BAD FAITH CLAIM DISMISSED ON STATUTE OF LIMITATIONS GROUNDS; DISCOVERY RULE INAPPLICABLE (Philadelphia Federal)

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In this UIM action, with a history reaching back over a decade, the court applied the statute of limitations to dismiss plaintiff’s section 8371 claim, and rejected plaintiff’s attempts to assert the discovery rule.

Bad Faith Statute of Limitations Standards

  1. Section 8371 claims are subject to a two-year statute of limitations.

  2. “The statute of limitations starts to run when the plaintiff’s ‘right to institute and maintain the suit arises; lack of knowledge, mistake, or understanding do not toll the running of the statute of limitations.’”

  3. Thus, a “claim accrues when a plaintiff is harmed and not when the precise amount or extent of damages is determined.”

  4. “A bad faith claim, in particular, accrues when the insurer definitively denies coverage.”

  5. “Thus, where an insurer clearly and unequivocally puts an insured on notice that he or she will not be covered under a particular policy for a particular occurrence, the statute of limitations begins to run and the insured cannot avoid the limitations period by asserting that a continuing refusal to cover was a separate act of bad faith.”

  6. In addition, “[r]epeated or continuing denials of coverage do not constitute separate acts of bad faith giving rise to a new statutory period.”

Statute of Limitations Bars the Bad Faith Claim

In this case, the plaintiff first challenged the carrier’s coverage decision in 2004. There was a petition to compel arbitration and transfer in 2004. “Thereafter, Plaintiff took no action until November 15, 2011, when she filed the Second Petition to Appoint Arbitrator and Compel Arbitration in the Philadelphia Court of Common Pleas.” Another motion to transfer was filed, and plaintiff appealed, with the Superior Court affirming in January 2014.

“Just prior to that January ruling, Defendant filed the Third Petition to Appoint Arbitrator. Arbitration was ordered and the arbitration panel decided in favor of Defendant on November 3, 2014. The trial court then entered a judgment in Defendant’s favor on December 10, 2014.”

“In light of these facts, the December 10, 2014 entry of judgment, affirming the arbitration award, clearly put Plaintiff on notice that she would not obtain her requested coverage under the policies issued by Defendant. Accordingly, her bad faith claim accrued on that date. … Plaintiff’s failure to file her federal complaint until more than five years later violates the statute of limitations and requires dismissal of the claim as time barred.”

Discovery Rule Does not Save the Case

Plaintiff argued her claim should be saved by the discovery rule.

  1. The discovery rule only tolls the “limitations period until ‘the plaintiff knows or reasonably should know (1) that he has been injured, and (2) that his injury has been caused by another party’s conduct.’”

  2. On the other hand, “once a plaintiff possesses the salient facts concerning the occurrence of his injury and who or what caused it, he has the ability to investigate and pursue his claim.”

  3. Further, “it is the duty of the party asserting a cause of action to use all reasonable diligence to properly inform himself of the facts and circumstances upon which the right of recovery is based and to initiate suit within the prescribed period.”

The insured attempted to argue there was a fraud that occurred while she was in Utah, and she only learned of the fraud upon returning to Pennsylvania to participate in a sham arbitration proceeding.  She was pro se and claimed lack of notice.

The court rejected the discovery rule’s application. “First, other than a general allegation that Plaintiff was in Utah during the pendency of the Third Petition to Appoint Arbitrator, Plaintiff fails to provide any basis for her failure to exercise a modicum of diligence with respect to her ongoing insurance claim. Moreover, even giving Plaintiff the benefit of the doubt that she could not have discovered the entry judgment against her in 2014, it is undisputable that Plaintiff had notice of that judgment when her attorney filed, on her behalf, a Petition to Strike, Set Aside and Open Judgment, Award, and all Actions of the Arbitrators on December 6, 2016. Yet, Plaintiff waited more than three years thereafter to initiate this action in federal court.”

Thus, the court rejected the discovery rule argument and dismissed the claim.

Date of Decision: November 23, 2020

McAteer v. State Farm Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-101, 2020 WL 6870604 (E.D. Pa. Nov. 23, 2020) (Goldberg, J.)

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