When an Insurer’s Lack of Good Faith Can Toll the Statute of Limitations

There are many grounds upon which a court can find that a carrier acted in bad faith. In some cases, a court will not make an express finding of bad faith but will rule against an insurer on equitable principles. Either way, the repercussions faced by the carrier can be significant and unexpected. Although Price v. New Jersey Manufacturers Insurance Company, 182 N.J. 519 (2005) is not a bad faith case, it addresses how an insurer’s lack of good faith can impact an insured’s rights, including tolling the statute of limitations.

In Price, Theodore Price was a pedestrian in the course of his employment at the time that he was hit by a car. Mr. Price had an insurance policy with New Jersey Manufacturers (“NMJ”) that included uninsured motorist coverage. The policy had an arbitration provision. When Mr. Price learned that the carrier for the driver denied coverage for the accident, Mr. Price’s attorney advised NMJ that Mr. Price would be presenting an uninsured motorist claim with NJM and requested that NMJ set up a claim file. NJM acknowledged receipt of the foregoing letter and requested information on Mr. Price’s injuries and workers’ compensation liens and later requested additional information.

NJM was then advised that Mr. Price had filed an action against the driver to protect NJM’s subrogation rights. Mr. Price’s attorney provided NJM with various types of information, including the workers’ compensation lien and medical records. Based on the information provided by Mr. Price’s attorney, NJM evaluated the status of the matter and authorized Mr. Price’s attorney to dismiss the lawsuit against the driver. A few months later, another NJM representative asked for copies of medical bills and other insurance information in order to verify the tort threshold. NJM scheduled a medical examination and instructed Mr. Price’s attorney to put Mr. Price’s employer on notice of the claim and requested a copy of the employer’s workers’ compensation policy.

Nine days before the expiration of the statute of limitations, NJM requested Mr. Price’s complete workers’ compensation file, some original MRI films and Mr. Price’s employer’s policy language regarding their uninsured motorist limits and exposure to this loss. Mr. Price’s attorney forwarded most of the requested documentation and advised that the rest of the requested information would be forthcoming. Mr. Price’s attorney continued to provide the information requested by NJM, and, after multiple written requests that went unanswered, he demanded that NJM evaluate the file for settlement purposes and advised that the workers’ compensation lien exceeded $53,000.00. NJM again failed to reply.

Mr. Price then filed a Complaint and Order to Show Cause, seeking to compel NJM to participate in arbitration. NJM responded that Mr. Price failed to formally request coverage or demand arbitration before the expiration of the statute of limitations, and, as such, NJM was not obligated to participate in arbitration.

The trial court found that NJM’s course of conduct had lulled plaintiff’s attorney into a false sense of having timely made a UM [uninsured motorist] claim. The Appellate Court affirmed, holding that NJM was estopped from raising the statute of limitations defense and that it should have notified plaintiff of its intent to rely on the statute of limitations.

The Supreme Court of New Jersey began its analysis by noting that the six year statute of limitations for an uninsured motorist claim begins to run on the date of the accident. In Price, the accident at issue occurred on August 30, 1995 and the Complaint was filed on November 22, 2002. Thus, the statute would typically have barred Mr. Price’s Complaint.

The primary purpose of the statute of limitations is to provide defendants a fair opportunity to defend and to prevent plaintiffs from litigating stale claims. Consisted with that purpose, where defendants are on notice of he claims, and no significant prejudice results, the policy reasons for upholding a strict statute of limitations recede. In short, under varying circumstances we have recognized that tolling of the statute of limitations is the fair and responsible result, because the unswerving mechanist application of statutes of limitations would at times inflict obvious and unnecessary harm upon individual plaintiffs without advancing the legislative purposes.

The Supreme Court of New Jersey went on to explain that the facts in Price supported an equitable tolling of the statute of limitations. Early on in the claim, Mr. Price’s attorney put NJM on written notice that Mr. Price was pursuing an uninsured motorist claim. Over the course of a few years, Mr. Price’s attorney repeatedly followed up with NJM, providing as much relevant information as possible, complied with all of NJM’s requests, and NJM received the information necessary to evaluate plaintiff’s claim.

We have declared that every insurance contract contains an implied covenant of good faith and fair dealing. The insurance company, as the dominant party, however, has an even greater obligation than the insured to act in good faith. It must not put technical encumbrances or hidden pitfalls in the way of unsophisticated customers that would undermine their reasonable expectations. In dealing with plaintiff, NJM was required to act in a fair manner and inform plaintiff if there were any deficiencies in his claim or if he needed to file a request for arbitration by a certain date. It was not reasonable for NJM to sit back, request and receive various documents over a three and one-half year period, and then deny plaintiff’s claim because he failed to file a complaint in the Superior Court or request arbitration prior to the running of the six-year statute of limitations. We agree with the Appellate Division majority that NJM had a duty of good faith to notify plaintiff if it disagreed with his understanding that NJM was duly acting upon his filed claim. We conclude that NJM violated the duty of good faith and fair dealing.

In Price, the Court took into consideration the fact that even though Mr. Price complied with all of NJM’s requests, NJM never disclaimed or even questioned coverage until after the statute of limitations expired. The Supreme Court of New Jersey found that NJM’s conduct lulled Mr. Price and his attorney into believing that the uninsured motorist claim had been properly filed. The Court held that Mr. Price reasonably relied on NJM’s conduct in failing to file a complaint or to request arbitration within the statute of limitations period, stating that “the statute of limitations period should not become an instrument of injustice.” Furthermore, there was no evidence or allegation that NJM was prejudiced in any way. As such, the Supreme Court of New Jersey rejected NJM’s statute of limitations defense and ordered the parties to participate in arbitration. It is important to keep in mind that the law of another jurisdiction may be different.
 

Please tune in next week for another discussion of bad faith issues.

 

Source: http://www.propertyinsurancecoveragelaw.com/2011/03/articles/bad-faith/when-an-insurers-lack-of-good-faith-can-toll-the-statute-of-limitations/