One of the first things lawyers look at when presented with a potential new case is the statute of limitations (deadline to file suit) and whether the deadline has passed. That issue is trickier in first-party property cases because carriers usually insert a limitations clause into the policy, saying suit must be brought within a year or two of the date of loss. Because the general rule is that parties are free to contract for shorter limitations periods, some states enforce these clauses as is.1 Texas, however, requires a minimum two-years from date of accrual of the cause of action. I cannot stress enough how important it is that the first thing any public insurance adjuster or attorney should do when they get a claim is read the policy. Determine when the deadline to file suit probably is, calendar it with ample reminders, and proceed accordingly. Don’t assume the general statute of limitations of the state you are in will apply. I am surprised how often I get hired on a case and find out a policyholder or public adjuster unknowingly sat on the claim too long for me to bring some or all of the potential causes of action against the carrier.
Texas has a general four-year statute of limitations for breach of contract claims and a two-year statute of limitations for bad faith and DTPA claims. The question is when do these time limits begin to run (accrue), and when do they end. In 2009, a Texas appellate court dealt with these issues along with the issue of a limitations clause inserted in an insurance policy requiring suit to be brought within two years of the date of loss.2 Most insurance policies have a provision titled something like “Legal Action Against Us.” In that provision the carrier will set out things the policyholder must do in order to sue the carrier. In Spicewood, the policy contained the typical clause:
No one may bring a legal action against us under this policy unless:
a. There has been full compliance with all terms of this insurance, and
b. The action is brought within 2 years and one day after the date on which the direct physical loss or damage occurred.”
The policyholder in Spicewood sued the carrier for breach of contract, bad faith, etc. more than two years after the date of loss but less than four years. The carrier moved for summary judgment in the trial court asserting that all causes of action were barred (even the four-year breach of contract cause of action) because the limitations clause in the policy required that suit be brought within two years and one day from the date of loss. The carrier won at the trial level but the court of appeals reversed. The appellate court pointed out parties may contract for a different period of time in which a party may file suit, but Texas Civil Practice and Remedies Code (TCPRC) Section 16.070(a) sets a two-year statutory limit regarding how short the time may be. (A contract cannot set a limit shorter than two years or else the clause is void). Importantly, the Spicewood court held that a party cannot set a time limit to file suit shorter than two years from the date the cause of action accrued, (the time when the policyholder has a right to sue the carrier), as opposed to the date of loss. The court noted that using the date of loss does not work because by the policy and the Texas Insurance Code the policyholder has no right to sue the carrier on the day of the loss. Rather the carrier has set numbers of days to do certain things and the policyholder has a duty to provide information and access to the property, etc. The claims handling must progress to a point where the carrier denies the claim or partially denies the claim or underpays the claim before the policyholder has a right to file a lawsuit. That is when the cause of action accrues and that is when the time begins to run.
Because the limitations clause in Spicewood began on the date of loss, the court declared the clause void because it violated Section 16.070(a) of the TCPRC. The court held that the general four-year limit for breach of contract applied.3 Please note that had the limitations clause in the policy said that the policyholder had two years from the date the cause of action accrued, the carrier could have enforced a two-year statute of limitations on the breach of contract claim, even though the statute of limitations for breach of contract is four years. The court did not outlaw limitations clauses, but looked at the particular clause and applied Section 16.070(a) to find the clause void.
In Texas, a good and safe rule of thumb is that a lawsuit should be filed within two years of the date of any written denial and/or the date of the last payment from the carrier.
1 I will discuss the law in other states in future blogs.
2 Spicewood Summit Office Condominiums Association, Inc. v. America First Lloyd’s Ins. Co., 287 S.W.3d 461 (Tex. App.—Austin 2009).
3 Because the court held there was no bad faith it was not dealing with bad faith statute of limitations.