While the timeframe to file a legal action is generally defined under the Statute of Limitations, in some states an insurance policy can contractually establish a shorter period to file a legal action. In a recent California case, Keller v. Federal Insurance Company,1 the Ninth Circuit upheld a Legal Action Against Us clause, finding the homeowners waited too long to file a lawsuit.
In Keller, a backup of water and sewage in the downstairs bathroom flooded portions of the home and damaged their newly installed hardwood floor. Around December 2012, the homeowners “noticed “warping” or “cupping” in portions of their newly installed hardwood floors as a result of the flooding. By June or July 2013, they determined that the cupping was not subsiding and that it would not be resolved on its own. The homeowners reported the claim to the insurance company in September 2014. After the insurance company denied coverage in December 2015, the homeowners filed their Complaint.
The subject policy had a Legal Action Against Us (LAAU) clause, which read:
You agree not to bring legal action against us unless you have first complied with all conditions of this policy. For property, you also agree to bring any action against us within one year after a loss occurs, but not until 30 days after proof of loss has been submitted to us and the amount of loss has been determined.
The court found the LAAU Clause established both a condition precedent (requiring compliance with all conditions of the policy) and a one-year suit limitation period that began running when the loss occurred. Under this interpretation, even if the court found the loss did not occur until July 2013, the homeowners failed to comply with the contractual one-year suit limitation provision in the LAAU clause because they filed their claim over one year after the loss occurred. So, even though the limitations period would have tolled while Federal was evaluating the claim between September 2014 and December 2015, it was still time barred before they filed the initial claim.
The court reiterated that the purpose of the suit-limitations period, was to preclude stale claims, require the insured’s diligence, and prevent fraud.
1 Keller v. Federal Ins. Co., No. 17-55323, 2019 WL 1440947 (9th Cir. Apr. 1, 2019).