Defending the One-Year Suit Bar
Typically, homeowners’ policies require the insured to bring an action within one year from the date of loss or be barred from further action. The policy language setting that deadline has been tested by the courts, which have consistently found that it is statutorily approved. Yet policyholders continue to challenge this bar.
The typical policy is a version of the standard policies originally approved in §202.085, Stats. (1971), subsequently recodified in §203.01, Stats., (1973), and made mandatory by §203.06, Stats. (1973). These statutes were repealed and replaced in part by §631.83, Stats., which imposes a one-year statutory limitation for commencing actions on fire and windstorm policies. The language approved in the statutes contains a one-year limitation identical to most homeowners’ policies. The contractual limitation period has been approved and enforced by the Wisconsin Appellate courts in numerous cases.
THE POLICY LANGUAGE LIMITS THE TIME FOR FILING AN ACTION TO ONE YEAR REGARDLES OF THE NATURE OF THE CLAIM.
“An action to collect for a loss is, by its very nature, an action on the policy, since it is the policy which obligates the insurer to pay the loss.” The characterization of a cause of action by a plaintiff as one for breach or negligence does not alter the essential nature of the action. In Skrupky v. Hartford Fire Insurance Co.,, the Supreme Court rejected such an argument and said that:
We are of the opinion that when a loss occurs that is or should have been covered by an insurance contract, an action or suit to collect must be based upon the policy. It is the insurance policy or contract that creates the obligation on the part of the insurance company to pay the loss. … If a party chooses to call his cause of action misrepresentation, fraud, breach of warranty, negligence or mistake, the terms of the policy as they are or should have been still control the obligation of the insurer to pay for a loss. An action to resolve a dispute as to the liability of an insurer to pay the loss, under these circumstances, is an action on the policy. We believe the statutory 12-month limitation contained in the policy applies. ….
Commencement of litigation after the applicable 12 month time period renders suit untimely under the one-year suit clause in the policy. A court can further conclude that, policy language aside, the suit is governed by the one-year limitation period set forth in §631.83(1)(a), Stats., for actions on policies of “fire insurance.”
Wisconsin Statute §631.83(1)(A) Unambiguously Requires Commencement of an Action on a Fire Policy Within 12 Months of the Loss.
Wisconsin Statute §631.83 specifically covers the limitation periods of fire insurance policies. Subsection (a) states as follows:
Limitation of actions. (1) STATUTORY PERIODS OF LIMITATION. (a) Fire insurance. An action on a fire insurance policy must be commenced within 12 months after the inception of the loss. This rule also applies to riders or endorsements attached to a fire insurance policy covering loss or damage to property or to the use of or income from property from any cause, and to separate windstorm or hail insurance policies.
Statutory construction presents a question of law. The purpose of statutory construction is to give effect to legislative intent. When determining legislative intent, a court must first examine the language of the statute itself. If the language is clear and unambiguous, the language of the statute is defined in accordance with its ordinary meaning. If a statute is ambiguous, the legislative intent must be ascertained from the language of the statute in relation to its scope, history, context, subject matter and object intended to be accomplished. A statute is ambiguous if reasonably well-informed persons could differ as to its meaning. Once the statute is determined to be ambiguous, it is the court’s task to “achieve a reasonable construction which will effectuate the statute’s purpose.” In this regard, extrinsic materials, particularly the statute’s legislative history, can be a valuable interpretive aid in discerning the legislative intent.
This statute is not ambiguous and the legislative intent, as expressed by the language, must be given effect. The Wisconsin Supreme Court has recognized that the term “fire insurance” covers indemnity insurance for losses to property caused by many perils other than fire. In Rightway Builders, Inc. v. First National Insurance Company of American, the Supreme Court, in effect, treated the term “fire insurance” as a generic term. The insured in Rightway sought to recover under its policy of insurance for the collapse of a basement wall of its building. The policy involved was the standard statutory policy set forth in §203.01(1), Stats. (1955), with an attached endorsement which covered the loss. The insured’s action was commenced some five years after the loss, but it contended that the one-year limitation period in the standard policy applied only to peril of fire and lightening and did not bar an action to recover from a loss from another peril. The court held that the one-year limitation period applied to any suit to recover for a loss from any peril covered by the policy. The court reasoned as follows:
The term “fire insurance” so far as classifying insurance companies and their purposes and authority to do business is set forth in §201.04(1) as being, “against loss or damage to property by fire, lightening, hail, tempest, explosion and against any other loss or damage from any cost to property or in the use of, or income from property.” While the insuring clause of the mandatory form refers only to fire and lightening, the standard form by lines 38 to 41 provides, “any other peril to be insured against or subject of insurance to be covered in this policy shall be by endorsement in writing hereon or added hereto.”
We conclude, from the Rightway decision, that our Supreme Court viewed the old statutory standard fire policy as an all-risk property indemnity policy. This reading of Rightway is reinforced by a later decision, Skrupky v. Hartford Fire Insurance Co.In Skrupky, the court applied the one-year suit clause from the statutory standard policy to bar an action on the policy alleging the insurer’s breach of warranty and negligence in writing the policy. The policy at issue was a “multi-peril insurance policy.” The court said that the one-year suit clause contained in the multi-peril policy was taken from the statutory standard policy and cited Rightway, supra, for the proposition that the one-year provision “applies to losses suffered by the insured from any peril covered by the policy.
As the court noted in Villa Clement, further support for a broad construction of the term “fire insurance” was also found in the Commissioner of Insurance’s treatment of the term. In Wisconsin Administrative Code Insurance §6.76(3)(p), the Commissioner lists as an approved clause for “fire, inland and marine and other property insurance” the following: “Suit. No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within 12-months next after inception of the loss.”
In sum, the Villa Clement court held as follows: “… we agree with the trial court that the instant action was not timely commenced. While the result would be the same under either the one-year suit clause contained in the policy itself or the statute of limitations for fire insurance policies, §631.83(1)(a), Stats., we hold that §631.83(a)(a) is controlling. We thus uphold the trial court’s grant of summary judgment and dismissal of Villa Clement’s action.”
Public Interest in Setting a Limit on Bringing Actions, Coupled with a Policy’s Explicit One-Year Suite Bar, Is Overcome Only in the Most Egregious Cases.
To escape the contractual and statutory one-year suit bar, an insured will likely argue that the insurer should be estopped from asserting the one-year statute of limitations as a defense based upon its conduct and representations after the loss. The insurer defends by asserting that its actions in investigating and settling the insured’s claim fail to rise to the level of conduct necessary to estop enforcement of the statute of limitations. The test of whether a party should be estopped from asserting the statute of limitations is "'whether the conduct and representations of the insurer were so unfair and misleading as to outbalance the public's interest in setting a limitation on bringing actions.'" Additionally, the Wisconsin supreme court has stated that the elements necessary to apply equitable estoppel include fraud or inequitable conduct by the party asserting the statute of limitations and that the aggrieved party failed to commence an action within the statutory period because of reliance on the wrongful conduct.
(1) The doctrine may be applied to preclude a defendant who has been guilty of fraudulent or inequitable conduct from asserting the statute of limitations;
(2) The aggrieved party must have failed to commence an action within the statutory period because of his or her reliance on the defendants' representations or acts;
(3) The acts, promises or representations must have occurred before the expiration of the limitation period;
(4) After the inducement for delay has ceased to operate the aggrieved party may not unreasonably delay;
(5) Affirmative conduct of the defendant may be equivalent to a representation upon which the plaintiff may rely to his or her disadvantage;
(6) Actual fraud, in a technical sense, is not required.
As evidence of inequitable conduct, an insured likely cites the insurer’s actions in adjusting claim. Often, an insured asserts that the insurer continued to engage in adjustment of the claim, under the guise of attempting to avoid litigation.
Settlement Discussions to Resolve a Claim or Avoid Litigation Are Not Fraudulent or Inequitable Acts Estopping an Insurer From Relying on the Statute of Limitations.
In order for estoppel to apply, the fraudulent or inequitable acts relied on must have occurred before expiration of the limitation period.(Proof of estoppel must be clear, satisfactory and convincing and is not to rest on mere inference or conjecture.) Therefore, the only acts or representations the court may consider are those which occurred within one year of the loss. Often, the only acts complained of that are within the one-year period are settlement discussions between the parties. There is nothing fraudulent or inequitable about engaging in settlement discussions to avoid litigation. In fact, courts encourage, not discourage, parties to negotiate settlement instead of litigating disputes.
A leading case applying of the equitable estoppel doctrine to a limitations defense is Johnson v. Allstate. Johnson appealed from a circuit court grant of summary judgment in favor of Allstate in a negligence action. The issue was whether Allstate was estopped from asserting the statute of limitations based upon acts and representations made to Plaintiff by Allstate representatives during the course of settlement negotiations. The appellate court concluded that Allstate's conduct was not fraudulent or inequitable such that it induced Plaintiff to forego filing an action and thus, Allstate was not precluded from asserting the statute of limitations as a defense to Plaintiff's claim.
Within several weeks of the accident, Johnson consulted a law firm regarding his potential claim arising out of the accident. Thereafter, he decided to pursue settlement by himself, and at various times within the year he had several discussions with Allstate claim's representatives. "In one particular discussion, Donald recalled expressing concern about the time running out to make a claim. An agent for Allstate told him not to be concerned because he had 'plenty of time to make a claim.'" Further, just prior to the running of the one-year statute of limitations, Allstate sent Plaintiff a medical authorization to sign so that it could obtain his medical records associated with the accident. At other times after the one-year statute of limitation ran, Allstate requested additional information from Plaintiff and promised to contact him after completing its investigation. Thereafter, Allstate offered Johnson a sum of money in full settlement of his claim, which he rejected. His counsel eventually filed suit; Allstate raised the statute of limitations as an affirmative defense and moved for dismissal.
The appellate court cited with approval the equitable estoppel doctrine as set forth in Hester and Knutson, infra. Plaintiff claimed the following acts were inequitable: settlement discussions; the Allstate representative informing him he had plenty of time to file a lawsuit; and the receipt of a medical authorization form within a few days of the running of the statute of limitations. The court rejected Johnson's claim and held that such conduct was insufficient as a matter of law, to support his assertion of inequitable conduct. In fact, the court rejected all of Donald's claims that such conduct was sufficient as a matter of law to raise an estoppel claim.
Regarding Allstate's representation to Donald that he had plenty of time to file an action, without more context, we are unable to conclude that such evidence rises to the level of unconscionable or inequitable conduct. … There is NOevidence that would indicate that Allstate strung Donald along and then hastily terminated negotiations at the zero hour leaving him insufficient time to commence an action.
Furthermore, we cannot conclude that Allstate's "plenty of time" statement induced Donald to forego filing the lawsuit within the one-year limitation. … The logical inference is that Donald was mistaken, not that he was induced to forego filing within the one-year limitation.
Underlying Donald's argument is the notion that Allstate had a duty to advise him of the proper statute of limitations. However, litigants must inform themselves of applicable legal requirements and procedures, and they cannot rely solely on their perception of how to commence an action. (Citation omitted). "Ignorance of one's rights does not suspend the operation of a statute of limitation." (Citation omitted).
Regarding the various discussions between Donald and Allstate after the accident, there is nothing in the record that would indicate that such discussions were anything but good faith negotiations toward an amicable settlement. There is nothing fraudulent or inequitable in engaging in settlement discussions to avoid litigation.
Wieting Funeral Home of Chilton, Inc. v. Meridan Mut. Ins. Co., is the latest pronouncement of the court on the estoppel issue. On May 14, 2001, a year before the limitation period expired, Meridan’s adjuster denied Wieting’s claim for roof damage. In response, Wieting called the adjuster registering disagreement with Meridan’s denial and advising that Wieting had hired its own expert to inspect the roof. The adjuster responded with a letter of May 16, 2001, confirming Wieting should arrange a meeting of the parties’ experts at the site for further inspection and to “discuss what issues concerning this claim they agree or disagree on and why.” Importantly, the letter included the following: “As stated, with respect to the above claim, we have paid what is known is owed as per the policy’s conditions; and remain committed to determining a fair conclusion to the above claim as per the policy’s provisions and conditions.” Nothing stated in or implied by this letter, nor any action heretofore taken, declined or deferred in this matter by Meridian Insurance has been intended nor should be taken as a waiver of any potential right, claim or defense under this policy. Meridan Insurance continues to reserve without qualification or limitation all rights, claims or defenses available to it under this policy.
There was later correspondence between the attorneys and the adjustor, with Meridan’s letter always concluding that it was standing by its previous denial of Wieting’s claim and the same reservation of rights and defenses under the policy. The limitations period expired on May 12, 2002. Thereafter, the parties continued to communicate; however, Meridan’s participation was limited to responding to Wieting’s inquiries. Ultimately, Meridan offered to settle Wieting’s claim for “nuisance value”; Wieting rejected the offer.
Based on the above history, Wieting argued that Meridian was estopped from asserting its statute of limitations defense. Wieting contended that Meridian’s conduct induced it to engage in further negotiations and to defer commencing the instant action until after the limitations period had expired.
The Court analyzed Johnson v. Johnson, and determined that there was “nothing in Meridian’s conduct indicating a lack of good faith, fraud, or inequitable behavior…. From the very outset, Meridian was, in the trial court’s words, “up front” with its denial of Wieting’s roof damage claim. And while offering to reconsider if adequate proof to the contrary was proffered, Meridian never wavered from its stance denying the claim. Each and every letter from Pritchett to Wieting or its representatives reconfirmed that Meridian was standing by its denial letter of May 14, 2001. In addition, each and every letter expressly reserved Meridian’s rights and defenses under the policy. Given this repeated warning, we are hard pressed to say that Meridian engaged in fraudulent, inequitable, unfair or misleading conduct sufficient to outweigh the public interest served the law of statute of limitations.”
For the same reasons, the court rejected Wieting’s claim that it reasonably relied to its detriment on Meridian’s conduct. “Although it was not Meridian’s job to give Wieting legal advice, Meridian’s staunch and persistent denial of Wieting’s claim, coupled with Meridian’s repeated invocation of its rights and defenses under the policy, served to put Wieting on fair notice that the limitations clock was ticking.”
In short, courts will enforce the one year limitation for fire policy claims absent some truly egregious conduct on the part of the defendant. Insurers and their counsel, however, must again toe a fine line. While Weiting rewards an insurer for a steadfast denial of a claim, it must be borne in mind that an ill-reasoned denial, and a failure to keep an open mind as to the insured’s claim for coverage, can be costly for an insurer. Thus, insurers must investigate carefully before denying a claim, be open to the insured’s arguments for coverage, and reiterate that coverage is denied when appropriate.
See, i.e., General Homes Inc. v. Tower Insurance Co., 67 Wis. 2d 97, 98-9, 226 N.W. 2d 394 (1975); Skrupky v. Hartford Fire Insurance Co., 55 Wis. 2d 636, 201 N.W. 2d 49 (1972); Rightway Builders, Inc. v. First National Ins. Co.,22 Wis. 2d 418, 126 N.W. 2d 24(1964); Townsend v. Milwaukee Ins. Co., 15 Wis. 2d 464, 466-67, 113 N.W. 2d 126 (1962); Martin v. Liberty Mut. Fire Ins. Co., 97 Wis. 2d 127, 132, 293 N.W. 2d 168 (1987)..
Johnson v. Allstate, 179 Wis. 2d 574, 581, 808 N.W.2d 19 (Ct. App. 1993) citing Hester v. Williams, 117 Wis. 2d 634, 645, 345 N.W.2d 426, 431 (1984) (quoting State ex rel. Susedik v. Knutson, 52 Wis. 2d 593, 598, 191 N.W.2d 23, 36 (1971)) .