Most if not all homeowner policies contain a provision entitled “Suit Against Us” which sets forth the time limitation to file a lawsuit against the insurer under the policy. In California, insurance companies can contractually require that the lawsuit be commenced within one year after the date or “inception of the loss.”1
But what if the loss occurs before any damage is discovered by the insured? Does the one-year run from the actual occurrence of the event causing the loss or from the date of the insured’s discovery of the damage? It is conceivable the insured’s awareness of the loss or damage does not coincide with the date of occurrence. For instance, wind or hailstorm damage to a roof might not become apparent to a homeowner until experiencing a roof leak. That is unlike damage resulting from a fire which would be readily discernable or apparent.
California courts have adopted the “delayed discovery rule” for first-party cases. The rule holds an “insured responsible for initiating a claim based on the date on which the insured could reasonably have concluded his property suffered a loss.”2 Moreover, the “’inception of the loss’ means that point in time at which appreciable damage occurs so that a reasonable insured would be on notice of a potentially insured loss.”3 Furthermore, the “inception of the loss” should be “determined by reference to reasonable discovery of the loss and not necessarily turn on the occurrence of the physical event causing the loss.”4
Accordingly, the delayed discovery means an insured’s lawsuit on the policy will be deemed timely if filed within one year after “inception of the loss.” [If a business policy is involved, the contractual time limitation is typically two years.] It is important to note however, that to take advantage of the delayed discovery rule the insured is required to be diligent in the face of discovered facts. Any delayed discovery must be reasonable in light of the facts and circumstances. In addition, the insured still has a duty to promptly and diligently notify the insurer of the loss.5
Policyholders and those who assist policyholders must pay careful attention to the statute of limitations. If a policyholder has any doubt about the statute of limitations as it pertains to a particular case, it would be wise to consult an insurance professional. Otherwise, there is a risk that a potential recovery could be foreclosed.
1 Cal. Ins. Code §2071. (Outside of the insurance context, California has a four-year statute of limitations to file suit based on breach of a written contract.)
2 Prudential-LMI Commercial Ins. v. Superior Court (1990) 51 Cal. 3d 674, 685.
4Id. at 686.
5Id. at 687.