, Insurance Policyholder Advocate
A recent string of cases from Oregon to Connecticut addressing suit limitation provisions are a reminder of the numerous traps that surround such provisions and how insurer conduct can be misleading in those situations. Suit limitation provisions are the contractual equivalent of statutes of limitations. They require policyholders to file coverage lawsuits within a specified period of time or risk forfeiting coverage for the claim at issue. The most common time period is one or two years – which is often shorter than the otherwise applicable statute of limitations. Despite the potential for Draconian results, suit limitation provisions are generally enforceable, subject to certain limitations. And, some jurisdictions don't require a showing of prejudice from the insurer. Suit limitation provisions are often found in first-party policies and only rarely in liability policies. Below is a summary of some recent cases addressing suit limitation provisions, as well as some practice pointers based on the rulings in those cases.
Connecticut Court Enforces Suit Limitation Provision, Despite Testimony of Insurer Misrepresentations Regarding Limitations Period
In Bell v. Safeco Ins. Co. of Illinois, No. HHDCV126028741S, 2014 Conn. Super LEXIS 2502 (Oct. 7, 2014), a Connecticut court enforced a suit limitation provision, despite testimony from the policyholder's counsel that the insurance adjuster misrepresented the suit limitation period and led her to believe that the claim would be settled before the limitations period had run. In Bell, the policy at issue contained a 180 day suit limitation period. Over the course of several months, the insurance adjuster exchanged intermittent communications with the policyholder, including requests for information. Over the next few months, the policyholder's counsel left several unreturned messages for the adjuster. Approximately two months after the suit limitation deadline had run, the insurer advised the policyholder that a new adjuster had been assigned to the file. Then, another two months later, the new adjuster advised that the suit limitation period had run. That same day, the policyholder's counsel wrote a memo to the client file stating that the prior adjuster told her that the suit limitation period was one year (not 180 days) and that the claim would settle before then.
Although the suit limitation period had run, the policyholder filed a coverage action. The insurer moved for summary judgment based on the suit limitation provision. The Court denied the insurer's motion for summary judgment on the ground that genuine issues of material fact existed regarding waiver and estoppel. However, a bench trial on those issues resulted in a judgment in favor of the insurer.
The Court found that there was no express waiver because the adjuster's testimony was more credible than the attorney's testimony regarding whether the adjuster misrepresented the length of the limitations period. The Court reasoned that the attorney did not have any credible corroborating evidence for her alleged conversation – she did not follow up with a confirming letter or write a contemporaneous memo to file. Instead, she waited until after the limitations period had run to document her alleged conversations. In contrast, the insurer had a sophisticated system for documenting claim communications, including a requirement that adjusters contemporaneously document every telephone conversation in an electronic claim file, which cannot be edited or deleted. The Court found it convincing that the insurer's claim file did not include any reference to the alleged discussion regarding the applicable time period.
The Court also rejected the policyholder's claims for implied waiver and estoppel. With respect to implied waiver, the Court reasoned that the insurer's "conduct in collecting information about the claim does not provide evidence of an intentional relinquishment of a known right." With respect to estoppel, the Court under the particular facts before it found that "[t]his was not a case where the defendant lulled the plaintiff into a false sense of security, but was instead a situation where the plaintiff slept on her rights." The Court further suggested that it was not reasonable for the attorney to rely on her belief that the adjuster indicated that the limitations period was one year. Although the policyholder attorney requested a copy of the policy, she apparently never followed up to obtain an actual copy of the policy to confirm the applicable limitations period.
Nevada Court Confirms That Suit Limitation Provisions Do Not Apply to Bad Faith and Unfair Claim Practice Act Claims and Addresses Trigger Date for Calculating Suit Limitation Period
In Queensridge Towers, LLC v. Allianz Global Risks US Ins. Co., No. 2:13-CV-197, 2014 U.S. Dist. LEXIS 177433 (D. Nev. Dec. 24, 2014), the policyholder sought coverage for scratches on the windows of a large condominium development. The policy at issue required lawsuits against the insurer to be commenced within twelve months of discovery of the loss. Under Nevada law, the limitations period was tolled between the date the insurer received notice of the damage and the date the insurer denied the claim.
The policyholder filed a coverage lawsuit two days before the one year anniversary of the insurer's denial. However, the policyholder admitted that it was aware of some window scratches several months before the tolling of the limitations period. The insurer argued that the lawsuit was filed outside the limitations period because the time period before and after the tolling amounted to more than twelve months. The policyholder argued that the pre-tolling time should not be included in the calculation because the "full extent" of the window scratches was not discovered until after the limitations period had been tolled. The Court rejected this argument and granted summary judgment in favor of the insurer barring the policyholder's breach of contract claim. The Court reasoned that under the policyholder's theory, a claimant could wait years to bring a claim and the insurer "could remain liable despite having had an inadequate opportunity to timely investigate the damage and its causes."
Importantly, the Court did not apply the suit limitation provision to the policyholder's bad faith and Unfair Claims Practices Act ("UCPA") claims. Rather, the Court confirmed that "a common law bad faith claim is not subject to the limitations provision" because the duty of good faith "is an obligation imposed by law, it does not arise from the terms of the insurance contract." The Court also confirmed that the policyholder's UCPA claims were governed by the applicable statute of limitations, not the shorter suit limitations provision.
Ohio Court Addresses Interplay Between Conflicting Suit Limitation Provisions in Main Insuring Document and Endorsement
More recently, an Ohio Court of Appeals held that a suit limitation provision in an endorsement that conflicted with the suit limitation provision in the main insuring document was not ambiguous. In Scarberry v. Western Reserve Group, No. 14CA6, 2015 Ohio App. LEXIS 215 (Jan. 20, 2015), the policyholder was issued a policy that included a one year suit limitation provision in the main insuring document. The renewal policy changed the suit limitation period to two years in the main insuring document, but retained the one year suit limitation period via an endorsement. The renewal policy was accompanied by a summary of the changes, which did not mention these amendments.
The Court rejected the policyholder's arguments that the one year suit limitation provision in the endorsement was ambiguous because it contradicted the main insuring document and was not included in the summary of changes. The Court reasoned that: (1) the endorsement unequivocally stated that it replaced the suit limitation provision in the main agreement; (2) the Declarations page referenced the endorsement; and (3) there was no substantive change to the suit limitations provision because it was merely moved from the main insuring document to the endorsement. The Court noted that the policyholder was represented by counsel during the claim process and an agreement between the insurer and the policyholder to extend the one year limitations period by an additional six months demonstrated that the policyholder had actual notice of the one year limitation period before it had run. It is not clear whether the Court would have reached the same conclusion if the policyholder had not been represented by counsel and/or did not enter into an agreement to extend the limitations period.
Oregon Court Applying Washington Law Denies Insurer's Motion for Summary Judgment Based on Questions of Fact Regarding Equitable Estoppel
Some other recent cases addressing suit limitation provisions have been more favorable to policyholders. For example, in Semeryanov v. Country Mut. Ins. Co., No. 3:14-cv-00313, 2014 U.S. Dist. LEXIS 170632 (D. Oregon Dec. 9, 2014), the policyholders filed a lawsuit against their insurer nearly one year after the suit limitation deadline. The insurer moved for summary judgment based on the suit limitation provision. The policyholders argued that equity excused strict compliance with the deadline because the insurer continued to investigate the claim and communicate with the policyholders regarding the claim after the deadline and did not deny the claim until nearly a year after the deadline.
In some jurisdictions, suit limitation deadlines are automatically tolled from the date the policyholder makes a claim until the date the insurer denies the claim (as demonstrated in Queensridge Towers, applying Nevada law, above). However, the dispute in Semeryanov was governed by Washington law, which has not yet adopted an automatic tolling rule. Instead, Washington courts apply equitable estoppel to suit limitation provisions.
Relying on those cases, the court in Semeryanov denied the insurer's motion for summary judgment on the ground that a triable issue of fact existed as to whether the insurer's conduct "logically excused" the policyholders from complying with the suit limitation provision. The Court reasoned that the insurer's continuing investigation and communication with the policyholders regarding the status of their claim well after the suit limitation deadline "reasonably led [the policyholders] to believe that [the insurer] would continue to investigate [the policyholder's] claim and continue to work towards settlement, without necessarily requiring [the policyholders] to file suit before the process had run its course." If this case ultimately proceeds to trial, the outcome may be instructive on these issues, especially when compared to the findings in Bell, discussed above.
Take Away Practice Points
These cases serve as a reminder for policyholders to tread carefully when dealing with suit limitation provisions. Here are a few practice pointers that can help reduce the risk of missing a suit limitation deadline:
- Always obtain a copy of the actual policy at issue. Never rely on an insurer's representations regarding the policy terms alone.
- Read the entire policy carefully, including the Declarations page, the main insuring document and the endorsements.
- Familiarize yourself with whether or not the applicable jurisdiction has any automatic tolling rules. Do not just assume that any time period will automatically be tolled.
- Identify any suit limitation deadline and confirm the deadline with the insurer in writing (particularly if it is potentially unclear).
- Do not assume based on an insurer's conduct that it does not intend to enforce a suit limitation provision. If the suit limitation deadline is approaching while the insurer is still investigating the claim, either obtain a tolling agreement from the insurer or plan to file a lawsuit before the deadline to preserve the claim.
- Always confirm important conversations and/or agreements with insurers regarding suit limitation deadlines in writing via confirming letters and/or formal agreements.
If a contract claim is already barred by a suit limitation provision, consider whether the policyholder may still have any bad faith and/or Unfair Claims Practices Act claims, which may not be subject to the same suit limitation provision in the policy.
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