From FC&S Legal: Insurer¹s "Novel" Argument that It Could Not Be Sued for Bad Faith for Actions It Took After Policy's Suit Limitation Period Had Expired is Rejected. A federal district court in Washington has denied an insurance company’s motion for summary judgment in a case asserting that it had acted in bad faith in denying an insured’s claim after the policy’s suit limitations period had expired, where the insurer still was considering the claim at that time.

1. The Insurance Coverage Law Information Center
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FC&S Legal: The Insurance Coverage Law Information Center.
INSURER’S “NOVEL” ARGUMENT THAT IT COULD NOT BE SUED FOR
BAD FAITH FOR ACTIONS IT TOOK AFTER POLICY’S SUIT LIMITATION
PERIOD HAD EXPIRED IS REJECTED
March 24, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal
A federal district court in Washington has denied an insurance company’s motion for summary judgment in a case
asserting that it had acted in bad faith in denying an insured’s claim after the policy’s suit limitations period had expired,
where the insurer still was considering the claim at that time.
The Case
Kenneth M. Schnell rented his home to a third party. A fire destroyed the home and personal property belonging to
Mr. Schnell that he had left behind in the house. Mr. Schnell filed a claim with his homeowner’s insurance carrier, State
Farm Fire and Casualty Company.
Mr. Schnell retained a public adjuster to assist with his insurance claim. The adjuster filed a proof of loss with State Farm
for the house but requested an extension of the one-year suit limitation period for the personal property proof of loss.
State Farm extended the one-year suit provision and the adjuster sent the personal property proof of loss before the
deadline, claiming $69,518.18. After the limitations period expired, State Farm responded that the bulk of the personal
property was not covered because it had been rented.
Mr. Schnell sued the insurer, claiming generally that State Farm had investigated and had adjusted his claim in bad faith.
The insurer moved for summary judgment, arguing among other things that the suit limitation period in the policy had
expired and that Mr. Schnell had not been harmed by any bad faith because by the time that may have occurred, the
limitations period had expired and he had no legally enforceable right to anything.
The Policy
The policy provided:
2. Property Not Covered. We do not cover:
g. property regularly rented or held for rental to others by an insured.
The policy also included a one-year suit limitation provision:
Suit Against Us. No action shall be brought unless there has been compliance with the policy provisions. The action
must be started within one year after the date of loss or damage.
(Emphasis added.)
The Court’s Decision
The court denied the insurer’s motion.
In its decision, it observed that State Farm had not denied Mr. Schnell’s claim until the limitation period had expired. It
then declared that, under State Farm’s reasoning, an insurer could make that a standard practice and:
enjoy immunity from both contractual and extra-contractual claims – the insured’s contractual claims would be barred
and he could not demonstrate any harm resulting from the patently unfair claims practice.
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2. The court then noted that State Farm’s denial was based on information it had learned “much earlier” than its denial,
adding that State Farm had continued its investigation after Mr. Schnell had filed his personal property proof of loss.
Accordingly, the court denied State Farm’s motion, finding no case directly supporting State Farm’s “novel” claim that it
was:
free to act in bad faith (or in violation of various statutes governing its conduct as an insurer) once the suit limitation
period expires, because after that date there can be no harm as a matter of law.
The case is Schnell v. State Farm Fire and Cas. Co., No. C13–5114 RBL (W.D. Wash. March 18, 2014). Attorneys involved
include: Spencer D. Freeman, Freeman Law Firm Inc., Tacoma, WA, for Plaintiff; Daniel L. Syhre, Joseph D. Hampton,
Kathryn Naegeli Boling, Betts Patterson & Mines One Convention Place, Seattle, WA, for Defendant.
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