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Statutes of Limitations in Insurance Policies

Besides the statutes of limitations which have been enacted as laws by the Tennessee legislature, there is a second type of statutes of limitations.  Many insurance policies contain terms which require an insured or policy owner to file a lawsuit within a certain amount of time. Anyone with a breach of contract claim, or other claim, arising from an insurance policy must be very, very aware of the limitations periods for filing lawsuits which are contained in insurance policies and how they work.

In Tennessee, limitations periods clauses in insurance policies are valid and enforceable even though many such clauses will bar a lawsuit unless it is filed within a period of time which is substantially shorter than Tennessee law would otherwise require.  For example, in most insurance policy lawsuits, the main claim of the insured is that the insurance company is liable for breach of contract for not paying the claim.  Under Tennessee law, a person has a full six years to file a breach of contract lawsuit.  Many insurance policies, however, have provisions that essentially require a lawsuit to be filed within one year.

For either a statute of limitations made by state law or one made by an insurance company and placed in a policy, you need to know when the limitations period started.  The day when the limitations period started is referred to as the “accrual of the cause of action.” When courts and lawyers talk about the date the cause of action accrued, they are referring to the date that the limitations period began to run — the date when the clock began to tick.

When the limitations period in an insurance policy begins to run can be a little tricky because of the fact that most policies (every policy I have ever seen) allow the insurance company a certain amount of time, usually sixty days, to make a decision about whether to pay the claim.  During that period of time, a lawsuit cannot be filed against the insurance company.  Because the insurance company cannot be sued during that period of immunity, that period will have an effect on when the statute of limitations in the policy begins to run.

A recent case of the Court of Appeals of Tennessee explains how statutes of limitations in insurance policies work in Tennessee.  It is also a cautionary tale of how a statute of limitations within an insurance policy can be fatal.

The case is Meyers v. Farmers Aid Assoc. of Loudon County (Tenn. Ct. App. 2014), and here are the basic facts:

  • The Plaintiff owned a home
  • The Plaintiff had the home insured with a homeowner’s policy
  • On Sept. 14, 2011 a fire destroyed the Plaintiff’s home
  • On Nov. 15, 2011, the Plaintiff submitted a proof of loss (claim) to the Insurance Company
  • The Insurance Company never responded to the Plaintiff’s claim
  • On March 13, 2013, more than a year and half after he filed his claim with the Insurance Company, the Plaintiff filed his lawsuit
  • The insurance policy required the Insurance Company to pay the loss, if it deemed it a covered loss, within sixty days of receiving the claim from the insured (the Plaintiff)
  • The insurance policy required that any lawsuit be filed “within twelve months next after inception of the loss”

The trial court held that the Plaintiff’s lawsuit was not barred because the statute of limitations was tolled during the time period that the Insurance Company did not respond to the claim filed by the Plaintiff.  The Court of Appeals disagreed and reversed.

In reversing the trial court, the Court of Appeals laid out clearly the law regarding when statutes of limitations in insurance policies begin to run. For Tennessee lawyers who handle insurance policy cases, the opinion is a helpful reference.

The Court of Appeals held that the statute of limitations in the policy began to run sixty days after the Plaintiff submitted his claim.  It also pointed out that, had the Insurance Company denied the claim thirty days after the Plaintiff had submitted it, the statute of limitations in the insurance policy would have begun to run at that point.  So, the rule is that the statute of limitations in such policies begins to run on the day that is the sooner of when the insurance company informs the insured that the claim is denied or sixty days after the claim was submitted if the insurance company does not respond to the claim within sixty days.