Texas Court Gives Insurers Clarity on Statute of Limitations for Covered Claims
In Kessler v. Allstate Fire and Casualty Insurance Company, the Fort Worth Court of Appeals recently provided added clarity on when a statute of limitations “clock” begins to run on a policyholder’s claims against their insurer in the absence of a coverage denial. It held that when an insurer makes clear to its policyholder that it is closing its file and will make no more payments, the limitations “clock” will run from that date, even if the insurer later makes a supplemental post-closure settlement offer.
Turning first to the underlying insurance claim, on April 30, 2018, the insured submitted a claim to his homeowner’s insurer for hail damage. On June 1, 2018, the insurer advised they would make a $21,246.01 payment. The insured then submitted additional photographs and new information. This prompted the insurer to send a letter on Sept. 13, 2018, advising they would pay an additional $4,277.28.
Two months later, the insurer again reconsidered the claim and, via a Nov. 5, 2018, estimate, authorized an additional payment of $14,234. The insurer then sent a notice to the insured on Dec. 3, 2018, advising that it was closing its file (which was closed on the same day). On Dec. 20, 2018, the insured sent a demand letter for $500,000, advising that the insurer had undervalued the claim. The insured did not include any new information regarding the claim in the demand letter.
The insurer responded on Jan. 15, 2019, offering $2,500 as a full and final settlement of the claim, further explaining that the insured had not presented any new information that would change its previous claim determination. The insured did not accept the offer and, on Jan. 14, 2021, filed suit against the insurer. In that suit, the insured asserted causes of action for breach of contract, violations of the Deceptive Trade Practices Act and Texas Insurance Code, and breach of the duty of good faith and fair dealing, which were all subject to a two year and one day statute of limitations period, as per the policy terms.
In response to the insurer’s motion for summary judgment, the court agreed with the insurer that the insured’s suit was time-barred, holding that the two year and one day statute of limitations period began to run on Dec. 3, 2018, the date the insurer advised it was closing its file. The court concluded that this event triggered the limitations period because the letter confirmed the insurer did not intend to pay anything more on the claim.
The court further rejected the policyholder’s arguments that the insurer’s Jan. 15, 2019, settlement offer, sent in response to the policyholder’s post-closure demand, constituted a “reconsideration” that restarted the limitations period, as the insurer specifically stated in that offer that the insured had not presented any information that would cause the insurer to reconsider its prior position. Instead, the court agreed with the insurer that the limitations period started when the insurer told the insured it was closing its file, holding that the fact that the policyholder sent its pre-suit demand after file closure was an implicit acknowledgement by the policyholder that he had a potentially viable cause of action against the insurer at that time.
For practical purposes, it is not uncommon for insureds to challenge an insurer’s final coverage determination after the insurer has closed the file, which may prompt an insurer to make an additional nominal settlement offer to fully resolve the claim. This case indicates that an insurer may do so without restarting the limitations clock. But in doing so, the insurer should be careful to point out in any post-closure correspondence that it is not offering additional payments due to a reconsideration of the claim.
Please contact Scott Keffer or any member of Phelps’ Insurance team if you have any questions or would like advice or guidance.
