Under California law, a policyholder has four years to bring legal action for breach of an insurance policy,1 and the statute of limitations for an insurer’s failure to comply with its duty of good faith and fair dealing, commonly referred to bad faith, depends on the facts and circumstances of the case and the particular cause of action brought against the insurer.

In my last post, I explained that California recognizes certain conduct by insurers tolls the statutory limitations period. During my research I came across an interesting holding that I wanted to share. In Hartford Accident & Indemnity Company v. Superior Court,2 the issue before the Appellate Court was whether a carrier’s arson investigation tolled the statutory limitation period for the policyholder to bring his bad faith lawsuit.

Surprisingly, the court said no.

The insured suffered a fire loss to several of his commercial trucks. The insurer recognized coverage for the trucks and a settlement was reached; however, the insurer initiated an arson investigation against the policyholder. Approximately four years later, a jury acquitted the policyholder of any arson charges. The policyholder filed suit two weeks after the statutory limitation period expired. The policyholder’s theory was simple, the delay in filing was justified because the insurer brought criminal charges against him and the statute of limitations was tolled until a judgment was entered in the underlying criminal case.

The Appellate Court found that the policyholder had ample notice, through discovery of his arson investigation of the basis of his bad faith lawsuit. As such, the period began to run upon such notice and was not tolled through the completion of the criminal arson trial.

California’s case law regarding statute of limitations is incredibly fact specific.3 California recognized estoppel and waiver of an insurer’s statute of limitations under many circumstances; however, the state also recognizes the importance of enforcing a contract as written. That’s why, if you have a dispute with your insurer and the statute of limitations is approaching, you need to consult legal counsel that can help advise you and protect your vested interests.

1 The limitation period can be, and often is, contractually shortened to one year.
2 Hartford Accident & Indem. Co. v. Superior Court, 121 Cal. App. 3d 249, 252, 175 Cal. Rptr. 282, 283 (Cal. Ct. App. 1981).
3 My colleague, Kenneth Kan, explains California’s “equitable tolling” in his August 14, 2012, blog, An Important Reminder About Equitable Tolling in California.