Your Insurer Stalled Past the Policy Deadline? Your Bad-Faith Claim May Still Be Alive (Bolin v. Allstate)

Published September 27, 2018 · Ohio Appeals Courts

Here is a situation we hear about more often than you would think. You suffer a covered loss and file a claim with your own insurance company. The company asks for documents, then more documents, then a recorded statement, then an examination. Months go by. Finally, about a year later, the company denies the claim. You call a lawyer, and you learn that the policy required you to sue within one year of the loss, and that year is already gone.

A decision handed down last month by the Second District Court of Appeals, which hears appeals from Montgomery County, shows both how dangerous that trap is and where it ends. In Bolin v. Allstate Property & Cas. Ins. Co., 2018-Ohio-3396 (2d Dist.), the court held that a family's contract claims were too late, but that their claim that the insurer acted in bad faith, along with their request for punitive damages, could go forward.

What happened

According to the opinion, a fire on June 4, 2015, damaged the Bolin family's home in New Lebanon, along with a boat, a trailer and a fifth-wheel camper. The house, boat and trailer were insured under Allstate homeowner's and boatowner's policies, and the camper under an Allstate auto policy. The family submitted claims shortly after the fire.

The insurers denied the claims on or about June 15, 2016, a little more than a year after the fire. The family sued on July 11, 2016, about 13 months after the loss. Their complaint included claims for breach of contract and a declaratory judgment that the losses were covered, plus claims for bad faith and punitive damages. The trial court dismissed all of those claims under the policies' one-year suit limitation.

Part one: the contract claims were too late

Each of the three policies required any lawsuit about coverage or the amount of the loss to be filed within one year after the date of loss (or the "inception of loss or damage"). The family argued that the clock should not start until the claims were denied, since until then they did not know the company would refuse to pay.

The court disagreed. Reading the policies as a whole, it held that "loss" and "damage" meant the actual harm to the property, so the one-year period ran from the day of the fire. One-year suit limitations in insurance contracts are generally enforceable in Ohio, as I explained in an earlier post on Ohio's one-year policy deadlines.

The family also argued that Allstate had waived the deadline by repeatedly asking for documents and taking more than a year to decide. The court recognized that an insurer can waive a contractual deadline when its words or conduct acknowledge that it owes the claim, such as offers of settlement, and that leads the insured to hold off on suing. But the family's complaint did not allege that kind of conduct (it alleged one early offer on the camper that was later withdrawn), so the waiver argument failed on these pleadings.

Part two: the bad-faith claim survived

The more important part of the decision for policyholders is what the court did with the bad-faith claim.

An Ohio insurer owes its own insured a duty of good faith in handling and paying claims. When a company refuses to pay, or drags out a claim, without reasonable justification, the insured can sue for bad faith. I described the elements of that claim in my post on suing your own insurance company.

The trial court had thrown out the bad-faith claim along with the contract claims, reasoning that it was closely tied to the policy. The Second District reversed. Because a bad-faith claim sounds in tort (it is a claim that the insurer breached a legal duty, not simply a promise in the contract), the policies' one-year limitation clauses did not apply to it. The court reinstated both the bad-faith claim and the claim for punitive damages that goes with it, and sent the case back to the trial court.

Why the tort label matters

Ohio law draws a sharp line between contract claims and tort claims against insurers. Earlier this year, in Lucarell v. Nationwide, the Ohio Supreme Court reaffirmed that punitive damages are not available for a breach of contract; they require an independent tort, and they must meet the requirements of Ohio's punitive-damages statute. An insurer's bad faith toward its own insured is that kind of independent tort. I discussed that decision in January.

Bolin applies the same line to deadlines. The contract claim lives and dies by the deadline written into the contract. The bad-faith claim is governed by the law of torts, not by the insurer's fine print. That gives insureds real leverage: an insurer that stalls a claim past the policy deadline cannot count on the deadline to erase its exposure for how it handled the claim.

There are limits to keep in mind. A bad-faith claim is not a guaranteed substitute for the policy benefits; it requires proof that the insurer lacked reasonable justification for what it did, and the damages it can recover depend on the harm the bad faith caused. Bolin decided only that the claim could proceed past the pleadings; it did not decide that Allstate acted in bad faith.

The lessons for people with injury and property claims

This case involved a house fire, but the same issues arise in the claims our clients make against their own insurers after a crash: uninsured and underinsured motorist claims, medical payments claims, and collision claims.

1. Read the suit-limitation clause now, not later. Many first-party policies contain a deadline to sue that is much shorter than the general statute of limitations, and it often runs from the date of loss, not the date of denial. UM/UIM coverage frequently has its own deadline, which I wrote about in a post on the UM/UIM deadline trap.

2. An insurer's delay does not stop the clock by itself. Requests for documents and statements, without more, do not extend the deadline. Unless the insurer has clearly acknowledged that it owes the claim and induced you to wait, assume the deadline is running.

3. Bad faith is a separate claim with separate rules. If your insurer stalled or denied a valid claim without good reason, you may have a tort claim that survives even if the contract deadline has passed, and that claim can support punitive damages in the right case.

4. Get advice well before the anniversary of the loss. The best outcome is never needing Bolin at all: filing suit on the contract claim on time, while preserving the bad-faith claim alongside it. That requires a lawyer reviewing the policy months before the deadline.

What this means for you

If you have a claim pending with your own insurer, whether for a crash, a fire or any other covered loss, find out today when your policy requires suit to be filed, and count from the date of the loss. If the company is dragging its feet, do not wait for a decision before getting advice. And if the deadline has already passed, do not assume you have no remedy; the insurer's handling of your claim may still be actionable.