In State Farm Mutual Auto Ins. Co. v. Frank, 2024 WL 1202982 (Ariz.App. March 21, 2024), the Arizona Court of Appeals confirmed the District Court of Arizona’s recent interpretation of the statute of limitations for UM/UIM claims, ARS § 12-555, and rejected two novel insured arguments.
The Takeaways
- An insurer does not toll a UM/UIM claimant’s three-year statute of limitations in § ARS 12-555(C)(2) to request arbitration or file suit regarding a disputed UM/UIM claim by failing to remind the insured of the three-year limitations period, as required by ARS § 12-555(C)(1).
- A UM/UIM insurer does not accept a policy limit demand by silence or failure to respond.
- An insurer’s request for arbitration or suit does not satisfy the three-year statute of limitations in ARS § 12-555(C)(2)—the insured must request arbitration or file suit.
The Facts
The Insurer issued an Auto Policy and an Umbrella Policy. The Auto Policy provided $100,000 of UIM coverage and the Umbrella Policy provided $2,000,000 of UIM coverage. Just like ARS § 12-555(C)(2),the Auto Policy barred UIM coverage unless the Insured requested arbitration or filed suit within three years of notifying the Insurer of her intent to make a UIM claim. Similar to ARS § 12-555(C)(2), the Umbrella Policy barred UIM coverage unless the Insured filed suit within three years of notifying the Insurer of her intent to make a UIM claim.
In August 2015, the Insured was in an accident and quickly recovered the tortfeasor’s minimum liability limit. On April 20, 2016, the Insured notified the Insurer of her potential UIM claim. On May 18, 2018, the Insurer wrote the Insured, confirmed the Insured’s intent to make a UIM claim, and stated it would consider the date of its letter as the date the Insured notified it of her UIM claim.
In February 2019, the Insured demanded the $2.1 Million cumulative UIM limits. The Insurer did not formally respond. Rather, in April 2019, the Insurer referenced disclosures, deadlines, and arbitrators for a UIM arbitration. An arbitration, however, did not occur. On August 14, 2019, the Insured filed a bad faith complaint against the Insurer. In December 2021, the Insurer filed the subject declaratory judgment action, and the trial court eventually granted summary judgment on all UIM coverage because the Insured never requested arbitration, as required by ARS § 12-555(C)(2).
The Statute
ARS § 12-555 sets forth the statute of limitations for UM/UIM claims. First, subsection (B) provides that an insurer is not liable for UM/UIM benefits unless the insured provides written notice of intent to make a UIM claim within three years of the underlying accident (the “Notice”). Second, subsection (C)(1) requires an insurer, within two years of the Notice, to remind an insured that it will not be liable for UM/UIM beneifits unless the insured requests arbitration or files suit (whichever is required by the policy) within three years of the Notice (the “Reminder”). Third, subsection (C)(2) provides that, if a claimant does not request arbitration or file suit within three years of the Notice, then the insurer is not liable for UM/UIM benefits.
The Rationales
Regarding failure to toll, the Court of Appeals explained, “[c]ommencement of the three-year period in (C)(2) is not tied to the insurer’s compliance with (C)(1),” the Reminder. Rather “subsection (C)(2) unambiguously ties the three-year statute of limitations to the date the [insured’s] notice is provided under subsections (A) or (B),” the Notice. Furthermore, Frank stated this “makes sense because tying the statute of limitations to the [Reminder] could result in a never-ending limitations period if the insurer entirely fails to provide” the Reminder. Thus, the Court of Appeals agreed with Arizona District Court’s similar, recent conclusion in Creasman v. Farmers Ins. Co., 2023 WL 4533964 (D.Ariz. July 13, 2023), that the Insurer’s “noncompliance with subsection (C)(1)[, the Reminder,] did not change [the Insured’s three-year] deadline under subsection (C)(2).”
Regarding acceptance of a UIM demand by silence or failure to respond, the Court of Appeals noted “one accepts an offer through silence only in limited circumstances” and none of those circumstances were present. The Insurer did not take the benefit of services offered with the offeror’s expectation of compensation. The Insurer did not act inconsistently with an offeror’s ownership of offered property. And, the Insured did not give the Insurer reason to understand that acceptance through silence was sufficient.
Regarding the insufficiency of an insurer’s request (rather than an insured’s request) for arbitration, the Court of Appeals explained subsection (C)(2) requires a “person” to request arbitration or file suit and the remainder of ARS § 12-555 distinguishes between a “person” and an “insurer.”
Resolution
The Court of Appeals affirmed summary judgment regarding the statute of limitations for the $100,000 of UIM coverage under the Auto Policy because the Insured never requested arbitration as required by the Policy and ARS § 12-555(C)(2) . But, it vacated summary judgment regarding the statute of limitations for the $2,000,000 of UIM coverage under the Umbrella Policy because the Insured filed suit within three years of the date the Insurer deemed it had notice of the Insured’s intent to make a UIM claim.
You can access the complete Frank opinion here and the full text of ARS § 12-555 here.
