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self-study / Insurance Law

File That Insurance Claim on Time

Most insurance policies contain specific language that purports to impose deadlines on insureds who seek to file a claim. Some of those requirements are not specific, such as the ubiquitous requirement that an insured give the carrier notice of a loss or claim "as soon as reasonably practicable" (yes, many policies use the term practicable). Such phrasing leads to the classic question of whether it means something different from "practical." Don't laugh: Some dictionaries suggest that the terms are not interchangeable; others, in contrast, state that the terms are synonyms, with many defining both words to mean "feasible."

But not every policy is so vaguely worded. Often, an insured purchases a policy that contains specific deadlines that are triggered by referenced events, although the events themselves may lack clarity. To further complicate the issue, certain deadlines are also imposed by statute or regulation - and those laws and administrative directives may trump the policy deadlines, especially when they are interpreted by judges, or when an extension of time is grounded in legal doctrines such as waiver and estoppel.

However, every policy-holder and every attorney representing a policy-holder should know that when a deadline applies, the failure to meet it may result in coverage vanishing. Unless, of course, it does not. Confused yet? Perhaps the following will provide some clarity.

Notice Conditions

Almost all insurance policies contain conditions that call for the insured to give notice of a loss, claim, suit, or occurrence "as soon as practicable." Just what is the time limit under that language? It typically depends on the facts involved. But failure to give notice "as soon as practicable" does not necessarily mean that the insured loses coverage. Instead, California courts have long held that a delay in notice may be a defense to coverage by an insurer only if the insurer proves that it was actually and substantially prejudiced by the delay. (See Shell Oil Co. v. Winterthur Swiss Co., 12 Cal. App. 4th 715, 760 (1993) ("California law is settled that a defense based on an insured's failure to give timely notice requires the insurer to prove that it suffered substantial prejudice.") In this context, the prejudice must be real; potential prejudice will not suffice. (Shell Oil, 12 Cal. App. 4th at 761.)

However, the "notice-prejudice" rule will not necessarily provide a safe harbor for insureds under all policies. Some policies - such as errors and omissions and directors and officers liability policies - may be "claims-made-and-reported" policies, which typically require not only that notice be given "as soon as practicable" but also that a claim be reported before the expiration of the policy or some other specified deadline. On these types of policies, courts typically enforce the reporting requirement irrespective of whether the insurer has been prejudiced by a delay in reporting. (See Indus. Indem. v. Superior Court, 224 Cal. App. 3d 828, 831 (1990).)

Proof of Loss

First-party policies (such as those providing property insurance) also typically require that an insured submit a proof of loss. These policies often specify that the proof must be submitted within a specified period from the "inception" of the loss. Thus, to determine when notice must be given, the insured must assess when the loss "incepted." The California Supreme Court has recognized that this issue "should be determined by reference to reasonable discovery of the loss and not necessarily turn on the occurrence of the physical event causing the loss." (Prudential-LMI Commercial Ins. v. Superior Court, 51 Cal. 3d 674, 686 (1990).) The state high court has recognized that "determining when appreciable damage occurs such that a reasonable insured would be on notice of a potentially insured loss is a factual matter for the trier of fact." (Prudential-LMI, 51 Cal. 3d at 687.)

Contractual Limitations Period

Most first-party insurance policies also contain a contractual limitations period - which is a contractual version of a statute of limitations. For example, California's standard fire insurance provision states: "No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within 12 months next after inception of the loss." (Cal. Ins. Code § 2071(a).)

However, the California Supreme Court has recognized that the running of a limitations period can be tolled. In Prudential-LMI, the court adopted the rule that a contractual limitations period is tolled "from the time an insured gives notice of the damage to his insurer ... until coverage is denied." (Prudential-LMI , 51 Cal. 3d at 693.) But later decisions have held that that tolling period does not include the time after an insurer has rendered its final coverage decision, but is reconsidering that decision at the insured's request. (See Singh v. Allstate Ins. Co., 63 Cal. App. 4th 135, 142 (1998).)

In fact, once an insurer clearly denies a claim, the tolling stops, even if the insurer engages in additional discussions about the claim or a further review. (See Migliore v. Mid-Century Ins. Co., 97 Cal. App. 4th 592, 604 (2002).)

In light of these decisions, and to avoid further dispute, an insured should confirm in writing with the carrier that the limitations period will not be deemed to have commenced running again after notice until the insurer has delivered its final coverage position.

Time-Specific Regulations

California's fair claims settlement practices regulations impose an even more stringent requirement on insurers. They state that every insurer shall disclose to a first-party claimant or beneficiary all time limits that may apply to a claim. (Cal. Code Regs., tit. 10, § 2695.4(a).) The regulations also specify that except where a time limit is specified in the policy, no insurer shall require a first-party claimant to give notification of a claim or proof of claim within a specified time. (Cal. Code Regs., tit. 10, § 2695.7(d).) Equally important, the regulations provide that except where a claim has been settled by payment, "every insurer shall provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim." The notice shall be given to the claimant not less than 60 days prior to the expiration date. However, this requirement does "not apply to a claimant represented by counsel on the claim matter." (Cal. Code Regs., tit. 10, § 2695.7(f).)

California courts have enforced these requirements by holding that an insurer's failure to make the required disclosure prevents the insurer from invoking a limitations period. For example, in one case the court addressed a situation in which the insurer denied coverage based on the insured's failure to file suit within the period specified by the contractual limitations clause. The court noted that contractual limitations provisions "are generally valid, provided they are plain, clear and conspicuous, and further provided they are not unreasonable."

However, the insured argued that the insurer was estopped from relying on the limitations clause because the insurer did not tell it about the deadline, as required by section 2695.4(a). The court noted that while estoppel against the assertion of the limitations defense typically arises through misleading affirmative conduct by a defendant, there was "no such affirmative conduct" on the facts before it. Instead, the court said the insurer "was silent on the subject of the limitations provision." Nevertheless, the court then stated that the absence of affirmative conduct does not end the inquiry because an estoppel "may arise from silence where there is a duty to speak." (Spray, Gould & Bowers v. Assoc. Int'l Ins. Co., 71 Cal. App. 4th 1260, 1268 (1999).)

The court held that the insurer had a duty to speak because of the regulation. It pointed out that the regulation "imposes on insurers an unmistakable duty to advise its claimant insureds of applicable claim time limits" and that the regulation was designed "to foster equity, fairness, and plain-dealing in claims handling." (Spray, Gould, 71 Cal. App. 4th at 1269.)

The insurer then argued that the insured had constructive knowledge of the policy's limitations period, given that "an insured is charged with constructive knowledge of policy provisions which are plain, clear, and conspicuous." But the court rejected this argument too, explaining that section 2695.4 requires "a type of notice, communicated independent of the policy itself, which is calculated to achieve actual rather than constructive knowledge." (71 Cal. App. 4th at 1272.) The court pointed out that "the implicit assumption of the regulation is that the mere existence of the policy provision is not enough, no matter how 'plain, clear and conspicuous.' The whole purpose of such notice is to assure actual, not merely constructive, knowledge of the contractual limitations period within which suit must be brought by the insured." The appellate panel concluded that any other interpretation "would eviscerate the purpose of a regulation." (71 Cal. App. 4th at 1272-73.)

Other courts have reached similar conclusions. (See Superior Dispatch, Inc. v. Ins. Corp. of New York, 181 Cal. App. 4th 175, 190 (2010) (the failure to provide notice "could give rise to an equitable estoppel"); Neufeld v. Balboa Ins. Co., 84 Cal. App. 4th 759, 765 (2000) ("Any reasonable insurer could have anticipated that no court would countenance the flouting of time limit disclosure regulations ... in a context where the insurer was seeking the benefit of its own wrong as an affirmative defense in litigation.").

Other Tolling Provisions

Tolling concepts are also embedded in other statutory provisions. For example:

Imprisonment. (Cal. Code Civ. Proc. § 352.1 [tolling time to bring legal action while person is imprisoned]);

Legal malpractice actions. (Cal. Code Civ. Proc. § 340.6 [tolling during the time the attorney continues to represent the client regarding the specified subject matter; when the attorney willfully conceals facts; or while the client is under a legal or physical disability that restricts the ability to commence legal action]); and

Uninsured motorist claims. (Cal. Ins. Code § 11580.2(k) [requiring an insurer to notify the insured in writing of the applicable statute of limitation at least 30 days before its expiration; otherwise, statutory period will be tolled for a period of "thirty days from the date the written notice is actually given"]).

Medical Malpractice

Tolling has also been applied with respect to medical malpractice actions. In one recent instance, the court addressed what it called a first impression case. (Blevin v. Coastal Surgical Institute, 232 Cal. App. 4th 1321 (2015).) A doctor had performed surgery on a patient at Coastal's surgical facility. An infection later developed from bacteria in a sponge used to clean surgical equipment. Thereafter, Coastal paid the patient for medical expenses incurred in treating the infection. The patient was not asked to and did not sign a release.

More than a year later, the patient filed a lawsuit against Coastal. The surgical institute argued that the lawsuit was time-barred by the one-year limitations period typically applied to medical malpractice cases, which mandates that a medical malpractice action be filed within "three years after the date of the injury, or one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered the injury, whichever occurs first." (See Cal. Code Civ. Proc. § 340.5.)

The patient argued that the running of the one-year statute was tolled by Insurance Code section 11583, which in turn specifies that an advance payment or partial payment of damages made as an accommodation to an injured person shall not be construed as an admission of liability. Section 11583 further declares that any person, including any insurer, who makes such a payment, "shall at the time of beginning payment, notify the recipient ... in writing of the statute of limitations applicable to the cause of action which such recipient may bring against such person as a result of such injury." Failure to provide that notice tolls any applicable statute of limitations or time limit from the date of the payment until the required written notice is actually given. (Cal Ins. Code § 11583.) Note, however, that the notification is not required if the recipient is represented by an attorney.

When Coastal made its payment, it did not give the patient any written notice of the applicable statute of limitations. For that reason, the trial court ruled that the running of the one-year limitations period was tolled.

The court of appeal affirmed, and in so holding pointed to the California Supreme Court's decision in Belton v. Bowers Ambulance Service, 20 Cal. 4th 928 (1999). In that case, the state Supreme Court applied the tolling provisions of Code of Civil Procedure section 352.1 (regarding those imprisoned) to section 340.5 (covering medical malpractice). (See Belton, 20 Cal. 4th at 931-34.) The Blevin court noted that neither Insurance Code section 11583 nor Code of Civil Procedure section 352.1 purported to limit the tolling that extends the one-year limitations period. The court then held that the tolling provisions of section 11583 "can extend the one-year period of section 340.5 up to a maximum of three years" otherwise specified in section 340.5. (Blevin, 232 Cal. App. 4th at 1327.)

The court went on to address one additional argument made by Coastal. The surgery center argued that a requirement that it advise potential claimants of when the statute of limitations would expire "would open up 'a can of worms.' " The court disagreed. It reasoned that the statute did not require that a potential claimant be told of when the statutory period expired, but only that the law mandated that potential claimants be advised in writing that there were three-year and one-year statutory periods. (Blevin, 232 Cal. App. 4th at 1327.)

As these cases indicate, certain equitable protections are available to toll the running of the period in which to assert a claim. They also demonstrate that it is critically important for an insured (and his or her counsel) to assess all potential time traps in any applicable insurance policy, as well as the statute of limitations that governs the filing of a legal action.


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