Consider the auk;
Becoming extinct because he forgot how to fly, and could only walk.
Consider man, who may well become extinct
Because he forgot how to walk and learned how to fly before he thinked.1
With so many of us traveling the country to advocate for insureds, I want to highlight a couple of important issues that can bar legitimate claims. The issues center on whether a claim is ripe or whether it is barred by the jurisdiction’s statute of limitations.2
The first issue appears simple. If a jurisdiction provides a three or four year statute of limitation period, then that is the time period the insured has to bring his or her lawsuit. But what happens when a policy contains a provision that limits the jurisdictional statute of limitations? These are commonly referred to as contractual limitation period provisions. As often is the case, the answer varies from jurisdiction to jurisdiction.
In many states, statutes provide that insurance policies cannot contractually shorten the state’s statute of limitations.3
Florida is one of these states. Florida Statute § 95.11 provides that a legal or equitable action on a contract must be brought within five years. Florida Statute § 95.03 provides that “[a]ny provision in a contract fixing the period of time within which an action arising out of the contract may be begun at a time less than that provided by the applicable statute of limitations is void." Thus, any provision that attempts to limit the time period that an insured may file a lawsuit in Florida is unlawful.
The law in Illinois is different. The statute of limitations for a breach of contract action is ten years under Illinois Statute Chapter 735 § 5/13-206. The Illinois Appellate Court affirmed in Florsheim v. Travelers Indemnity Company of Illinois, contractual limitations of the period of time to file a lawsuit are valid.4
It is well settled that a contractual limitation requiring suit to be brought within a specific period of time is valid if reasonable even though the period provided by general statute of limitations as to suits on written contract is longer. (Citations omitted.) Consequently, an action brought after the expiration of the one-year period is barred unless the insurer by its conduct is precluded from raising the defense.
This can lead to harsh results if the insured or its representative do not read the policy. It can also seem unfair based on the carrier’s conduct throughout litigation. As many of us encounter, the adjustment of claims can take several months, even years. The Illinois Legislature and courts have considered this predicament and have developed certain exceptions. For example, Illinois Statute Chapter 215 § 5/143.1 provides:
Whenever any policy or contract for insurance, except life, accident and health, fidelity and surety, and ocean marine policies, contains a provision limiting the period within which the insured may bring suit, the running of the period is tolled from the date proof of loss is filed, in whatever form is required by the policy, until the date the claim is denied in whole or in part.
This statute tolls the time period to bring a lawsuit from the date the proof of loss is filed up to the date the claim is denied in whole or in part. Interestingly, many carriers never request a proof of loss or provide the form. As you can imagine, it behooves all policyholders to submit a proof of loss right away to prevent this trap. Even if no formal proof of loss is filed by the insured, certain actions and information exchanged between the parties can have the same effect.
In McDonald v. American Family Mutual Insurance Company,5 American Family argued the McDonalds were barred from bringing their claim as the contractual limitation period expired. The McDonalds relied on Illinois Statute Chapter 215 § 5/143 for their position that the period was tolled. The Appellate Court of Illinois sided with the McDonalds and found, “[w]here one has in good faith furnished proof sufficient to apprise insurer of character and extent of claim, and no particular forms are required by policy or by statute, such person shall not be barred because of nature or manner in which proof was submitted and insurer had due notice thereof.” In other words, conduct by the parties in giving and receiving notice of the loss served as a constructive proof of loss and Illinois Statute Chapter 215 § 5/143 effectively tolled the contractual time limit to bring the lawsuit.
As the laws varying from state to state, we need to be cautious. It is great to carry expertise to other jurisdictions, but advocates should create a checklist of issues which differ by jurisdiction and should be considered immediately. As Ogden Nash advised caution for those of us that seek to fly before we think, I suggest these issues should be at the top of your list to prevent your claim from becoming extinct.
1 Poem by Ogden Nash
2 A statute of limitation is a federal or state law that restricts the time within which legal proceedings may be brought.
3 112 A.L.R. 1288 (Originally published in 1938).
4 75 Ill. App. 3d 298, 303, 393 N.E.2d 1223, 1228 (Ill. App. Ct. 1979).
5 251 Ill. App.3d 354 (Ill. App. Ct. 1993)