Fifth Circuit Finds Claims Against First-Party Insurer Time Barred Despite Absence of Written Denial

Case:   De Jongh v. State Farm Lloyds
             United States Fifth Circuit Court of Appeals
             No. 15-20522, 2016 U.S. App. LEXIS 21432 (5th Cir. Nov. 30, 2016)

In May 2012, the insured filed a claim with State Farm for property damage allegedly caused by a hail and wind storm in early April of the same year. State Farm’s claims adjuster inspected the property the same week. The adjuster noted in the claim file that there were deteriorating shingles on the rear slope of the roof and evidence of small hail on an aluminum vent cap. The adjuster also noted that the hail was too small to damage the shingles. Some other minor damage was noted but was found to have been caused by an overhanging tree, which constituted a maintenance issue excluded under the policy. Thereafter, the adjuster informed the insured that the inspection revealed no damage covered by her insurance policy.

State Farm entered notes into its claims management system on June 11 and 12, 2012, evidencing its intention to issue a denial of coverage letter. The notes indicate the letter was to explain that the roof damage was the result of maintenance issues excluded from coverage. Indeed, on July 12, 2012, State Farm closed its file. The insured, however, maintained she never received the June denial letter indicated in State Farm’s records.

On August 17, 2012, the insured requested that State Farm reinspect the property. Three days later, State Farm reopened the claim, and on August 23, 2012, a new adjuster reinspected the property. The adjuster found damage to a metal patio cover that was not listed in the initial inspection report, but the cost of repairing the damage the inspection uncovered was less than the insured’s deductible. State Farm again closed the claim without payment. This time State Farm did send a letter, on August 23, 2012, acknowledging minor damage but explaining that it would not pay because the amount did not exceed the deductible. The insured alleged that the August 23 letter was the only denial letter she received from State Farm.

In November 2012, the insured filed suit, alleging breach of contract and violations of the Texas Prompt Payment of Claims Act against Lloyds and violations of the Deceptive Trade Practices Act ("DTPA"). The insured initially named the wrong State Farm entity in the suit. An amended was filed on July 14, 2014, correctly naming State Farm for the first time. State Farm moved for summary judgment, contending the insured’s claims were barred under the limitations clause in her policy.

The policy required contractual claims against State Farm to be filed within two years and one day from the date the cause of action accrued. Moreover, under Texas law, claims for breach of the duty of good faith and fair dealing and violations of the Texas Insurance Code must be brought within two years after the cause of action accrues. Tex. Ins. Code Ann. § 541.162; Tex. Civ. Prac. & Rem. Code Ann. § 16.003(a).

The district court found the insured’s cause of action accrued on July 12, 2012 when State Farm first denied the claim and closed the file. The district court thus determined the suit was time barred because she failed to name State Farm as a defendant until July 14, 2014 — two years and two days after the accrual date.

The insured challenged the dismissal on appeal, but the Fifth Circuit affirmed. The court agreed with State Farm, finding that closing the claim for the first time on July 12, 2012, constituted an outright denial that triggered the limitations clock. In doing so, the court agreed the accrual date is often tied to a written notice of denial. However, the court also recognized that Texas courts had also used the claim closure date as the accrual date where there is no notice of denial. The court further opined that although State Farm did not issue a denial letter in June or July 2012, the claim file reflected State Farm’s intent to issue a written denial in conjunction with closing the claim file. Even if the failure to send a denial letter was tortious, it did not reset the limitations clock.

Finally, the court found the accrual date remained unchanged, even though State Farm later reopened the claim upon the insured’s request. The court reasoned that requesting an insurance company reinvestigate a closed file does not in and of itself reset the limitations clock.

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