“The Discovery Rule in an Insurance Loss Does Not Begin to Run When the Insurance Company Says They Will Cover No More Damages”

In Hoover v. County Mutual Insurance Company, the Plaintiff filed a complaint against Country Mutual. The Plaintiffs had suffered a loss at their home when an explosion destroyed their house. The insurance policy had a one year time limitation in the policy. Plaintiffs filed suit for breach of contract, bad faith, and negligent misrepresentation. They plead that the statute of limitations had been tolled for over two years because they did not learn of their injury until they were advised that Country Mutual would not be making further insurance payments. The insurance company responded the Plaintiffs knew or reasonably should have known for more than two years before they filed their complaint that the liabilities in the policy were inadequate to cover the replacement cost of their house and its contents. The trial court ruled, in a motion for summary judgment, for Country Mutual Insurance Company.

The Plaintiffs appealed claiming that because they had not been advised that the insurance company was denying their claim until August of 2008, that the discovery rule postponed the statute of limitations until they were informed of the denial. The Appellate Court affirmed the trial court holding that the courts dismissal of the complaint were proper. The court said that compliance with a suit limitation provision within a policy is a condition precedent to the recovery under a policy. The court found that filing suit more than one year after the loss was untimely.

The court ruled that Hoover’s claim for bad faith against Country Mutual was dependent upon the success of the breach of contract claim, so the bad faith claim was barred because of the one year provision in the policy. The court found that the Plaintiffs failed to allege facts stating a cause of action for negligent misrepresentation because their argument was based on the theory that their agent affirmatively assured Brian Hoover that he obtained the replacement cost policy that he had requested. The voluntary undertaking argument failed because such cause of action was limited to cases where the Plaintiff suffers physical harm caused by action taken in reasonable reliance, not an alternative to a breach of contract. In determining when the cause of action under the negligence claim against the agent began to run, the court determined that the cause of action accrues at the time of the breach of contract not when a party sustains damage. Therefore, the cause of action accrued when the Plaintiffs procured the insurance policy that did not comply with their request and the statute of limitation should have expired two years after they received their policy. The court found that the discovery rule does not apply because the Plaintiffs were in the best position to determine if the policy’s $258,000.00 liability limit was sufficient to meet their replacement cost requirement. When they received the policy, prior to the fire, they had an opportunity to read their insurance policy and determine whether the policy limits were adequate.

This is a reasonable ruling by the court. The rule has long been that a statute begins to run when a party knows there is a claim, not when the extent of the damages are clear.