Statute of Limitations Bars Bad Faith and CPA Claims

On July 28, 2014, the Washington Court of Appeals issued an unpublished opinion in Momah v. Washington Cas. Co., Wash. Ct. App., Case No. 69456-1-I (July 28, 2014), analyzing the statute of limitations on an insured’s ability to sue a liability insurer under the Consumer Protection Act (CPA) and for insurance bad faith.  The insured was a doctor who, beginning in September 2003, was sued by several patients for medical malpractice and other misconduct.  The insurance company, which was in receivership at the time, defended the insured’s civil lawsuits under a reservation of rights.  After considering the potential exposure created by the numerous lawsuit, the insurance company’s receiver decided to pursue a global settlement.  The applicable insurance policy contained a provision stating that no claim or lawsuit could be settled without the agreement of the insured.  In 2004, the insured was charged with several crimes relating to the conduct that was the basis of the civil lawsuits.  While the criminal matter was proceeding, the insurance company sought to mediate the various civil matters.  In October 2005, the insured filed suit seeking an injunction preventing mediation on the ground that it may negatively impact the criminal case.  The court granted a temporary injunction which expired in November 2005.  The same month, the insured was convicted in the criminal matter.  Between May 2006 and May 2007, the insurance company settled all of the pending civil cases.

In January 2011, the insured sued the insurance company for breach of contract and violation of the Consumer Protection Act (CPA), but failed to serve the summons and complaint.  A year later, in January 2012, the court granted the insured leave to file an amended complaint alleging violation of the CPA, insurance bad faith, and breach of contract.  The amended complaint was properly served.  The basis of the suit was that the insurance company settled the lawsuits without consent and without adequate investigation.  The trial court eventually dismissed the extra-contractual claims on the basis that the statute of limitations expired.  The insured’s breach of contract claim against the insurance company was later dismissed on the ground that the insurer could not be held liable for the actions of the state-appointed receiver.  The insured appealed.

The Court of Appeals began by noting that the statute of limitations was three years on insurance bad faith claims and four years on a claim for violation of the CPA.  The timeline of events was not in dispute.  With respect to the CPA claim, the insured argued that he filed the claim in January 2011 which was within the four-year statute of limitations that expired in May 2011.  The insurance company countered that the CPA claim nevertheless failed because insured failed to perfect service within the limitations period.  The insured contended that the insurance company waived any right to assert any service-related defense because it “engaged in inconsistent and dilatory behavior.”  The Court of Appeals rejected the insured’s position by distinguishing the case from the authority relied upon by the insured.  The insured conceded that he failed to bring the insurance bad faith claim within the three-year limitation period, but argued that the period should be tolled due to his incarceration.  Again, the court rejected the insured’s position, finding that the statute cited by the insured did not apply.  Finally, the Court of Appeals affirmed the trial court’s dismissal of the insured’s breach of contract claim.  The court determined that the insurance company could not be held liable on the insured’s claims because the conduct occurred while the company was in receivership.

The attorneys of Maloney Lauersdorf Reiner frequently litigate extra-contractual insurance claims throughout Washington.  Please contact us with any questions concerning this case or anything else you see addressed on our Insurance Coverage Blog.

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