When must you file your bad faith claim?
Jan. 2016  |  Bad Faith Update  |  Vol. 2 Iss. 3

Statutes of Limitations on Bad Faith Cases 

Missouri statutory law holds that the statute of limitations begins to run when the cause of action has accrued or when a wrong has been sustained. A cause of action accrues when damages become capable of ascertainment.
So what does this mean in claims handling litigation?
Missouri courts have been clear since Lumberman’s Mut. Cas. Co. v. Stubbs that bad faith claims against an insurer are subject to a five-year statute of limitations. Likewise, an insurer’s breach of the duty to defend is often described as a breach of the insurance contract and would likely be subject to a five-year limitation period. While the applicable limitations period appears relatively straightforward, when such causes of action accrue does not appear to have been addressed by any appellate court in Missouri.

Bad Faith Claims

In the world of bad faith claims, where an insurer’s liability is determined on a case by case basis, ascertaining when the cause of action accrues is the key to docketing the statute date. While Missouri Courts have yet to affirmatively state when a bad faith claim against an insurer accrues, an examination of approaches in other states provides some guidance on the likely approach in Missouri.
When other jurisdictions have been presented with the opportunity to declare when a bad faith cause of action accrues, they have utilized similar reasoning.
States including New York and Illinois have determined that the statute of limitations on a bad faith failure to settle claim begins to run when an excess judgment in the underlying liability action is entered.
Others including Arizona, Minnesota, Texas and Colorado add a wrinkle that the limitations period does not begin to run until the excess judgment is final and no longer subject to appeal.
Finally, Pennsylvania, which recognizes both common law and statutory causes of action for bad faith, appears to hold that the statute of limitations begins to run for the statutory based claims when the insurer denies coverage to the insured and in common law claims, the statute begins to run when the insured knows or should have known that the carrier breached its fiduciary obligation.
Based on the decisions of other states and Missouri’s statutory law, in all likelihood the statute of limitations for a bad faith cause of action against an insurer would begin to run after the entry of a final judgment. In most circumstances this would be the point in which the damage resulting from the carrier’s conduct is capable of ascertainment.
However, unlike many of the states listed above, Missouri does not require an excess judgment as an element of a bad faith claim, meaning damages could theoretically be ascertained at a point prior to the entry of a final judgment.
The best practice would be to docket five years from the date of the loss. If you can file within that time period, this is certainly a safe harbor from an affirmative defense that the claim is time barred. A secondary docket date would be the date the coverage is denied or a demand within the limits passes. The date of any excess judgment should be the last triggering event for docketing purposes.

Breach of the Duty to Defend Claims

Missouri courts have yet to address when the statute of limitations begins to run on claims for the breach of the duty to defend. However, like claims for bad faith, other jurisdictions have addressed the issue.
Although several approaches exist, the majority of states have determined that a claim for breach of the duty to defend will not accrue until a judgment becomes final in the underlying action. A number of rationales exist for this approach including that damages cannot be ascertained until judgment is entered.
Given Missouri’s statutory language that causes of action for breach of contract do not accrue until damages can be ascertained, it is likely a Missouri court would find that the statute of limitation for a breach of the duty to defend would begin to run when a judgment becomes final in the underlying action.
Of course, just because you have five years does not mean you should wait that long. The better practice is to file any failure to defend case as soon as possible after the entry of the excess judgment. Such prompt filing allows the insured to avoid any statute of limitations concerns as well as directing the course of the claim in a court of his or her choosing rather than in one selected by the carrier.


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Kirk Presley

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Kirk's practice focuses on significant plaintiff’s personal injury and wrongful death claims in the areas of products and premises liability, general aviation, and insurance bad faith litigation.
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