PRUDENT INSURER WARNS INSURED OF TIME TO SUE
Joseph D. Elias (Elias) sued his insurer, for breach of an insurance contract. The trial court granted summary judgment to defendant Farmers Insurance Exchange (Farmers) on the ground that the action was barred by the one-year limitation period contained in the policy because Elias did not commence the action until more than a year after Farmers “clearly and unequivocally” denied his claim. On appeal, Elias contends the trial court erred because “the date of denial was an issue of fact which was not subject to determination and resolution in a summary judgment motion.” In Joseph D. Elias v. Famers Insurance Exchange, No. C069262 (Cal.App. Dist.3 08/14/2012) the Court of Appeal was resolved the dispute.
Elias was allegedly the victim of a home burglary in January 2008. Shortly thereafter, he submitted a claim against his homeowners’ insurance to Farmers. The policy contained a provision stating that “[s]uit on or arising out of this policy must be brought within one year after the loss occurs.” Under California law, however, the one-year period is tolled from the time the insured gives notice of the claim to the insurance company until ‘the time the insurer formally denies the claim in writing. This has been construed to mean an “unequivocal” denial in writing.
On May 23, 2008, Farmers sent a letter to Elias explaining that Farmers had “finalized its investigation and evaluation of the . . . claim.” The letter expressly stated that it “represent[ed] the final decision of [Farmers] for the . . . loss” and stated that Farmers “denies the claim in its entirety” “due to material misrepresentations and conflicting statements made by the insured.” The “Conclusion” section of the letter included the following:
The “Conclusion” section of the letter further specified that “[p]ursuant to the terms of the policy and California law, the insured has one year from the date of this letter to commence suit against [Farmers] should the insured wish to pursue this matter in litigation.” (emphasis added)
In a letter to Farmers’s attorney dated June 6, 2008, Elias’s attorney noted that he had “received the final decision of [Farmers] for the . . . loss.” Farmers’s attorney responded to Elias’s attorney, explaining that Farmers had “reviewed[,] evaluated” and “considered” the information provided following the May 25 “Decision Letter,” but that information did “not change the basis for the Decision. Accordingly, the claim is denied due to material misrepresentation and conflicting statements.” Thereafter, the August 12 letter stated that Farmers’s “decision as set forth in their May 23, 2008 letter will not be changed and the claim remains denied.”
Elias filed this breach of contract action against Farmers on June 2, 2009. In November 2010, Farmers moved for summary judgment on the ground that Elias “failed to comply with the one year limitation.” In opposition, Elias argued the May 23, 2008, letter did not constitute an unequivocal denial of his claim and instead his claim was not finally denied until the August 12, 2008 letter from the Farmers lawyer.
On appeal, Elias contends there was an issue of fact as to whether, following the May 23 letter, Farmers’s investigation of his claim was still open, precluding summary judgment on limitations issue. Although it is true that, in its conclusion, the letter stated that Farmers was “not aware of any party legally responsible for causing or contributing to this loss,” and further stated, “If you believe there is additional information that would identify a responsible party, please contact [Farmers].” This statement cannot reasonably be construed as a demand for additional information. First, on its face, the sentence on which Elias relies did not require or demand that he provide additional information, notwithstanding Elias’s repeated assertions to the contrary. It merely directed Elias to contact Famers if he believed there was additional information that would identify a responsible party.
Not only did this statement reiterate that the letter represented Farmers’s final decision, it also made clear that Farmers was not demanding or requiring that Elias provide any additional documents or information – it was just giving him an opportunity to present additional information. he sentence on which Elias relied was also followed by the express advisement that he had one year from the date of this letter to commence suit against Farmers.
The fact that Farmers gave Elias the courtesy of two additional weeks to supply Farmers with additional information if he had any did not undercut the finality of Farmers’s denial of his claim. The May 23 letter here could hardly be a more unequivocal denial. There was nothing tentative or conditional about it.
The judgment was affirmed and Farmers recovered its costs on appeal.
When an insurer denies a first party claim it must do so clearly and definitively. If the insurer wishes to obtain the benefit of the shortened, contractual limitation of action provision of the policy it should emulate Farmers in this case by:
- Deny the claim clearly and unambiguously.
- Advise the insured in writing why the claim is being denied.
- Advise the insured of the limitation contained in the policy.
Private limitation of action provisions have been enforceable in the U.S. since Riddlesbarger v. Hartford Insurance Company, 74 U.S. 386, 19 L. Ed. 257 (1868) enforced one saying In California a decision of the California Supreme Court, that held “it is not an unreasonable term that in case of a controversy upon a loss resort shall be had by the assured to the proper tribunal, whilst the transaction is recent, and the proofs respecting it are accessible…” It was also supported in California in Garido v. American Cent. Ins. Co. of St. Louis, 2 Cal Unrep. 560, 8 P. 512 (1885).
That limitation was “tolled” or held in abeyance by a California Supreme Court decision, Prudential-LMI, v. Superior Court, 51 Cal. 3d at p. 695, & fn. 7, 274 Cal. Rptr. 387, 798 P.2d 1230 that stopped the running of the limitation provision from the date the insured reported the loss to the date the claim was denied. That is why Farmers warned the insured that he only had a year from the date of the denial to file suit.
In addition California Code of Regulations Section 2695.7 (f) requires that “every insurer shall provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim. Such notice shall be given to the claimant not less than sixty (60) days prior to the expiration date…”
© 2012 – Barry Zalma
Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He also serves as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders.
He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant.
Mr. Zalma recently published the e-books, “Zalma on Insurance Fraud – 2012″; “Zalma on Diminution in Value Damages – 2012,”“Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.