JUDICIAL DETERMINATIONS OF PUBLIC POLICY AND STATUTORY INTERPRETATION CONTINUE TO GOVERN INSURANCE COVERAGE ISSUES IN NUMBER OF RECENT STATE SUPREME COURT DECISIONS
Although one "hornbook" (treatise-like) rule of law for insurance holds that "insurance is a matter of contract," insurance policies, like other contracts, are seldom completely free of at least some form of government regulation through either legislation or judicially applied notions of "public policy" that may determine the outcome of insurance coverage disputes. In their strongest form, statutory or judicial regulation may even countermand clear policy language or make it inoperative. In a less stringent format, judicial application of statutory or public policy norms influences the interpretation and application of policy language that is arguably unclear or problematic if construed in a particular manner.
In short, determinations of coverage dispute can frequently turn on these "external" rules and norms of law rather than (or in addition to) "internal" rules of contract construction. A higher-than-usual number of state supreme court cases has recently focused on statutory and public policy grounds for decision rather than focusing exclusively on the text of the policies at issue. Although this often spells trouble for insurers, it is not always fatal, as reflected in the New York Court of Appeals decision discussed below.
COURT STRIKES DOWN AUTO POLICY PROVISION SHORTENING TIME FOR FILING CLAIM FOR UM OR UIM BENEFITS
State Farm Mutual Automobile Insurance Co. v. Fitts, P.3d, 2004 Nev. LEXIS 105 (Supreme Court of Nevada, November 10,2004)
The automobile insurance policy sold to Ike Fitts provided coverage of up to $50,000 per person for third-party claims as well as Uninsured Motorist ("UM") and Underinsured Motorist ("UIM") claims. It also contained a provision requiring that the policyholder make any claim for UM or UIM benefits under the policy within two years of the date of an accident. Fitts was injured in a collision and did file a suit against the other driver within two years, which is Nevada's statute of limitations period for tort actions. That claim resulted in only a $15,000 settlement to Fitts, the amount of the adverse driver's insurance policy limits. Fitts asserted that he was more seriously injured but was undercompensated or would be undercompensated because of the other driver's low policy limits. He presented this UIM claim two years and two months after the accident. State Farm, Fitts's auto insurer, denied his claim on the basis of the two-year limitations period established in the insurance policy. Ordinarily, contract claims in Nevada are subject to a six-year statute of limitations period.
After State Farm's denial, Fitts filed suit in the state court alleging breach of contract, violations of the state Unfair Insurance Claim Practices Act, bad faith, and other claims. State Farm removed the lawsuit to the federal court based on the different state citizenship of Fitts (a Nevadan) and State Farm (an Illinois company). Removal is a federal statutory procedure that allows nonresident defendants sued in a state court by a state resident to have the claim transferred from state court to federal court; the federal forum is thought to be less likely to favor a state resident plaintiff. But the case came bouncing back in substantial part when the federal trial court certified the following question of law to the Nevada Supreme Court:
Is the following insurance policy provision for the uninsured and underinsured motoris coverage enforceable by the issuing carrier: "Under the uninsured motor vehicle coverages, any arbitration or suit against us will be barred unless commenced within two years after the date of the accident."
See 2004 Nev. LEXIS 105 at *4. Certification is a federal statutory procedure that permits a federal court presiding over a suit in which state law is to be applied, to ask for guidance from the state supreme court regarding uncertain and important legal questions presented by the case. …