Wednesday, May 20, 2020

Maryland Court Rules that Statute of Limitations for UIM Claims Begins to Run When Insurer Denies Claim

Nationwide Mutual Insurance Company v. Margaret Shilling, April 20, 2020 (Court of Appeals of Maryland)

Maryland law imposes a three-year statute of limitations for most civil lawsuits, including contract actions.  While the amount of time to file a lawsuit is clearly codified, the date on which the statute begins to run is often subject to interpretation.  This particular issue presented itself in a recent opinion by the Court of Appeals of Maryland in which Maryland’s highest court examined when the statute of limitations begins to run for a claim for underinsured (“UIM”) benefits.

The pertinent facts giving rise to the recent opinion are fairly straightforward, but the timeline is critical.  Margaret Shilling was involved in a rear-end motor vehicle accident on April 19, 2011.  At the time of the accident, Ms. Shilling was insured by Nationwide Mutual Insurance Company (“Nationwide”).  After accepting a policy-limits demand from the tortfeasor’s insurer on April 23, 2013 and executing a release on February 3, 2014, Ms. Shilling continued to receive medical treatment through July 1, 2014.  On January 26, 2015, Ms. Shilling demanded UIM benefits from Nationwide.  In the months that followed, Nationwide requested additional documents to evaluate the claim.  On September 26, 2015, Ms. Shilling filed a breach of contract claim against Nationwide in the Circuit Court for Anne Arundel County.  From the time of Ms. Shilling’s demand for UIM benefits to Nationwide and the time of filing suit, Nationwide did not deny the claim.

            The matter found its way to the Maryland Court of Appeals following the circuit court’s granting of Nationwide’s motion to dismiss, in which Nationwide argued that Ms. Shilling’s lawsuit was filed beyond the statute of limitations.  On appeal to the Court of Appeals, the court addressed the broad question of: “When does the statute of limitations begin to run in an insured’s action for UIM benefits?”  The court held that the statute of limitations for a UIM claim begins to run when “when the insurer denies an insured’s demand for underinsured motorist benefits, thereby breaching the insurance contract.”

            This decision is significant because it abrogates Maryland case law that previously held that the UIM statute of limitations began to run when the insured settled with the underinsured tortfeasor. [1]  The Shilling decision, however, now aligns the start of the running of the UIM statute of limitations with the running of the statute of limitations for uninsured motorist (“UM”) claims (i.e. the date on which “the insurer denies the claim [for UM benefits].”[2]

While the holding is significant for Maryland insurers, this decision will beget many questions and uncertainties regarding the timely filing of UIM lawsuits.  For example, does an insured now have an indefinite period of time to present a UIM claim for benefits?  Can an insurer preemptively deny every UIM claim to begin the statute of limitations?  The Court of Appeals offers some guidance to these questions.

Can an insurer do anything to protect themselves to limit the time in which a claimant has to file a UIM suit?  Yes. The Court of Appeals addressed this question stating that an “insurer can protect itself from claims that are remote in time by including explicit, unambiguous time limitations [for an insured to demand underinsured motorist benefits] in its insurance contracts.”  This suggestion, however, only offers guidance to drafters of future UIM insurance contracts.

 What should an insurer do if the claimant waits an extraordinary amount of time to pursue their UIM claim?  For claims under existing UIM contracts, the Court of Appeals avails insurers to the defense of laches.  For laches to apply, the UIM claimant must “unreasonably” delay the assertion of his or her rights to UIM benefits that “prejudices” an insurer.  The difficulty with position is that “unreasonable delay” and “prejudice” are generally evaluated on a case-by-case basis, leaving insurers their counsel, and the lower courts, to necessarily guess when this defense may be applicable. 

Can an insurer preemptively “deny” UIM benefits when notified of a potential claim but before a demand for UIM benefits has been made?  No.  The Court of Appeals made clear that an “insured’s demand is a necessary precondition which gives rise to a potential breach.”  As such, any denial of benefits must come after the claimant’s demand for the statute of limitations to run.

Despite the Court of Appeals’ guidance to address these issues, other questions remain unanswered.  For example, what constitutes a denial of benefits?  Will an impasse in settlement negotiations be construed as a denial of benefits?  If an insurer denies benefits following a demand, but later engages in settlement negotiations, does doing so further delay the running of the statute of limitations?  The answers to these questions and others will likely have to be addressed on a case-by-case basis in future litigation of claims for UM and UIM benefits.

-Benjamin Beasley, Associate Attorney

[1] Pfeifer v. Phx. Ins. Co., 189 Md. App. 675, 694-95, 985 A.2d 581, 593 (2010)

[2] Lane v. Nationwide Mut. Ins. Co., 321 Md. 165, 177, 582 A.2d 501, 507 (1990).