Nationwide Mutual Insurance Company v. Margaret Shilling, an April 20, 2020 Court of Appeals opinion, answered the question: when does the three-year statute of limitations (SOL) begin to run for insureds to bring an underinsured motorist (UIM) claim against their own insurance company for breach of contract?
The dispute over when the SOL ran for Ms. Schilling’s UIM claim for benefits under her policy with Nationwide originated in the Circuit Court for Anne Arundel County. There the trial judge held in favor of Nationwide, barring Shilling from bringing a UIM claim against them on the basis that when Shilling filed suit against Nationwide on September 23, 2016, the three-year SOL had run on her breach of contract claim. The judge ruled that the SOL began to run on the date Schilling accepted the tortfeasor’s policy limits offer, which was mid-April 2013.
Following the trial judge’s decision, Shilling appealed to the Court of Special Appeals (COSA). The COSA reversed the trial court’s decision, holding that the earliest date for starting the three-year SOL for Shilling’s UIM claim against Nationwide was February 3, 2014, which was the date when Schilling, with Nationwide’s permission, accepted the tortfeasor’s policy limits offer of $20,000.00 and executed the Release in favor of the tortfeasor. According to the COSA that was the date the tortfeasor’s policy was exhausted. Nationwide appealed the COSA decision to the Court of Appeals.
The Court of Appeals ultimately upheld the result of COSA’s decision. However, it got there a different way and more clearly defined when the breach of contract occurs in this situation. The breach of contract in this context occurs when the insurer denies the insured’s UIM demand, by either denying coverage under the policy or rejecting the amount of money demanded by the insured. The Court’s decision in Schilling provides us clarification that for the SOL clock to start running, a demand must be rejected. It follows, therefore, that there first must be a demand made by the insured.
Prior to this decision, as evidenced by the procedural background, it was a bit murky as to when the breach of contract/denial occurred. Was the denial and breach of contract when the tortfeasor’s insurance company offered policy limits? Was it when the insured accepted the tortfeasor’s policy limits? Did the clock begin to run when the UIM carrier decides whether to consent to the tortfeasor policy limits settlement offer pursuant to Md. Code §19-511 or pursue subrogation against the tortfeasor for any monies they may have to pay to their insured? Or did the SOL begin running after the UIM carrier rejects the insured’s demand for settlement?
Nationwide took the position that the SOL began to run when the tortfeasor’s insurance policy was exhausted. Shilling’s position was that the SOL beings to run on the date of denial or, better put, when the UIM insurer denies the insured’s claim for additional benefits. The Court adopted Shilling’s position that the SOL never began to run against her claim because Nationwide never formally denied her claim for UIM benefits.
While agreeing with Shilling that the SOL had not run for her UIM claim against Nationwide, the Court clarified that a breach of contract in this context cannot exist until the insured makes a demand upon the policy. Then the demand must be repudiated by the insurance company for the SOL clock to start.
Nationwide argued against this scheme, stating that it was prejudicial to the insurance companies, making UIM insurers wait for an unknown time period before the insured makes a demand of UIM benefits. This would allow insureds to hold-off from making a demand upon their UIM policy, giving the insured unilateral control over when the actual tolling period will begin. In response to this argument, the Court held that since the issue is in contract, an insurance company has the power to protect itself from claims that are remote in time by including explicit, unambiguous time limitations language in their insurance policies. Its insurance policy can be drafted to address when insureds must demand UIM benefits following the exhaustion of the tortfeasor’s insurance policy.
The Court also noted that laches can protect the UIM insurer against abuse in this situation. This equitable backstop could be used by the UIM insurer as a defense when faced with an insured seeking benefits after an unreasonable delay that prejudices the insurer.
Considering this decision, the best practice for UIM insurers going forward would be to tighten up their policy’s language, making it clear when a demand is due from the insured claimant following the exhaustion of the tortfeasor’s policy limits.
William H. Hyle, III is an Associate at Gorman & Williams. His practice is concentrated in the areas of civil litigation, including insurance defense and personal injury. William has advised insurance companies on a variety of insurance coverage issues and other matters and has tried hundreds of cases throughout Maryland’s circuit and district courts.