STATUTORY BAD FAITH CLAIM BARRED BY TWO-YEAR STATUTE OF LIMITATIONS; PUTATIVE COMMON LAW BAD FAITH BARRED BY TWO-YEAR CONTRACTUAL LIMITATION; NO COMMON LAW BAD FAITH IN FIRST PARTY CASES (Middle District)
The insurer denied coverage on November 3, 2015. The insured sued for breach of contract and bad faith on September 20, 2019. The insurer moved to dismiss the contract claim based on a contractual two-year limitation period, and the bad faith claim under the controlling two-year statute of limitations. The relevant facts were evident on the face of the complaint. Therefore, the court could decide the issues on a motion to dismiss.
As to the contract claim, because the “policy had a 2-year suit limitation, there is no merit to plaintiff’s contention that Pennsylvania’s 4-year statute of limitations for contract claims under 42 Pa.C.S.A. §5501 should control in this case.” The insured nowhere alleged the insurer “led her to believe the two-year limitations period would not be enforced or that [the insurer] committed any actions that induced her to file her complaint after the two year deadline.” The contract claim was dismissed with prejudice.
As to the bad faith claim, “since ‘Plaintiff’s claim of bad faith is … based on Defendant’s denial of benefits to Plaintiff under the Policy, [the] Court can therefore consider the [November 3, 2015 denial of coverage letter] attached by Defendant to its Motion to Dismiss.” The court would not let the plaintiff escape the timing issue by simply leaving out the denial date and not attaching a document on which it relied in its complaint in pleading its case, where the defendant then attaches to its motion.
Further, the court found “[no] doubt that the two year statute of limitations for a bad faith suit begins to run when insured first learned that the insurance company was denying coverage.” Thus, the statutory bad faith claim was time barred.
[Note on statute of limitations triggers and the scope of the bad faith statute. The court observes that the two year bad faith statute of limitations begins to run at the time coverage is denied, and cites case law for this proposition, also phrased as when claims for benefits are denied. As noted previously on this blog, there are cases holding that the bad faith statute applies not only to coverage denial, but distinctly to various claims handling misconduct. Under this theory, the statute of limitations cannot begin to run at the time coverage is denied, because, e.g., no coverage may be due and bad faith is based solely on egregious claims handling failures. Does this mean that the statute of limitations case law makes clear that statutory bad faith must be based on a benefit denial, see one example here, and these bad faith claims handling cases are wrongly decided; or that there are other triggers for the two-year statute beginning to run wholly independent of a coverage denial?
The governing case on the statutory bad faith statute of limitations is the Pennsylvania Supreme Court’s decision in Ash v. Continental Ins. Co., 932 A.2d 877 (Pa. 2007). In Ash, a clear majority of Pennsylvania’s Supreme Court followed Chief Justice Cappy’s Toy v. Metropolitan Life Ins. Co. opinion. The Ash majority states: “The bad faith insurance statute, on the other hand, is concerned with “the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharge[s] its obligation of defense and indemnification in the third party claim context or its obligation to pay for a loss in the first party claim context.” See Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 199 (Pa. 2007). It applies only in limited circumstances–i.e., where the insured first has filed ‘an action arising under an insurance policy’ against his insurer, see 42 Pa.C.S. § 8371–and it only permits a narrow class of plaintiffs to pursue the bad faith claim against a narrow class of defendants.” An article discussing Toy and Ash can be found here.]
The insured attempted to claim there was somehow a common law bad faith claim, subject to the four-year contract statute of limitations. Aside from the fact that the complaint alleged statutory bad faith, common law bad faith is solely contract based in Pennsylvania, and merges with the breach of contract claim. Thus, it would be subject to the same two-year contractual limitations period.
Finally, the court stated that in any event, common law bad faith did not apply to first party property damage claims, as were at issue in this case. The court relied on Judge Munley’s 2009 Bukofski decision on this point.