Statutes of limitations are unforgiving. Insurance companies may continue discussing a claim, asking for more information, reconsidering portions of a denial, or suggesting that the file remains open. Meanwhile, the courthouse clock may be steadily ticking.
Maryland generally provides an insured three years to file a breach of contract lawsuit against a property insurance company. Maryland also has an unusually strong statute prohibiting insurance companies from shortening that period through language buried in the insurance policy.
The difficult question is often not how long the limitations period lasts. The harder question in Maryland is, “When did the three-year period begin?”
Maryland’s Three-Year Statute of Limitations
Maryland Courts and Judicial Proceedings Code § 5-101 provides:
A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.
This is Maryland’s general statute of limitations for breach of contract actions, including lawsuits alleging that an insurance company breached a property insurance policy. The statute does not say that the lawsuit must be filed within three years of the date of loss. It says that the lawsuit must be filed within three years of the date the cause of action “accrues.”
That distinction can determine whether a policyholder gets a trial or has the courthouse door closed before the merits are ever considered.
When Does the Lawsuit Accrue?
A breach of contract action ordinarily accrues when the contract is breached, and the policyholder knows or reasonably should know of the breach. In the insurance context, the most obvious breach occurs when the insurance company denies the claim or refuses to pay benefits allegedly owed under the policy.
Maryland’s highest court addressed this principle in Nationwide Mutual Insurance Company v. Shilling. 1 Although Shilling involved underinsured motorist coverage rather than property insurance, the court relied on basic contract principles. It held that the limitations period begins when the insurer denies the insured’s demand for benefits and thereby breaches the insurance contract. The court explained that a demand for payment gives the insurer an opportunity to perform. The breach occurs when the insurer refuses to do so.
For property insurance claims, a written denial will usually provide the clearest accrual date. A formal letter containing the word “denial,” however, is not always required. An insurer may breach the policy by refusing to pay an amount that is due, making a final underpayment, or otherwise communicating that it will not provide benefits demanded by the policyholder.
The safest practice is to calendar the limitations period from the earliest date that could reasonably be characterized as an actionable denial or refusal to pay. To be ultimately safe, one could calendar three years from the date of loss.
The Warning From the Baltimore Scrap Case
The federal court’s decision in Baltimore Scrap Corp. v. Executive Risk Specialty Insurance Company, 2 provides an important lesson for every Maryland policyholder and property insurance attorney. Baltimore Scrap alleged that it suffered losses arising from a series of thefts at one of its scrap yards. The company made a claim under the “Crime Coverage” portion of an Executive Risk policy. Executive Risk denied coverage on May 1, 2015.
Baltimore Scrap then pursued a civil claim against the alleged thief. It argued that its insurance lawsuit did not accrue until the litigation against the thief determined the existence and amount of its loss. The federal court disagreed.
The court held that the insurance contract did not require Baltimore Scrap to pursue the thief before suing its insurer. Baltimore Scrap had the right to sue Executive Risk when it received the denial letter. Because the right to sue existed, the limitations period also began to run. Executive Risk’s denial letter stated that the insurer might reconsider its position if additional or new information became available. That language did not save the policyholder. The court held that the insurer’s willingness to reconsider did not deprive Baltimore Scrap of its right to sue and did not toll the statute of limitations.
Baltimore Scrap filed its lawsuit on September 5, 2018, which was more than three years after the May 1, 2015, denial. The court dismissed the breach of contract claim as untimely.
The practical lesson is simple. A denial does not become legally harmless merely because the insurance company says it will keep listening. An insurer may reopen the file, request another report, conduct another inspection, or tell the policyholder that additional information will be considered. None of that should be assumed to withdraw the earlier denial, restart the limitations period, or toll the running of time.
Policyholders approaching a limitations deadline should obtain a written tolling agreement or file a protective lawsuit.
Can a Maryland Insurance Company Shorten the Three-Year Period?
For an insurance contract issued or delivered in Maryland, the answer is no. Maryland Insurance Code § 12-104 states:
(a) A provision in an insurance contract or surety contract that sets a shorter time to bring an action under or on the insurance contract or surety contract than required by the law of the State when the insurance contract or surety contract is issued or delivered is against State public policy, illegal, and void.
(b) If an insurance contract or surety contract contains a provision that is illegal under this section:
(1) a State court may not give effect to the provision; and
(2) a defense to liability under the insurance contract or surety contract may not be based upon the shorter limitation period.
The statutory language could hardly be stronger. A typical policy provision attempting to reduce Maryland’s three-year period to one year or two years is not merely disfavored. It is declared contrary to public policy, illegal, void, and unavailable as a defense.
This is important because many property insurance policies contain language requiring a lawsuit to be filed within one or two years after the date of loss. In Maryland, that language cannot shorten the limitations period otherwise supplied by Maryland law.
Maryland generally permits parties to shorten limitation periods in some types of contracts when the provision is reasonable, was not produced by fraud or duress, and no statute prohibits it. The Maryland Court of Appeals (renamed the Supreme Court of Maryland in 2020) explained that general rule in Ceccone v. Carroll Home Services, LLC. 3 Insurance contracts are different because § 12-104 is the controlling statute “to the contrary.” An insurance company cannot accomplish by policy language what the Maryland legislature has expressly prohibited.
Other Policy Deadlines Still Matter
Section 12-104 prevents an insurer from shortening the period for bringing a lawsuit. It does not necessarily eliminate every other deadline or condition in the policy.
Property insurance policies may impose requirements concerning prompt notice, sworn proofs of loss, cooperation, examinations under oath, inventories, appraisal, mitigation, and the time for repairing or replacing damaged property to recover replacement cost benefits.
Those provisions involve different questions. A policyholder might retain three years to file suit but still face an argument that a particular benefit was lost because a separate policy condition was not satisfied.
The safest practice is to comply with all policy deadlines while separately protecting the lawsuit deadline.
Appraisal and Continuing Adjustment Do Not Automatically Stop the Clock
Policyholders and their representatives should also be cautious when a claim is in appraisal, mediation, administrative review, reconsideration, or continued adjustment. Those proceedings may affect when a breach occurs under the particular policy and facts. But they should not be assumed to suspend an already-running statute of limitations.
The Baltimore Scrap court specifically recognized that a policyholder may need to file suit “prophylactically” to protect against the running of limitations. There is nothing improper about filing a lawsuit to preserve a claim while appraisal, negotiations, or further investigation continues. There is something tragic about completing those proceedings only to learn that the underlying lawsuit is now time-barred.
Do Not Confuse Maryland Property Policies with Federal Flood Policies
National Flood Insurance Program claims are different. The Standard Flood Insurance Policy is governed by federal law and generally requires a lawsuit to be filed within one year after the insurer’s written denial of all or part of the claim.
Maryland Insurance Code § 12-104 does not enlarge a federally imposed NFIP deadline. Policyholders with flood claims should treat the federal one-year period as a separate and particularly dangerous limitation.
Maryland statutory claims alleging a property insurer’s failure to act in good faith may also involve administrative procedures before the Maryland Insurance Administration. Those procedures and exceptions should be evaluated separately from the ordinary breach of contract claim.
The Bottom Line
A Maryland policyholder generally has three years to file a breach of insurance contract lawsuit. That period ordinarily begins when the insurance company denies the claim or otherwise refuses to pay benefits allegedly due under the policy.
An insurance company cannot shorten that period through a one-year or two-year suit limitation provision in a policy issued or delivered in Maryland. Maryland Insurance Code § 12-104 declares such provisions illegal, void, and unenforceable.
Still, policyholders should not become comfortable merely because three years sounds like a long time. Continuing negotiations, requests for additional information, reopening the claim, pursuit of a responsible third party, or an insurer’s statement that it might reconsider do not necessarily stop the clock.
Calendar the earliest possible breach date. Obtain a written tolling agreement or file suit before that date expires.
The statute of limitations is a deadline, not a negotiating position.
Thought For The Day
“The history of this state—it is powerful and it is painful. It is complex.”
—Maryland Governor Wes Moore
1 Nationwide Mut. Ins. Co. v. Shilling, 468 Md. 239, 227 A.3d 171 (Md. 2020).
2 Baltimore Scrap Corp. v. Executive Risk Specialty Insurance Co., 388 F. Supp. 3d 574 (D. Md. 2019).
3 Ceccone v. Carroll Home Services, LLC, 454 Md. 680, 165 A.3d 475 (Md. 2017).
