A federal court applying Minnesota law, recently dismissed a coverage suit based on the insured’s failure to comply with a policy’s two-year suit-limitations clause. The case, Hansen v. Markel American Ins. Co., No. 15-2833, 2016 WL 2901738 (D. Minn. 2016), called for the district court to determine whether: 1) a suit-limitations clause applied to bar the insured’s suit; 2) whether an insurer’s failure to comply with the Minnesota’s Unfair Claims Practices Act (“UCPA”) excused the insured’s failure to comply; and 3) whether an insurer is estopped from denying coverage for alleged misrepresentations. On all fronts, the court sided with the insurer.
The dispute arose out of damage sustained when a yacht ran aground in the Mississippi River in May 2012. Plaintiffs Peter and Jane Hansen (the “Hansens”) owned the yacht and insured it with Markel American. After the incident, Markel twice inspected the yacht and appraised the damage. On the second inspection, Markel determined the engine damage was not due to the grounding but, instead, to “service life exhaustion. Accordingly, Markel paid the Hansens for all damage to the yacht’s hull and related components, but denied payment for the engine damage. After contesting the denial, the Hansens commenced this suit.
Markel moved for summary judgment on the ground the Hansens failed to comply with the policy’s suit-limitation clause. The clause provides: “With respect to coverage provided under PHYSICAL DAMAGE, no suit or action may be brought against us unless the action is brought within 2 years after the date you first have knowledge of the loss.”
The Court held the policy’s suit-limitations clause was valid. The Court found that Minnesota law allows parties to “limit the time within which legal claims may be brought provided there is no statute specifically prohibiting the use of a different limitations period in such a case and the time fixed is not unreasonable.” Id. (citing Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601, 606 (Minn. 2002) (citation omitted)). Simply, the Court held the two-year suit limitation was not unreasonably short because the Hansens had ample time to investigate the claim and file suit.
The Court also rejected the Hansens’ argument the limitations clause was invalid because Markel allegedly failed to comply with the Minnesota’s Unfair Claims Practices Act (UCPA). The Hansens claimed the UCPA’s requirement that insurers are required to advise insureds, in writing, “of the expiration of the statute of limitations at least 60 days prior to that expiration” invalidated Markel’s suit-limitation clause defense. See Minn. Stat. § 72A.201, subd. 4(8). The Court, however, found the UCPA does not prohibit or conflict with the suit-limitations clause because the statute is limited to “statutes of limitation” – not contracted-for limitations periods – and nothing in the UCPA prohibits shorter limitations period in insurance contracts.
Lastly, the Court rejected the Hansens’ argument Markel was estopped from enforcing the suit-limitation clause. The Hansens claimed it would be “unjust, inequitable, or unconscionable” to enforce the clause because Markel never made a representation that their claim was still open and they could reasonably think payment was forthcoming. The Hansens pointed to Markel’s failure to expressly deny their claim. However, Markel showed it would only “reconsider” its position if the Hansens submitted proof. And unlike other cases which estopped an insurer from asserting a limitations clause defense, Markel did not wait until after the limitations period expired to deny coverage. Accordingly, the Court upheld and enforced the suit-limitation clause.
This case is important for insurers and insureds alike. Insurers must be sure to deny coverage before the expiration of the suit-limitations clause. And insurers are not required to advise insureds under the Minnesota’s Unfair Claims Practices Act of a suit-limitations clause.
As first blush, the decision may seem harsh to insureds, but the decision highlights the importance of prompt, thorough policy analysis for a suit-limitations clause and any other applicable provisions.