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).
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.
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.