When does bad faith claim accrue?
When does bad faith claim accrue?
On October 12, 2007, Ronald Brown rear-ended Christina Connelly’s Chevrolet Cavalier with his Dodge Caravan. Brown was insured under a State Farm policy that provided automobile liability coverage of $100,000 per person and $300,000 per occurrence. When Connelly sued Brown for injuries she suffered as a result of the crash, State Farm provided Brown legal counsel in accordance with his policy. Under the policy, State Farm had the exclusive right to control defense strategy and settlement.
On May 10, 2011, Connelly offered to settle her case against Brown for $35,000. State Farm rejected the offer and required Brown to defend Connelly’s claim at trial. State Farm and Brown also stipulated that “Brown admits his negligence was the proximate cause of this October 12, 2007, automobile accident.” The jury awarded Connelly $224,271.41.
After the jury verdict, Brown and Connelly filed four post-trial motions. In a March 30, 2012 opinion, the court denied Brown’s motions and ordered judgment to be entered for Connelly for the $224,271.41 jury award, prejudgment interest of $92,958.96, costs of $5,435.28, and post-judgment interest of $10,580.64. State Farm later paid Connelly $151,601.93 of the $333,246.29 owed to her. Neither Brown nor State Farm made any additional payments on the outstanding $181,644.36. The 30-day period for Brown to appeal the excess judgment against him expired on April 29, 2012.
On September 3, 2014, Connelly brought a claim against State Farm and Brown as Brown’s judgment creditor. In her complaint, Connelly alleged that State Farm acted in bad faith when it refused to settle her claim against its insured for a payment that was only 35% of the limit of Brown’s policy. She also alleged that State Farm acted in bad faith and in breach of its contractual obligations to Brown whenit determined not to seek appellate review of the excess judgment.
After State Farm moved to dismiss Connelly’s complaint for lack of standing, on March 3, 2015, Connelly obtained an assignment of Brown’s rights to pursue legal action against State Farm. Connelly then moved to amend her complaint to reflect Brown’s assignment, which the court granted on April 2, 2015. On May 8, 2015, State Farm moved to dismiss Connelly’s complaint on the ground that it was barred by the three-year statute of limitations in Delaware that, according to State Farm, began to run either on May 10, 2011, when Connelly made her settlement offer, or on June 9, 2011, when the offer expired.
On July 22, 2015, the court granted State Farm’s motion to dismiss Connelly’s claims. In considering when the statute of limitations began to run, the court placed importance on Connelly’s allegations as to when State Farm breached its contractual duties. The court concluded that “the statute began to run at the time of the wrongful act, which … is the date [State Farm] denied [Connelly’s] settlement demand,” because it was then that Connelly was “made aware of the possibility that her claims would be denied, putting her on notice as to possible causes of action.” Connelly appealed the court’s dismissal of her claim.
The issue on appeal was when Connelly’s bad faith claim against State Farm accrued for purposes of the three-year statute of limitations. Connelly claimed that State Farm breached its duty to Brown and acted in bad faith by refusing a $35,000 settlement offer, which was substantially below Brown’s $100,000 policy limit. She asked the court to adopt the majority position that a claim against an insurer for bad faith failure to settle accrues only once there is a judgment in excess of policy limits against the insured and that judgment can no longer be appealed.
State Farm contended that the bad faith claim against it accrued either on May 10, 2011, when it refused to accept Connelly’s settlement offer, or 30 days later when the offer expired.
The court noted that the majority position cited by Connelly was well supported by case law and conferred significant public policy benefits. State Farm, the court said, was largely unable to call on relevant precedent to buttress its position. The court held that a bad faith claim against an insurer accrues when an excess judgment against an insured becomes final and non-appealable. The court reversed the trial court’s judgment that dismissed Connelly’s complaint as untimely.
Connelly vs. State Farm Mutual Automobile Insurance Company-Supreme Court of Delaware-March 4, 2016- No. 426, 2015.