Klein v. Farmers Ins. Co. of Idaho

165 Idaho 832

453 P.3d 266

Erica KLEIN, Plaintiff-Respondent,

v.FARMERS INSURANCE COMPANY OF IDAHO, Defendant-Appellant.

Docket No. 46314

Supreme Court of Idaho, Pocatello, September 2019 Term.

Opinion filed: November 26, 2019

Cooper & Larsen, Pocatello, for Appellant. Gary Cooper, Pocatello, argued.

Law Office of Kenneth E. Lyon, III, Reno, Nevada, for Respondent. Kenneth E. Lyon, III argued.

MOELLER, Justice.

This case arises from a claim for underinsured motorist (UIM) benefits and the resulting dispute over the date the action accrued under the statute of limitations. In its motion for summary judgment, Farmers Insurance Company of Idaho argued that Erica Klein was barred from pursuing a supplemental UIM claim because the five-year statute of limitations in Idaho Code section 5-216 had run. Farmers asserted that the statute of limitations began to run on either the date of the accident or the date Klein settled with the third party tortfeasor, both of which occurred more than five years prior to Klein filing her complaint to compel arbitration of her UIM claim. The district court denied Farmers's motion and subsequent motion for reconsideration, holding that the "breach of contract" rule is the proper method of calculating the accrual date for Klein's cause of action. Farmers appeals the district court's denial of both motions.

This appeal presents an issue of first impression in Idaho, inasmuch as we are asked to determine when the statute of limitations begins to run on a cause of action for UIM benefits under an automobile insurance policy. After considering the different approaches taken by other states, we adopt the majority's "breach of contract" rule and affirm the district court's decisions.

I. FACTUAL AND PROCEDURAL BACKGROUND

On February 1, 2010, Klein was driving her vehicle when she was "t-boned" by another vehicle driven by Seth Hale, the third party tortfeasor insured by Allstate. Klein sustained injuries as a result of the accident that she claims are permanent—namely, three disc protrusions that continue to cause pain and muscle spasms. At the time of the accident, Klein was insured by Farmers under a policy that provided $500,000 in UIM benefits. The terms of the policy for uninsured coverage—which includes underinsured motorist coverage—state:

We will pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by the insured person . The bodily injury must be caused by accident and arise out of the ownership, maintenance or use of the uninsured motor vehicle.

Determination as to whether an insured person is legally entitled to recover damages or the amount of damages shall be made by agreement between the insured person and us. If no agreement is reached, the decision will be made by arbitration.

(Emphasis in original). The policy also includes an arbitration provision, which provides:

If an insured person and we do not agree (1) that the person is legally entitled to recover damages from the owner or operator of an uninsured motor vehicle , or (2) as to the amount of payment under this part, either that person or we may demand that the issue be determined by arbitration.

...

Formal demand for arbitration shall be filed in a court of competent jurisdiction. .... Demand may also be made by sending a certified letter to the party against whom arbitration is sought, with a return receipt as evidence.

(Emphasis in original).

On December 14, 2010, about ten months after the accident, Klein notified Farmers of her intent to settle her injury claim with Allstate for the full policy amount of $25,000. A few months later, on April 25, 2011, Klein resolved her claim against Hale for $25,000, i.e. , the full liability insurance limit from Allstate. Klein subsequently submitted a demand letter and accompanying UIM package to Farmers on November 7, 2012, demanding payment in the amount of $250,000 under her UIM benefits policy. Approximately one month later, Farmers issued a check to Klein for $75,000 for the undisputed portion of the UIM benefits. Klein did not refuse the payment and cashed the settlement check. Nevertheless, Klein's claim with Farmers remained open. In an email from Farmers dated December 13, 2012, the Farmers adjuster acknowledged "that [the $75,000 payment] does not resolve the UIM claim. I did make this offer to resolve the claim but there has not been any signed release from your client and I will be keeping the claim open."

For the next few years, Farmers continued to contact Klein and her prior attorney—who negotiated the settlement with Allstate—to finalize the claim, but Farmers rarely received any response in return. Finally, on July 7, 2016—six and a half years after the accident and more than five years after settling with Hale and Allstate—Klein's new attorney, Kenneth Lyon, contacted Farmers because Klein hired his firm to "resolve her outstanding underinsured motorist claim." Farmers responded on August 12, 2016, stating that it was prepared to respond to any demand for payment within sixty days of receipt of proof of loss. Six months later, on February 7, 2017, Klein provided Farmers with a supplemental demand packet. On April 4, 2017, Farmers's adjuster confirmed receipt of the supplemental demand and indicated that he had completed his evaluation. The adjuster also requested a two-week extension to respond to the supplemental demand as his supervisors reviewed the evaluation of Klein's claim. Klein agreed to the extension.

When the two-week extension passed, Klein reached out to Farmers for an update. Farmers informed Klein that her claim was barred by the statute of limitations and invited Klein to participate in mediation to resolve her claim. The parties later participated in mediation, but they were unsuccessful in reaching a resolution. Subsequently, Klein informed Farmers that the issue would need to be resolved through arbitration pursuant to the terms of her policy. Klein sent a letter to Farmers putting it on notice that she "intended to seek pre-judgment/pre-arbitration interest and attorney fees ... unless other alternatives would be reached." Farmers interpreted this as a demand for arbitration, and informed Klein that it was seeking permission to file a declaratory action to resolve the statute of limitations question.

On November 22, 2017, Klein filed a complaint with the district court seeking an order requiring Farmers to participate in arbitration regarding the UIM claim. Farmers filed an answer, affirmatively alleging that the claim was now barred by the statute of limitations and later moved for summary judgment on the same grounds. The district court denied the motion for summary judgment, prompting Farmers to file a motion for reconsideration, which the court also denied. The district court noted that there are three approaches to the issue of when a UIM claim accrues: the "date of accident" rule, the "breach of contract" rule, and the "settlement/judgment" rule. The court further explained that it denied summary judgment to Farmers because it believed Idaho would follow the "breach of contract" rule as the relationship between Klein and Farmers is contractual in nature. The district court also noted its willingness to consider a motion for permissive appeal as the parties had presented a question of first impression. Farmers filed a motion for permissive appeal pursuant to Idaho Appellate Rule 12. This Court granted the motion and Farmers subsequently filed its appeal.

II. STANDARD OF REVIEW

When a court reviews a motion for reconsideration, it applies the same standard of review for the interlocutory order being reconsidered. Westby v. Schaefer , 157 Idaho 616, 621, 338 P.3d 1220, 1225 (2014). Thus, this Court must consider the standard for granting the underlying interlocutory order when it reviews the appeal of a motion for reconsideration. Id. Here, the reconsidered motion was a motion for summary judgment. Summary judgment is proper where "there is no genuine issue of material fact, entitling the moving party to judgment as a matter of law." Verity v. USA Today, 164 Idaho 832, 841, 436 P.3d 653, 662 (2019). In addition, "[a]ll facts and inferences must be drawn in favor of the nonmoving party." Id.

III. ANALYSIS

The parties agree that the applicable statute of limitations is set forth in Idaho Code section 5-216, which provides that an action on a written contract must be initiated within five years. However, this appeal presents a question of first impression for this Court: whether, pursuant to that statute, the accrual date for the statute of limitations on a UIM claim begins on the day (1) the insurance company breaches its contract with the insured, (2) the insured reaches a settlement or obtains a judgment against the third party tortfeasor, or (3) the accident occurred. Each accrual rule has been applied in various jurisdictions, although the majority of jurisdictions deciding this issue have applied the "breach of contract" rule. See, e.g., Erie Ins. Exch. v. Bristol, 643 Pa. 709, 174 A.3d 578, 587 (2017). Farmers argues that either the "settlement or judgment" rule or "date of incident" rule should apply—both of which would bar Klein's claim—because each rule presents an objectively certain date known by both parties. Klein contends that the district court correctly applied the "breach of contract" rule, which is the most consistent with the arbitration provision in the UIM policy and Idaho law. We agree with Klein and hold that the district court applied the correct accrual date.

The primary basis for Farmers's contention that this Court should follow the "date of incident" rule rests on our prior decision in Hill v. American Family Mutual Insurance Co., in which this Court concluded that "exhaustion clauses in UIM automobile policies [are] void, unenforceable, and severable in Idaho." 150 Idaho 619, 627, 249 P.3d 812, 820 (2011)....