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Delaware Auto Accident Law – Statute of Limitations for Bad Faith Claims (Failure to Settle)

Three Year Statute of Limitations for Breach of Contract Claims (Insurance Claims)

Under Title 10 Del. C. Section 8106, the statute of limitations for contract claims is three years. However, when the statute of limitations clock begins ticking depends on the type of contract and type of case. In Hostetter v. Hartford Insurance Co. (Delaware Superior Court, 1992), the Delaware Superior Court held that the statute of limitations for a bad faith claim begins to accrue when the insured learns that the insurance company has refused to cover or defend the claim.

Bad Faith Claims in DE Auto Injury Cases

Earlier this month, the Delaware Supreme Court ruled on the issue of when the statute of limitations begins to run for bad faith claims against auto insurance companies. The court ruled that the cause of action begins to accrue, i.e., the 3 year statute of limitations clock begins ticking, when an excess judgement against an insured becomes final and non-appealable. Connelly v. State Farm (Delaware Supreme Court, March 4, 2016)

Related: Joint & Several Liability in Delaware Auto Accident Cases – The Current Status of the Law (November 16, 2015)

Delaware Auto Accident Law – What is a Bad Faith Claim?

Under Delaware law, auto insurance companies have a duty to act in good faith and deal fairly with its insured. This is implied in an auto insurance policy, which is a contract. In an auto accident case, this implied duty includes a duty to settle claims within the policy limits where a recovery in excess of policy limits is highly likely. This means that an auto insurance company has a duty to act in good faith when settling a third-party auto insurance claim filed by a plaintiff (injured party) against its insured (at-fault driver). An auto insurance company which fails to do so opens itself up to a bad faith claim which may be filed by the plaintiff. However, the plaintiff must obtain an assignment from the insured. See Rowlands v. Phico Ins. Co. (District of Delaware, 2000).

Connelly v. State Farm – Bad Faith Claim for Failing to Settle a Third-Party Auto Lawsuit

In the Connelly case, the plaintiff was rear-ended by an individual who was insured by State Farm. Liability was not an issue in the case. The bodily injury liability limit under the State Farm auto insurance policy was $100,000/$300,000.

Connelly’s auto accident attorney offered to settle the case for $35,000 in 2011 which State Farm declined. The matter was tried, and a jury returned a verdict for the plaintiff in an amount of over $220,000. After the court awarded pre and post judgement interest and costs, the total judgement entered against the at-fault driver was over $330,000. State Farm paid roughly $150,000 per its duty to indemnity under the at-fault driver’s auto insurance policy. Connelly then pursued a bad faith claim against State Farm for acting in bad faith and without any reasonable basis when it declined to settle her claim against the at-fault driver.

Applying the Hostetter case, the Superior Court ruled against the plaintiff. The court dismissed the bad faith claim, finding that the statute of limitations began to run when State Farm denied the plaintiff’s settlement demand, and thus, plaintiff’s claim was time-barred. On appeal, the Delaware Supreme Court held that, despite the Hostetter case, the bad faith claim began to accrue on the date the judgement became final.

More: Pro-Plaintiff Car Accident Laws in Delaware

The Delaware Supreme Court’s ruling certainly represents a departure from the Hostetter case. It is now settled that in a Delaware bad faith claim for failure to settle a third-party auto insurance injury claim, the statute of limitations begins to accrue when the excess judgement against the at-fault insured party becomes final. Click here for the Delaware Supreme Court website and get access to court opinions.

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