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The court was faced with a carrier’s motion to dismiss an insured’s suit for breach of contract, declaratory judgment, and bad faith. In 1995, the insured purchased an insurance policy from the carrier. In early 1996, he suffered a traumatic event that caused emotional and mental instability, leading to his filing a claim with the carrier. In 2005, the carrier stopped paying the insured’s monthly benefits, claiming that he no longer fit the definition of disabled in his policy.

In 2010, the insured sought a reinstatement of the benefits. The carrier denied reimbursement for the period between 2005 and 2010 and did not honor the insured’s request for continued benefits. In early 2011, the insured filed suit against the carrier, to which the carrier responded with a motion to dismiss.
The subject of the instant opinion was the carrier’s contention that the insured’s claims are untimely. Pennsylvania has a four-year statute of limitations for contractual and declaratory judgment claims and a two-year statute of limitations for bad faith claims.  The court held that the denial of benefits triggered the statute of limitations running on both claims, and that the bad faith claim was barred by the two year statute of limitations.

The insured attempted to counter the carrier’s claims by arguing that the language of the policy itself, not Pennsylvania law, determines the applicable statute of limitations. In response, the carrier argued that the insured’s reliance on precedent favorable to its case is misplaced because the case is not about the “Legal Actions” or “Proof of Loss” clauses in the insurance policy.

Examining a series of applicable Third Circuit cases to discern the applicable statute of limitations, the court first noted that, in a contractual suit arising from the denial of insurance benefits, the cause of action accrues when the insured first knows that its claim has been denied. This is the point where an insured could have first maintained a lawsuit to a successful conclusion.

However, the court also gauged the applicability of Hofkin v. Provident Life & Accident Ins. Co., a precedential Third Circuit opinion that considered whether an insured’s claims were timely by interpreting the “Proofs of Loss” and “Legal Actions” provisions contained in his insurance contract. The insured in this case argued that Hofkin governs and signals that its claim was timely, based upon the language of the contract it signed with the carrier.

The court disagreed, finding that Pennsylvania’s usual statute of limitations on contracts governed, and was not based upon the Proofs of Loss and Legal Actions provisions contained in his insurance contract, which would be governed by 40 P.S. § 753.

The court examined Hofkin’s progeny, as well as opinions from other Circuit Courts, in finding that the denial of benefits evinced in this case, the fact that the Proof of Loss and Legal Action based claims were not at issue, and other factors did not follow the fact scenario found in Hofkin, and so did not warrant its application. The court concluded that the analysis applied in the Hofkin line of cases demonstrates that when the Proof of Loss and Legal Actions provisions are not at issue, the breach of contract statute of limitations period still applies.

Therefore, the court granted the carrier’s motion to dismiss.

Date of Decision: December 21, 2011

Leporace v. New York Life & Annuity, NO. 11-2000, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 147056 (E.D. Pa. Dec. 21, 2011) (Baylson, J.)

The Third Circuit upheld this decision on August 10, 2015.