Many insurance policies have a one-year suit limitation clause, which precludes the policyholder from suing for breach of contract after the one-year period has passed.1 In West Beach Condominium v. Commonwealth Insurance Company (“West Beach”),2 the Court of Appeals of Washington was asked whether under Washington Law an insurance policy one-year suit limitation clause barred extra-contractual claims under the Insurance Fair Conduct Act (“IFCA”)3 or Consumer Protection Act (“CPA”).4 The appellate court concluded the one-year suit applicable to breach of contract claims did not bar extra-contractual claims under IFCA or CPA.
In West Beach the homeowners association brought an action against the property insurer (“Commonwealth”) to recover for breach of contract, as well as violations of both IFCA and CPA by failing to pay claims for water damage. Commonwealth’s policy required the suit to be commenced within 12 months of the “occurrence” giving rise to the claim. As West Beach and Commonwealth prepared for trial, both parties filed motions seeking a legal ruling as to whether the suit limitation provision, which barred the contract claim, also barred the IFCA and CPA claims. The trial court found the one-year limitation clause applicable to the contract claims was also applicable to the extracontractual claims. The trial court dismissed the IFCA and CPA claims.
West Beach appealed, arguing:
The Commonwealth policies contain a “suit limitation clause” – a provision requiring a lawsuit “for the recovery of any claim under the Policy” to be commenced within a year of when the policyholder discovers its loss. Under Washington law, limitation clauses like this only affect the policyholder’s remedies; they have no bearing on the policyholder’s rights or the insurance company’s duties. It follows that the expiration of a suit limitation period has no effect on what the policy “covers” or what the insurance company is obligated to pay the policyholder.
Stated more concisely, the limitation clause simply deprives West Beach a remedy in contract, it has no effect on the West Beach’s extra-contractual causes of action.
Commonwealth disagreed and argued:
Suit limitation provisions are enforceable under Washington law, and West Beach cannot avoid the consequences of its failure to timely file suit by asserting extra-contractual claims, particularly when those extra contractual claims asserted no wrongful conduct other than enforcement of the suit limitation provision and asserted no damages other than coverage.
The appellate court agreed with West Beach finding:
Suit limitation clause prohibiting action against property insurer unless commenced within 12 months merely modified statute of limitations applicable to breach of contract claim, did not negate coverage or extinguish insurer’s obligations after one year, and, therefore, did not bar extra-contractual claims under Insurance Fair Conduct Act (IFCA) and the Consumer Protection Act (CPA); policies did condition coverage on receipt of notice of claim within specified time period, but insurer’s obligation to pay covered losses was triggered by notice of loss, not initiation of a lawsuit. Wash. Rev. Code Ann. §§ 19.86.010 et seq., 48.30.015.
The appellate court held the trial court erred by not allowing the jury to decide whether the damage at West Beach’s property was caused by covered perils, and if so, whether Commonwealth unreasonably denied coverage violating IFCA and the CPA.
1 RCW 48.18.200(1)(c) explicitly authorizes suit limitation clauses in insurance contracts.
2 West Beach Condominium v. Commonwealth Ins. Co., No. 79676-3-1, – P.3d – (Wash. App. Jan. 13, 2020).
3 IFCA provides that “[a]ny first party claimant to a policy of insurance who is unreasonably denied a claim for coverage or payment of benefits by an insurer may bring an action in the superior court of this state to recover the actual damages sustained.” RCW 48.30.015(1); see also Perez-Crisantos v. State Farm Fire & Cas. Co., 187 Wash.2d 669, 683, 389 P.3d 476 (2017) (claimant must prove the insurer unreasonably denied a claim for coverage or the insurer unreasonably denied payment of benefits).
4 To prevail under the CPA, a plaintiff must prove (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) with a public interest impact, (4) injury to the plaintiff’s business or property, and (5) causation. Ledcor Indus. (USA), Inc. v. Mut. of Enumclaw Ins. Co., 150 Wash. App. 1, 12, 206 P.3d 1255 (2009). A denial of coverage is not an unfair or deceptive act or practice if based on reasonable conduct by the insurer, even if the denial of coverage is ultimately proved incorrect. Overton v. Consol. Ins. Co., 145 Wash.2d 417, 434, 38 P.3d 322 (2002).