The U.S. District Court for the Western District of Washington, at Tacoma, recently issued an opinion Schnell v State Farm Fire and Cas Co., 2014 WL 1089752 (W.D. Wash. Mar. 18, 2014), concerning the impact of an expired suit limitation provision on an insured’s claim for bad faith. The case concerned a claim for coverage under a homeowner’s policy for damage to a home and personal property caused by a fire. The insured rented the home to a third-party and left personal property in the home while it was being rented. The lease agreement did not specifically refer to the personal property, but the insured admitted during the claim investigation that he rented the home fully furnished and intended to retrieve the property at his will.
The insured provided his proof of loss ten days prior to the expiration of the suit limitation, which had already been extended six months by the insurer. The insurance company continued to investigate the claim after the suit limitation period expired and eventually determined that much of the personal property—but not all of it—was rented along with the home. The insurer denied coverage for most of the personal property being claimed based on an exclusion in the policy for property that was rented to others. The insurer’s denial occurred approximately eight months after the extended suit limitation period expired.
After the claim was denied, the insured sued the insurer for bad faith, but did not include a claim for breach of contract. The insurer moved for summary judgment arguing that the insured was not damaged as a matter of law due to the fact that the suit limitation period expired and the insured had no enforceable right payment. In addition, the insurer argued that its determination that the insured’s personal property was not covered was reasonable as a matter of law. The insured countered by arguing that the insurer waived its right to rely on the suit limitation provision and acted unreasonably in determining the whether the personal property in question was rented.
The court rejected the insurer’s argument that the bad faith claim fails due to expiration of the suit limitation provision. In addressing the insurer’s argument, the court reasoned that an insurer “could make [denial after the suit limitation provision] a standard practice and enjoy immunity from both contractual and extra-contractual claims—the insured’s contractual claims would be barred and then he could not demonstrate any harm resulting from patently unfair claims practice.” The court found that, unlike California, Washington does not have a rule that a suit limitation period is tolled between submission of the claim and denial. Citing to F.C. Bloxom Co. v. Fireman’s Fund Ins. Co., 2012 WL 1377657 (W.D. Wash. April 19, 2012), the court noted that Washington courts have frequently found that the suit limitation provision is equitably tolled until the insurer denies the claim. Based on the facts of the case as applied to Washington law, the court determined that the insurer waived or was equitably estopped from relying on the suit limitation provision.
The court also rejected the insurer’s argument that its denial was reasonable as a matter of law. The insurer’s argument was based on its assertion that it reasonably relied on the statements of the insured, the renter, and the language of the lease agreement in making its coverage decision. The court determined that there were issues of fact concerning the handling of the claim, specifically noting the insurer’s decision to cover a small percentage of the property, denial of the claim after the suit limitation period, and consideration of only portions of the insured’s statement.
Maloney Lauersdorf Reiner frequently litigates insurance insurance bad faith claims in Washington, and is familiar with the factual and legal issues that arise in those claims. Contact us should you have any questions regarding this case, or any other matter you find on the Insurance Coverage Blog.