The California Court of Appeal has held that the Fair Claims Settlement Practices Regulations require an insurer to inform a first-party claimant of a policy’s one-year contractual limitation period even where the claimant is represented by an attorney, and that failure to do so may later estop the insurer from raising the limitation period as a defense. ( Superior Dispatch, Inc . v. Insurance Corp. of New York (2009) 176 Cal.App.4th 12)
Facts
Superior Dispatch, Inc. (Superior), a trucking company, purchased an insurance policy from Insurance Corporation of New York (Inscorp). The policy included a cargo form that provided all-risk property coverage relating to loss of or damage to cargo in transit. The cargo form included contractual limitations provision that required the insured to file suit within one year of the date of loss.
Matson Navigation Company (Matson) hired Superior to carry freight by truck from one location to another. Superior’s truck struck an overpass, causing damage to the freight on the truck. Thereafter, Matson demanded payment from Superior, and Superior submitted both a first-party claim and a third-party claim to Inscorp.
Ultimately, Inscorp’s claims adjuster sent a letter to Superior stating that Inscorp had denied the claim. However, Inscorp’s adjuster’s letter did not refer to the one-year contractual limitations provision contained in the cargo form.
Superior retained an attorney, who sent a letter to Inscorp challenging the claim denial and alleging that the denial was in bad faith. Inscorp then retained an attorney, who sent a letter to Superior’s counsel and reiterated the prior denial of coverage. Inscorp’s counsel’s letter did not refer to the one-year contractual limitations provision contained in the cargo form.
Superior filed a complaint against Inscorp more than one-year after Inscorp’s adjuster had given written notice of the denial of the claim and more than one year after Inscorp’s counsel had reaffirmed, in writing, the denial of the claim. Inscorp filed a motion for summary judgment, asserting that the one-year contractual limitations period barred the complaint in its entirety. The trial court concluded that the entire action was barred by the one-year contractual limitations period, and Superior appealed.
Holding
The Court of Appeal reversed, relying on the fact that the Fair Claims Settlement Practices Regulations (enacted by the Department of Insurance) require certain disclosures by insurers in connection with claims. Among other things, Section 2695.4, subdivision (a) requires that “[e]very insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant.”
In addition, Section 2695.7, subdivision (f) requires an insurer to notify a “ claimant ” of any statute of limitations and any “other time period requirement upon which the insurer may rely to deny a claim, but also provides that “[t]his subsection shall not apply to a claimant represented by counsel on the claim matter.” The term “claimant” is defined to include both a “first party claimant” and a “third party claimant.”
The Court of Appeal held that Section 2695.7, subdivision (f) – which applies to a “claimant” – exempts the insurer from giving notice of a limitation period if the claimant is represented by counsel. However, the Court held that Section 2695.4, subdivision (a) – which specifically applies to a “first party claimant” – does not exempt the insurer from giving notice of a limitation period if the first-claimant is represented by counsel.
The Court held that triable issues of fact existed as to whether Superior and/or its attorney had actual notice of the policy’s one-year contractual limitation period and that, if they could establish that they did not have notice, then Inscorp would be estopped to raise the limitation period as a defense.
Comment
In Spray, Gould & Bowers v. Associated International Ins. Co. (1999) 71 Cal.App.4th 1260, the Court of Appeal held that, where an insurer fails to inform the insured that the policy contains a contractual limitation period, and where the insured is not otherwise aware of the shortened limitation period, the insurer may be estopped from raising the limitation period as a defense in litigation.
The Superior Dispatch ruling expands somewhat upon the Spray, Gould & Bowers ruling and holds that, if the insured is represented by an attorney, the insurer does not need to give notice of any statutory limitation period but does need to give notice of any contractual limitation period. Generally, this exception should only apply in the context of first-party insurance.
Although the Court noted that the insured would still need to establish detrimental reliance (i.e., that the insured and the insured’s attorney did not have actual knowledge the contractual limitation provision), that typically should be easy for an insured to prove.