Most homeowners’ policies and other commercial property insurance policies contain suit limitations clauses, also known as “Suit Against Us” clauses, limiting the time period upon which an insured may bring suit against the insurer. Tennessee Courts have considered such clauses with respect to denials of claims, demands for proof of loss, etc. However, the Court of Appeals recently considered the clause in light of an offer of settlement by an insurer in Donald Chill, et al. v. Tennessee Farmers Mutual Insurance Company, E2012-01675-COA-R3-CV, 2013 WL 3964272 (Tenn. Ct. App. 2013). The Court held the insurance carrier’s offer of settlement triggered the suit limitation clause of the insurance carrier’s policy. Id.
Tennessee Farmers Mutual Insurance Company (“Tennessee Farmers”) issued a homeowners policy to Donald Chill and his wife, Martha Chill, generally providing coverage for losses due to earthquake. Such an earthquake struck the Tellico Village area of Loudon County on or about May 3, 2005 and allegedly caused damage to the Chills’ home. Tennessee Farmers initially found the damage claimed was not the result of an earthquake, and thus, denied the claim. Subsequently, however, Tennessee Farmers conducted additional investigation and found the property was damaged by an earthquake after all. Tennessee Farmers offered $88,086.49 for the covered damages on or about September 28, 2008. Id.
The Chills did not agree the amount tendered represented the actual amount of earthquake damage to their property and eventually filed suit against Tennessee Farmers. Tennessee Farmers answered and admitted coverage applied to their claim, but filed a motion for judgment on the pleadings on the basis the Chills’ lawsuit was time-barred as brought beyond the contractual limitations period set forth in the “Suit Against Us” clause of the policy. That particular clause required “[a]ny legal action against [Tennessee Farmers] must be brought within one year from the date of loss.”
Tennessee Courts generally enforce such contractual limitation periods in insurance policies. Guthrie v. Conn. Indem. Ass’n, 49 S.W. 829, 830 (Tenn. 1899); Gagne v. State Farm Fire & Cas. Co., 2012 WL 691621 at *2 (Tenn. Ct. App.); Certain Underwriters at Lloyd’s of London v. Transcarriers Inc., 107 S.W.3d 496, 499 (Tenn. Ct. App. 2002). However, rarely does a court hold that such limitations period begins to run as of the actual date of the loss. Instead, such limitations period begin to run upon the accrual of a cause of action against the insurance carrier. Phoenix Ins. Co. v. Fidelity & Deposit Co., 162 Tenn. 427, 37 S.W.2d 119 (1931); Federal Sav. & Loan Ins. Corp. v. Aetna Cas. & Sur. Co., 701 F.Supp. 1357, 1362 (E.D.Tenn.1988). Such cause of action can begin to run after the end of an immunity period during which an insured may not bring suit, or upon denial of the claim by the insurer. Boston Marine Ins. Co. v. Scales, 101 Tenn. 628, 49 S.W. 743, 747 (1898); Home Ins. Co. v. Hancock, 106 Tenn. 513, 62 S.W. 145, (1900).
Because of Tennessee Farmers’ original denial and subsequent settlement offer, the court considered the case of Das v. State Farm Fire & Cas. Co., 713 S.W.2d 318 (Tenn. Ct. App. 1986), where the insurance carrier initially denied an insured’s claim but later issued a subsequent denial four months and nine days after the initial denial. Id. In that case, the court held that an opportunity of the insured to bring a suit after the last denial is the most that the insured should expect to receive. Id.
Here, the Chill loss occurred on May 3, 2005, but Tennessee Farmers tendered settlement offer on September 28, 2008. The Chills’ own complaint alleged disagreement with the carrier’s damage assessment and their refusal to accept the settlement, but they waited until April 3, 2012 to file their suit – more than three years after the settlement offer was rejected. Consequently, the court found their action was time-barred by the contractual “suit against us” clause contained in the policy as suit was file more than three years after the settlement offer. Thus, where an offer of settlement is made to an insured forming the basis of dispute, such as in the Chill case, courts will likely apply the suit limitations clause from the date of the settlement offer absent any other circumstances or explanation for the late-filing of a suit.