Beware of the Shortened Limitation Period to File Suit Contained in Most Insurance Policies

The Tennessee Court of Appeals rendered another decision yesterday concerning the limitations period that is applicable to lawsuits to enforce an insurance policy.  The court upheld the dismissal of the lawsuit, ruling that the lawsuit was filed outside the time period allowed in the insurance policy.  A copy of the case, Gagne v. State Farm. can be downloaded here

Unfortunately, I see cases like this over and over again due to the common misunderstanding that the general 6 year statute of limitations is applicable to suits to enforce.  Generally speaking, here are the rules practitioners and public adjusters should know:

  • Tennessee courts will enforce contractual limitation periods.  Most policies contain language similar to the one in Gagne, which provided, "No action shall be brought unless there has been compliance with the policy provisions.  The action must be started within one year after the date of loss or damage."
  • Using the one year period as quoted above as an example, Tennessee cases have construed the start date of the one year period to be the first in time of the following:  (1) the date of denial; or (2) the date that payment is due.  
  • So, assuming a fire on Jan. 1, 2012 and a proof of loss is submitted on Feb. 1, 2012, most policies will require payment within 60 days of submission of proof of loss.  So in that case, the payment would be due, and the period of limitations would be triggered, sixty days from submission of the proof of loss (unless there is a denial before that time). 

 

 

Use of Social Networking Evidence in Insurance and Workers' Compensation Litigation

 

Two of our readers from Minnesota, Gregory M. Duhl (Associate Professor of Law at William Mitchell College of Law) and Jaclyn Millner (of Fitch, Johnson, Larson & Held, P.A.) have recently posted a draft of an article (to be published in the Pace Law Review) on the use of social networking evidence in insurance and workers' compensation litigation.


This area of law (and life) is becoming a force to be reckoned with, and certainly worthy of discovery in the appropriate case. As we have noted on other posts, we have been successful in getting some really damaging evidence against litigants from even their public posts on these social networking sites.

Greg and Jaclyn have provided a link, and would welcome any feedback that our readers might have.

Please click here for the link.

 

The "Draft" expert report - is it still discoverable in federal court?

The U.S. Supreme Court has apparently approved changes to the rules governing expert discovery in federal court. These changes are set to take effect December 1, 2010.  The most interesting, and the one drawing attention at this time, is the Supreme Court‘s exempting of drafts of expert reports from discovery. The Committee on Rules of Practice and Procedure proposed changing Fed. R. Civ. P. 26(a)(2)(B) so that only the "facts or data considered by the witness" in forming the expert opinions must be disclosed, instead of all "data or other information" upon which the expert relied.  Drafts of expert reports will be immune form discovery, apparently unless a party could show substantial hardship. The purpose of this modification was to streamline litigation.  The new rule will still allow discovery of communications between counsel and expert on the topics of compensation, assumptions and facts and data provided by the attorney. Now, however, the prior drafts of expert reports appear to be privileged from discovery.

The commentary seems to suggest that discovery along these avenues has not been fruitful, and has just taken up much discovery time. I have had experiences where it has been of limited utility, but usually about once a year, I have a case where an attorney’s modification to an expert’s preliminary report has caused concern or been a hot topic of examination. I was surprised to learn that this modification was supposed by both plaintiff and defense lawyers. 

I believe this modification is "final," so to speak, so watch out for it and plan accordingly in your federal litigation.

A Venue Quiz

The facts:  Plaintiff Doe presently  lives in Carroll County, and his fire damaged home was also in Carroll County. Defendant Insurance Company has a claims office in Madison County. Defendant Agent resides in Carroll County, has his principal place of business in Carroll County, but also has a satellite office in Madison County.   Plaintiff Doe brought suit against the Defendants for negligence, breach of contract, and violations of the Tennessee Consumer Protection Act in Madison County.

The question:  Is venue appropriate in Madison County in light of the general venue rule that suit must be filed in the common county of residence?

The answer:  Suit  must be brought in Carroll County, right?  Wrong.  According to a very recent ruling by Chancellor Jimmy Butler (and the Tennessee Code), venue is appropriate in Madison County.  Although the general rule is that suit must be brought in the common county of residence, the Tennessee Consumer Protection Act has a special venue statute (T.C.A. 47-18-109) that trumps the general venue rules. Under the TCPA's special venue provision, suit can be brought in the county where the defendant resides, where he has his principal place of business, or the county in which he transacts or has transacted business.  Under these facts, because the agent has a satellite office in Madison County, Madison County is a proper venue even though the plaintiff and the agent both live in Carroll County, the alleged negligence occurred in Carroll County, and the the insured home was in Carroll County.

The TCPA's special venue statute can be an effective weapon in the right case, and practitioners should be aware of the options for venue that it might afford.  The right judge, or the right jury pool, can obviously make a huge difference in some cases. 

Full disclosure - The above facts outline the facts of a real case I am handling.  To their credit, the defendant agent and his attorney, disagree with the Chancellor Butler's decision and may seek an interlocutory appeal.  Although I don't anticipate that the result will change in light of the plain language of the TCPA, I'll be sure to post any contrary rulings.  

Mediating First Party Property Cases

 

In the past two weeks, I have mediated three first party property cases. None of them was alike, and I wanted to share some thoughts on approaching such mediations from the carrier’s perspective, and some comments on the way the insureds have approached the mediation – making it better or worse for fruitful negotiations.  

 

First of all, I think it is most beneficial when both sides have a realistic assessment of their case. I know that some attorneys representing plaintiffs think they have to come into a mediation with a very high number, for fear they will not get very much out of the proceeding. The problem is that it creates a certain client expectation, and the client sometimes becomes immovable based upon these positions. 

It has been my experience that my clients approach the mediation with a fair and accurate, and realistic, assessment of their exposure. When I go into a mediation, I make sure that my client knows what the risks are. In other words, I do not “sugar coat” the client’s exposure. Some lawyers who typically represent insureds think that we “insurance lawyers” dig in on non-meritorious positions because we want to continue the client relationship with the insurance carrier. For those of you who do not practice in this area, let me give you a piece of advice – such a strategy will not work in today’s insurance business climate, and is a poor client development strategy. 

 

The reasons are simple. While no client perhaps likes to hear they are wrong in litigation, there is a time to tell them and a time not to tell them. The time not to tell them is one week before trial, when nothing new has happened for the last four months. That raises the question of -- what did you miss four months ago? We had a chance to settle this case at mediation six months ago, and you told me the case was a great case to defend? If you have done your investigation and work correctly, the assessment that you have going into the mediation should be the same that you have four weeks before the trial, and one day before the trial. I have had cases where some “bomb shell” has dropped, but those are rare. 

 

The most successful mediations occur when the insurance carrier comes at it from this perspective, and so does the insured. Let’s take a case where a question exists as to whether a covered water loss resulted in damage. The insured has an expert witness, as does the carrier. Not unsurprisingly they disagree as to the cause of loss. Both sides cannot be right. In assessing who actually is right, one needs to look at the opinions of the experts, qualifications of the experts, and the “common sense” value of the opinion. I spent the Labor Day weekend with my best friend – who happens to be a plaintiff’s lawyer in Louisville, Kentucky who routinely sues insurance companies – and he was telling me about his personal water loss. His insurance adjuster agreed that water came in from an opening created by a storm, and damaged his kitchen. There was water damage in the basement directly below the kitchen, with no other obvious source of water entry into the basement, but that adjuster did not believe the water damage in the basement was related to the storm. You know, there may be a good explanation of that from an engineering perspective, but there is not from a common sense perspective. 

When both parties approach their task at mediation with a realistic assessment of the strengths and weaknesses of the case, the role of advocate shows itself in the negotiations from there. There has to be movement in order for cases to settle, and both sides will always recognize some potential for loss. Being realistic – from either side – is the best representation of your client.

Trigger Happy Policyholders?

Parks Chastain recently wrote here about trigger happy policyholders prematurely filing lawsuits against insurance companies before a denial ever occurs.  The reason for this is the provision in insurance policies that shortens the applicable statute of limitations to a period of usually one or two years from the date of the loss.  As Parks mentioned, however, Tennessee courts have held that these shortened periods for filing lawsuits don't begin to run until a cause of action accrues, which is usually (but not always) when the insurer denies the claim.  

There are a few practical problems associated with figuring out when it is necessary to file a lawsuit "to protect the statute of limitations."  First, I have been involved in a couple of cases in which there were factual disputes about whether a claim had actually been denied.  For example, there have been many times when I have seen an insurance company deny a claim, but then agree to reconsider that denial for various reasons.  So is the statute of limitations running during that reconsideration period?  Another common scenario occurs when there is no formal denial, but the adjuster just ignores part of a claim or casually brushes it off in conversation.  Is that a denial that triggers the running of the statute of limitations? Probably not, but you can see the potential problems (and sleepless nights) that these situations can cause. 

In my view, the best way to handle this issue is just to be up front about it and get an agreement, in writing, with the insurance company.  Twice in the past year, I could foresee potential problems due to confusing facts (partial denials, etc.) and simply obtained written agreements with opposing counsel that the contractual limitations period had not began to run.  This doesn't have to be anything fancy - just a short one or two paragraph letter from the insurance company or its lawyer will suffice.  

When Must Suit Be Filed Over Failure To Pay An Insurance Claim?

 

What a simple question, you might think. It’s a contract and, therefore, it’s a six year statute of limitations in Tennessee, right? 

 

Wrong, in most cases of first party coverage or payment disputes.  Most policies contain a clause which limits, and reduces, the time for filing a suit over a dispute in coverage or payment of a claim. For instance, most policy forms contain a clause similar to the following:

 

                        Suit Against Us. No action shall be brought unless there has been compliance with the policy provisions. The action must be started within one year [sometimes two years] after the date of loss or damage.

 

Provisions limiting the time of a suit or action on the policy to a year after the date of loss have been interpreted, by Tennessee Courts, to mean twelve months after the cause of action accrues. See, e.g., Das v. State Farm Fire and Casualty Company, 713 S.W.2d 318, 322 (Tenn. Ct. App. 1986), perm. app. denied. See also Sharp v. Allstate Insurance Company, 1992 Tenn. App. LEXIS 860 at *3 (Tenn. Ct. App. W.S. 1992). 

 

So, we have one year or sometimes two years from the date of loss to sue, right? Wrong, again. In the Das case, the courts held that a cause of action based upon the denial of a claim accrued at the time of denial. One appellate statement of the law has been that the insured’s right to sue accrues upon the insurer’s absolute and unconditional denial of liability on the policy. See, e.g., Dixon v. Thomas Jefferson Insurance Company, 1989 Tenn. App. LEXIS 814 (Tenn. Ct. App. W.S. 1989).

 

But, what if there has been partial payment, and you just cannot agree with the carrier on the last coverage line, or the amount thereof? It seems that, under these cases, the cause of action would only accrue when there is a breach of the contract, i.e., when the carrier fails to pay what the insured wants. Until then, the policyholder and his/her counsel are happy, and would have no reason to sue.

Why is a lawyer who typically represents insurance companies explaining this? While the co-author of this blog, Brandon McWherter, will hopefully chime in, I have a simple reason for explaining this position. As much as I do enjoy and appreciate the opportunity to earn income from files such as this, they are short lived and usually completely unnecessary. In the past two years, I have had five suits filed against my clients where the attorneys thought that they had to file “to protect the statute of limitations.” While I completely understand that concern, where these suit clauses exist, and where, for instance, there has been no refusal or failure to pay, an insured simply does not a cause of action in, and there is no need to file to protect the statute of limitations. These suits get adversarial much too early, and I firmly believe that my clients really work to pay what they owe. I had rather see negotiations continue to a conclusion, if possible, before a lawyer (for either side) has to get involved. Sometimes it is necessary, but I can count five cases in two years where it really has been unnecessary.

 

Litigation Tactics - Solidifying Your Bad Faith Claim

So you finally got a case in which you're just certain the insurance company is acting in bad faith . . . What do you do now?  Protect it!  In a case where you think you've caught the insurance company red-handed for acting in bad faith, it is crucial that you take the steps to document the insurance company's actions from the insured's perspective before a lawsuit is filed.  

First, obtain a certified copy of the insurance policy and read it thoroughly.  In every insurance policy I've ever read, there will be a section entitled "Duties After Loss" or something similar.  These apply to the insureds. For example, insureds have a duty to cooperate, a duty to protect the property from further loss, etc.  Confirm that the insured has complied with all such duties and then send a letter to the insurance company to document the fact that the insurance company does not contend that the insured has failed to fulfill his or her contractual duties. If the company disputes the contention, resolve the problem and then send another letter.

Second, don't forget to instruct your client to keep a timeline recording all of the relevant events that lead to the conclusion that the insurance company is acting in bad faith.  Third, send a very nice, personable letter to the insurance company stating that your client is willing to do whatever is necessary to assist with the speedy adjustment and resolution of the claim.  Pour it on thick - - and mean it.  Finally, send a bad faith demand letter to the insurance company via certified mail.

All of the communications to the insurance company should be professional and display patient cooperation.  Be courteous, yet firm.  If anyone is going to use ugly language or overbearing settlement tactics, make sure its the insurance company.  Remember that the letters will be read by not only the insurance adjuster, but also by the judge or jury if litigation becomes necessary.  And there is nothing that an insurance company hates worse than to have a nice, super-helpful and cooperative letter from the insured to the adjuster read to a jury when it knows it really screwed a case up.  

Litigation Tactics - The Coverage Lawyer Need Not Be A Witness, Even in Bad Faith Cases

Many times, lawyers for insureds attempt to make an insurance company’s pre-litigation coverage counsel a witness. I have faced two arguments on this issue. I have been a witness in a couple of cases, and must say that I do prefer the role of attorney. But, I think it is useful to debunk the two primary arguments litigants use to attempt to turn the pre-litigation coverage lawyer into a witness.

First, insureds argue that the pre-litigation coverage lawyer was merely performing an investigator’s job – one that could have been performed by the insurance company as opposed to the lawyer. The law simply does not support that conclusion, so long as the lawyer is actually rendering legal services, and relying upon his or her skill, training and expertise to do so. While there may be some similarity between functions of an attorney and the claims adjuster in investigating a loss, only where the attorney would act as a claim adjuster in his “pure, ordinary business function” should a Court even entertain making the attorney subject to discovery. See e.g. In re Allen, 106 F.3d 582, 602-03 (4th Cir. 1997).


Obviously, lawyers do not become involved in the majority of insurance claims, and particularly not as routine investigators. Their expertise is often needed, and it is because of that expertise that the attorney –client privilege should remain intact. Thus, there is a:

great body of law holding that confidential communications made to attorneys “hired to investigate through the trained eyes of an attorney” are privileged. . . .
Accordingly, we must reject the legal theory . . . that the attorney-client privilege does not apply here, simply because [the attorney’s] assigned duties were investigative in nature. The relevant question is not whether [the attorney] was retained to conduct an investigation, but rather, whether this investigation was “related to the rendition of legal services.” If it was, and it clearly was here, then “[t]he privilege is not waived.”


Id.

In Connecticut Indem. Co. v. Carrier Haulers, Inc., 197 F.R.D. 564, 572 (W.D.N.C. 2000), the Court held that, because the attorney’s involvement in “any fact finding or investigation was clearly related to his ‘rendition of legal services to’ [the insurer], the attorney client privilege protects confidential communications between [the attorney], the lawyers assisting him, and his staff, and [the insurer], its agents, and its employees”.

The second argument I have faced is that my work product, or perhaps even my opinions, were relied upon in rendering a coverage decision. Now, I acknowledge that where my client (or former client once this happens) decides to assert the defense of “advice of counsel,” attorney-client communication may be subject to discovery. However, that defense is seldom asserted, and probably should be asserted less than it is. In such circumstances, the attorney-client privilege should not be waived, even in a bad faith case. See, e.g., Robertson v. Allstate Insurance Company, 1999 U.S. Dist. LEXIS 2991 at *15-16 (E.D. Pa. 1999).