In Arizona, the law permits insurance companies to contractually shorten the statute of limitations period by which the policyholder must file suit.

In a homeowner policy, the limitation clause usually states that the suit must be commenced within one year after the loss. In business policies, we often see limitation clauses that require suit to be initiated within two years after the loss. (In Arizona, an ordinary breach of contract case that does not involve an insurance policy that has contractually shortened the period, a six-year statute of limitations applies.) It is imperative that the one or two-year anniversary of the date of loss be calendared (with intermittent reminders) by those who have a claim or are adjusting a claim, to preserve sufficient time to get a lawsuit filed, if necessary.

What happens if an Arizona policyholder files suit beyond the time limitation set forth in the policy? Is the suit time barred? Does the policyholder have any hope? To answer these questions, we can turn to an Arizona Supreme Court case: Zuckerman v. Transamerica Insurance Company.1 In Zuckerman, the policyholder’s suit against the insurance company was filed approximately three months after the expiration of the one-year policy limitation period. Transamerica contended that the suit was time-barred by the one-year provision. So, the issue was whether the insurance company could enforce the policy limitation period to get the case thrown out of court.

Guided by equity principles and public policy, the Zuckerman court held:

[W]hile the policy condition shortening the applicable 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 the determination of this issue is the question of whether the insurer has shown prejudice by reason of the delay in filing suit. In the absence of such a showing, it is fair to say that the purpose for which the insurer was given permission to insert the clause will not be served by its enforcement.

In sum, it is always the best course to file suit within the policy limitation period. Sometimes, circumstances prevent that from happening or make it difficult to do so. In Arizona, assuming the policyholder has a valid claim and if the insurance company cannot demonstrate any prejudice from the delay, then a suit that is filed late can nonetheless be maintained despite the time challenge.

1 Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 650 P.2d 441 (Ariz. 1982).