Property insurance policies commonly contain a suit limitation provision which generally provides that an insured cannot file suit against the insurer unless the action is brought within one or two years of the date of loss. While such provisions are generally enforced throughout the country, jurisdictions vary on the type of claims that suit limitation bars. Recently, in Queensridge Towers, LLC v. Allianz Global Risks U.S. Ins. Co., 2014 WL 7359093, 2014 U.S. Dist. LEXIS 177433 (D.Nev., Dec. 24, 2014), a district court in Nevada held that a one-year suit limitation provision applies only to breach of contract claims against the insurer and does not bar bad faith or UCPA claims.
Plaintiff was the owner and developer of a condominium complex, and it procured builder’s risk insurance coverage. The policy provided that no suit could be brought against the insurer for the recovery of any claim unless commenced within 12 months of the discovery of the loss or damage giving rise to the claim.
Plaintiff learned of damage to glass windows in the complex on October 11, 2007, and it informed the insurer of the damage on April 29, 2008. The insurer denied the claim on January 9, 2012. On January 7, 2013, plaintiff sued for breach of contract, bad faith, and violation of the Nevada Unfair Claims Practices Act (UCPA). The carrier responded with a motion for summary judgment on the basis that the suit was barred by the policy’s one-year suit limitation provision. The insurer acknowledged that the one-year period was tolled between the date it received notice of the damage and the date it denied the claim. Even with this tolling, however, it argued that plaintiff still did not timely file suit because the period between the date when the damage was discovered in October of 2007 and the date when it was reported in April of 2008, when added to the one year period between the denial of the claim and the filing of suit, totaled more than twelve months. The court agreed, holding that plaintiff’s breach of contract claim was time-barred.
Notably, however, the court found that only the breach of contract claim was barred by the one-year suit limitation; the provision did not apply to plaintiff’s bad faith or UCPA claims. The court reasoned that the “duty to deal in good faith is an obligation imposed by law [which] does not arise from the terms of the insurance contract.” Similarly, the UCPA claims were based “upon a liability created by statute,” not by contract. Thus, those claims were not time barred. The Court did, however, grant summary judgment on those causes of action on other grounds.
The states are split on this issue, and Nevada is not the only jurisdiction which has reached this result. In Wisconsin, for instance, bad faith claims are also not barred by suit limitation provisions because such actions sound in tort rather than contract. Warmka v. Hartland Cicero Mut. Ins. Co., 400 N.W.2d 923, 925 (Wis. 1987). In contrast, in California and New York courts have held that bad faith claims “sound in contract,” and thus can be barred by the failure to comply with a suit limitation provision. Velasquez v. Truck Ins. Exchange, 1 Cal.App.4th 712 (Cal. Ct. App. 1991); Schunk v. New York Cent. Mut. Fire. Ins. Co., 655 N.Y.S.2d 210 (N.Y. App. Div. 1997).