Illinois Appellate Court Rules That Failure to Warn Insured of Number of Days Left to File Suit is a Waiver of the Policy's Suit Limitation Provision
January, 2005
by Richard A. Buchanan and Margaret Hupp Fahey
A recent case of first impression in Illinois serves as a warning to insurance companies that their ability to rely on the policy's suit limitation provision could be compromised if they fail to follow the rules and regulations of the Illinois Department of Insurance. Mathis v. Lumbermen's Mutual Casualty Ins. Co., 822 N.E.2d 543 (Ill. App. 2004). Editor's Note: Mathis has been accepted for review by the Illinois Supreme Court (No. 10042).
Facts
The insured filed suit seeking coverage for a fire loss to her home. The insured had given prompt notice of the loss after it occurred on July 16, 2000. The insurer denied the claim on December 7, 2000. In its denial letter, the insurer did not tell the insured either the number of days the limitation period was tolled or how many days remained before time to file suit expired as required by Illinois Department of Insurance Regulation 919, which provides, in pertinent part, as follows:
When the period within which the insured may bring suit under a residential fire and extended coverage policy is tolled in accordance with Section 143.1 of the [Illinois Insurance] Code [(215 ILCS 5/143.1 (West 2002))], the company, at the time it denies the claim, in whole or in part, shall advise the insured in writing of the number of days the period was tolled[] and how many days are left before the expiration of the time to bring suit. (50 Ill. Adm. Code §919.80(d)(8)(C) (2002)).
The insured filed suit on January 31, 2002. The insurer moved to dismiss on the basis of the policy's one-year suit limitation provision. The trial court denied the motion, finding that the insurer waived the suit limitation provision by failing to comply with Regulation 919. It also certified the question for special appellate review.
Analysis
On appeal, the insurer argued that Regulation 919 did not apply because the limitation period had not been tolled under Section 143.1 of the Illinois Insurance Code. Section 143 provides that the suit limitation period is tolled from the date proof is filed until the claim is denied, and plaintiff here did not file a proof of loss in any form. The appellate court rejected this argument because the insurer acknowledged that it never requested a signed, sworn proof of loss from plaintiff.
After finding that Regulation 919 applied, the appellate court held that the insurer's failure to comply with it constituted a waiver of the policy's suit limitation provision. The court acknowledged that insurance regulations may be enforced only by the director of insurance and that a violation of an insurance regulation does not provide a basis for a private cause of action. However, it held that such a violation is a fact that a court can consider in determining whether an insurer waived a suit limitation provision or whether enforcement of the provision would be unjust, inequitable, or unconscionable. The court reasoned that the mere existence of a suit limitation provision was not enough notice to an insured of the running of that period and that Regulation 919, recognizing that, required actual notice – not constructive notice – to an insured of the time remaining to file suit.
Learning Point:
To preserve the suit limitation requirement, insurers who deny Illinois claims must state clearly in the denial letter the number of days the suit limitation period has been tolled and the number of days remaining to file suit. According to the Mathis court, this must be done even when proof of loss is neither requested by the insurer nor submitted by the insured. Failure to do so is a waiver of the suit limitation provision, so that an action against the insurer could be brought for up to ten years. Finally, although Regulation 919 on its face applies to “residential fire and extended coverage polic[ies],” commercial insurers should also comply with its provisions to avoid future claims of waiver, at least pending the Illinois Supreme Court's ruling in Mathis.
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