In Arizona, the statute of limitations for a cause of action for insurance benefits will begin to run from the date the insurer committed a breach, unless the policy states otherwise (i.e., from the “inception of” or “date of” loss). Typically, this means from the date the insurer denies claim benefits to its insured.1

Pursuant to A.R.S. § 12-548, complainants have six years to file action for breach of contract:

A. An action for debt shall be commenced and prosecuted within six years after the cause of action accrues, and not afterward, if the indebtedness is evidenced by or founded on either of the following:
1. A contract in writing that is executed in this state.
2. A credit card as defined in § 13-2101, paragraph 3, subdivision (a).
B. If there is a conflict between another jurisdiction and this state relating to the statute of limitations for a debt action as described in subsection A of this section, this section applies.

If the policy does not otherwise define the statute of limitations, the statute controls, and the time for which to file suit is six years from the date the cause of action accrues.2

Arizona permits parties to contract around the statutory time period of six years and for a shorter time period. Specifically, A.R.S. §20-1115 permits a limitation of no less than one year from the date of occurrence in property, marine, and transportation policies, and no less than two years in all other types of insurance policies.3 Any policy that tries to shorten the statute of limitations to under a period of one year, however, is void under Arizona law.4

However, there is Arizona authority that supports the notion that these shortened statute of limitation periods may not always be enforceable against insureds. The fact that the law permits the existence of an insurance policy clause setting the limitation of one year on the filing of suit does not mean that such a clause must be applied in every situation.5

Prejudice determines whether an insurer may assert the limitations period in a policy or is estopped from asserting it.6 A limitations provision in a policy is enforceable unless it is inequitable to enforce it; the key factor is whether the insurer has shown prejudice from the delay in filing suit. In Nangle v. Farmers Insurance Company, Farmers failed to show prejudice from the insureds’ delay in filing suit until two years after fires, thus, the one-year limitations provision was unenforceable. This was found to be the case even though Farmers asserted generally that memories faded and that witnesses could become unavailable. Despite having alleged it, Farmers failed to show that any given witness became unavailable or that any specific relevant fact was forgotten or became unavailable due to the delay.

An insurance policy clause shortening an applicable statute of limitations will be enforced when the reasons for its existence are served and will not be applied when to do so would be to defeat basic intent of parties in entering into the insurance transaction.7 For example, where the enforcement of an insurance policy limitation clause would forfeit a patently valid claim, would not serve the purpose for which the limitation clause existed, would work an injustice to the insured, and the parties had not negotiated the condition in question and the condition was adhesive, the insurer was estopped to enforce such a clause. In other words, even where the policy condition shortening the statute is valid…the insurer may be estopped from raising a defense based upon such an adhesive clause where the enforcement of the clause would work an unjust forfeiture. The key factor in determining this issue is whether the insurer has shown prejudice from the delay in filing suit. Absent such a showing, the purpose for which the insurer was permitted to insert the clause will not be served by its enforcement.

Ultimately, the decision as to which statute of limitations applies to an action is a matter of law for the courts to decide.8 Under Arizona law, courts do not favor the statute of limitations defense, and if there is substantial doubt as to which limitations period governs, the longer period should be applied.9

Arizona also recognizes the doctrines of equitable tolling and equitable estoppel which can extend the statute of limitations under certain limited circumstances. However, these doctrines are only to be used when truly necessary, and simply garden variety excusable neglect is not enough to warrant these equitable principles.10

Under equitable tolling, plaintiffs may sue after the statutory time period for filing a complaint has expired if they have been prevented from filing in a timely manner due to sufficiently inequitable circumstances.11 Whether to apply equitable tolling of a statute of limitations is a question that the trial court, not the jury, should determine.12

Similarly, when facts warrant, a court may apply the doctrine of equitable estoppel to avoid a bar of the statute of limitations.13 A defendant may be estopped from asserting a statute of limitations defense if it “induces the plaintiff to forego litigation by leading plaintiff to believe a settlement or adjustment of the claim will be effected without the necessity of bringing suit.”14 A waiver or estoppel with respect to a contractual limitation period will exist if an insurer by its conduct induces its insured—by leading him to reasonably believe a settlement or adjustment of his claim will be effected without the necessity of bringing suit—to delay commencement of the action on the policy until after the limitation period has run.15 Estoppel may also be justified where enforcement of the limitations period in the policy would create an unjust forfeiture.16

And, the concept of estoppel can also be applied where the court determines that an insured’s delay in having filed suit did not prejudice the insurer—particularly where the policy acts to shorten the policy period to only one or two years.
1 See Blutreich v. Liberty Mut. Ins. Co., 170 Ariz. 541, 826 P.2d 1167 (App. 1991)(The limitations period in cause of action for benefits under underinsured motorist provision of automobile policy began to run on date insurer breached contract and not on date of accident); Clark Equip. Co. v. Arizona Prop. & Cas. Ins. Guar. Fund, 189 Ariz. 433, 943 P.2d 793 (App. 1997)(For limitations purposes, breach of insurance contract generally occurs when insurer denies insured the relevant coverage).
2 See Eureka-Sec. Fire & Marine Ins. Co. v. Simon, 1 Ariz. App. 274, 401 P.2d 759 (1965)(In the absence of a time limitation clause in a business interruption policy standing alone, the policy would be governed by the ordinary statute of limitations).
3 See also, Gibbons v. Badger Mut. Ins. Co., 11 Ariz. App. 485, 489, 466 P.2d 36, 40 (1970).
4 Id.
5 Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 650 P.2d 441 (1982). For more on the Zuckerman case, see our post, Arizona: How Long Does a Policyholder Have to File Suit Under an Insurance Policy?
6 Nangle v. Farmers Ins. Co. of Arizona, 205 Ariz. 517, 73 P.3d 1252 (App. 2003).
7 A.R.S. § 20-1115; Zuckerman, 133 Ariz. 139 (1982).
8 See Ins. Co. of N. Am. v. Superior Court In & For County of Santa Cruz, 166 Ariz. 82, 800 P.2d 585 (1990).
9 Ins. Co. of N. Am. v. Superior Court In & For County of Santa Cruz, 166 Ariz. 82, 800 P.2d 585 (1990); see also, Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 898 P.2d 964 (1995).
10 See Porter v. Spader, 225 Ariz. 424, 429, ¶ 15, 239 P.3d 743, 748 (App. 2010).
11 McCloud v. State, Ariz. Dept. of Pub. Safety, 217 Ariz. 82, 170 P.3d 691 (App. 2007).
12 Id.
13 Cheatham v. Sahuaro Collection Serv., Inc., 118 Ariz. 452, 577 P.2d 738 (App. 1978).
14 Abney v. Liberty Mut. Ins. Co., 1 CA-CV 11-0112, 2012 WL 554741, at *4 (App. Feb. 21, 2012) citing to, Roer v. Buckeye Irr. Co., 167 Ariz. 545, 547, 809 P.2d 970, 972 (App.1990).
15 Nangle v. Farmers Ins. Co. of Arizona, 205 Ariz. 517, 73 P.3d 1252 (App. 2003).
16 See Id.