Under most insurance policies, an insurer has an obligation to send you a letter detailing their claims decision, including any decision to deny your claim. Under Texas case law, failure to do so may violate the Texas Insurance Code. Keeping this in mind, it should be noted that under normal circumstances, people have a right to sue under a breach of contract theory for up to four (4) years after the cause of action accrues. However, Texas courts have permitted insurance companies to reduce this limitations period to no less than 2 years and 1 day, as long as there is a provision in the policy indicating the reduced amount of time to bring suit against your insurer.

But when does a cause of action accrue? Is it when the insurer sends you a denial letter? What if the insurer fails to send you a denial letter? How does that affect your ability to bring a lawsuit?

Judge Lee Rosenthal of the United States District Court for the Southern District of Texas issued a ruling on March 30, 2012, issued a decision which tackled these issues in Williams v. Allstate Fire and Casualty Insurance Company. In Williams, the insured’s home was damaged as a result of Hurricane Ike. After the insured submitted an insurance claim, Allstate sent an adjuster to inspect the damage. Allstate’s adjuster determined that the damage was below the deductible and informed the insured of his finding. Allstate then closed the claim file on November 16, 2008, but failed to send a letter notifying the insured about its decision, as required by the Texas Insurance Code.

The insured, unsatisfied with the outcome, filed suit against Allstate on December 28, 2010. In their motion for summary judgment, Allstate argued that the claim was time-barred because they filed their lawsuit more than 2 years and 1 day after the claim accrued, which Allstate believed to be the date it closed the file (November 16, 2008). However, Allstate admitted that there was no letter in evidence showing that it notified the insured of its decision to close the file.

Judge Lee Rosenthal granted summary judgment on the breach of contract claim, finding in favor of Allstate. With respect to when the cause of action “accrued,” Judge Rosenthal stated that “[a]s a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy… A cause of action accrues when a wrongful act causes some legal injury, even if the fact of injury is not discovered until later.” Judge Rosenthal noted that a plaintiff’s cause of action for a bad faith breach of a first-party insurance contract accrues at the time the insurer denies the insured’s claim, and that is usually evidenced by a denial letter. “But when, as here, there is no written denial of a claim, Texas courts have looked to the date the insurer closed the claim file.” Judge Rosenthal reasoned that this is because the closing of a claim file is an objectively verifiable event that unambiguously demonstrates an insurer’s intention not to pay a claim.

“Allstate’s failure to send the plaintiff’s a letter informing them that their claim had been denied or that the claim file had been closed does not compel a different result.” Judge Rosenthal reasoned that although Allstate’s failure to send a letter may be a violation of the Texas Insurance Code, “accrual under the legal injury rule is a separate issue. The failure to comply with a statutory duty has nothing to do with, and fails to vitiate the plaintiff’s own responsibility to exercise diligence in pursuing their claim.”