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).
Insurance litigation requires a lot of briefing so we keep a stash of helpful citations that are often used in our court filings. An example is the rules that courts must follow when interpreting insurance policies. These rules of construction can be quite helpful in the right case. Below are several that insurance practitioners should not forget:
- Insurance contracts, being subject to the same rules of construction as contracts generally, should be interpreted and enforced as written. Absent fraud or mistake, the terms of a contract should be given their plain and ordinary meaning, for the primary rule of contract interpretation is to ascertain and give effect to the intent of the parties. U.S. Bank, N.A. v. Tennessee Farmers Mut. Ins. Co., 277 S.W.3d 381, 387 (Tenn. 2009).
- The parties' respective rights and obligations are governed by their contract of insurance whose terms are embodied in the policy. As with any other contract, our responsibility is to give effect to the expressed intention of the parties, by construing the policy fairly and reasonably, and by giving the policy's language its common and ordinary meaning. We are not at liberty to rewrite an insurance policy simply because we do not favor its terms or because its provisions produce harsh results. In the absence of fraud, overreaching, or unconscionability, the courts must give effect to an insurance policy if its language is clear and its intent certain. Angus v. Western Heritage Ins. Co., 48 S.W.3d 728, 731 (Tenn.Ct.App. 2000).
- Exclusionary clauses are to be strictly construed against the insurer when drafted by the insurer. Palmer v. State Farm Mut. Auto. Ins. Co., 614 S.W.2d 788, 789 (Tenn. 1981).
- The language of the policy must be taken and understood in its plain, ordinary and popular sense. Where language is susceptible to more than one reasonable interpretation, the language is ambiguous. If such ambiguous language limits the coverage of the insurance policy, that language must be construed in favor of the insured. In determining the “plain, ordinary and popular” meaning of language, courts may refer to dictionary definitions. CBL & Associates Management, Inc. v. Lumbermens Mut. Cas. Co., 2006 WL 2087625, 6 (E.D.Tenn. 2006); Am. Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 814 (Tenn. 2000).
- Language in a policy is ambiguous if it is capable of more than one reasonable interpretation. Tata v. Nichols, 848 S.W.2d 649, 650 (Tenn. 1993). A contract is ambiguous only if it is of uncertain meaning and may fairly be understood in more ways than one. Rogers v. First Tennessee Bank Nat. Ass'n., 738 S.W.2d 635 (Tenn.Ct.App. 1987).
- If possible, all provisions in the contract should be construed in harmony with each other to promote consistency and to avoid repugnancy between the various provisions. Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999).
- In Tennessee, exceptions, exclusions, and limitations in insurance policies must be construed against the insurance company and in favor of the insured. Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 886 (Tenn. 1991). The entire policy, however, including insuring clauses and exceptions thereto, must be read as a whole. Am. Sav. & Loan Ass'n v. Lawyers Title Ins. Corp., 793 F.2d 780, 782 (6th Cir. 1986). Further, exceptions should not be construed so narrowly as to defeat their evident purpose. Standard Fire Ins. Co. v. Chester-O'Donley & Assocs., Inc., 972 S.W.2d 1, 8 (Tenn. Ct. App. 1998).
- “[T]he paramount rule of construction in insurance law is to ascertain the intent of the parties.” Blue Diamond Coal v. Holland-America Ins. Co., 671 S.W.2d 829, 833 (Tenn.1984).
- The insuring agreement defines the outer limits of an insurance company's contractual liability. The courts are not at liberty to rewrite an insurance policy solely because they do not favor its terms, and must avoid forced constructions that render a provision ineffective or extend a provision beyond its intended scope. As long as a policy's terms are unambiguous, it will be enforced as written, and courts cannot rewrite an unambiguous policy simply to avoid harsh results. Therefore, the insured cannot simply focus on the declarations/summary portion of a contract in isolation; the policy must be read as a whole. Hoyt v. Pyles, 2007 WL 1217264, 5-6 (Tenn.Ct.App. 2007).
- The insuring agreement sets the outer limits of an insurer's contractual liability. If coverage cannot be found in the insuring agreement, it will not be found elsewhere in the policy. Exclusions help define and shape the scope of coverage, but they must be read in terms of the insuring agreement to which they apply. Exclusions can only decrease coverage; they cannot increase it. Exclusions should also be read seriatim. Each exclusion reduces coverage and operates independently with reference to the insuring agreement. Exclusions should not be construed broadly in favor of the insurer, nor should they be construed so narrowly as to defeat their intended purpose. Once an insurer has established that an exclusion applies, the burden shifts to the insured to demonstrate that its claim fits within an exception to the exclusion. Standard Fire Ins. Co. v. Chester O'Donley & Associates, Inc., 972 S.W.2d 1, 8 (Tenn. Ct. App. 1998).
- An insurance contract should be construed in “a reasonable and logical manner.” Standard Fire Ins. Co. v. Chester O'Donley & Associates, Inc., 972 S.W.2d 1, 7 (Tenn. Ct. App. 1998). When coverage questions arise, the components of a policy should be construed in the following order: 1) the declarations; 2) the insuring agreements and definitions; 3) the exclusions; 4) the conditions; and 5) the endorsements. Id.