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A California appellate court has rejected an insured's contention that, while she continued to try to persuade her homeowner's insurance company to pay a claim it had closed, the insurer had to remind her that she had one year to sue from the date it initially closed her claim.

The Case On July 30, 2015, Diane Hufstedler discovered that the wood flooring in the kitchen of her home in Mission Viejo, California, had been damaged. The next day, she made a claim to her homeowner's insurance company, Mercury Insurance Company.

Mercury inspected the home four days later and, on August 6, 2015, sent Ms. Hufstedler a letter denying her claim. The letter explained that the damage was caused by an intermittent leak in a water supply line to her refrigerator and was excluded under Ms. Hufstedler's policy because the damage was the result of repeated leakage of water over a period of more than one week. The letter stated that, "We have completed our evaluation and determined there is no coverage for your loss."

The letter also reminded Ms. Hufstedler that she had one year to file a lawsuit against Mercury from August 6, the date her claim was closed. In particular, the letter stated:

As of today's date, we are closing your claim. [¶] California law requires that we notify you of the time limits that apply to your claim. Please refer to your property policy under 'SECTION I-CONDITIONS: [¶] 7. Suit Against Us. No action shall be brought unless there has been compliance with the policy provisions and the action is started within one year after the loss or damage. [¶] This one-year period begins when the claim is closed. However, if there is a lapse of time between the date of loss occurred and the date you reported it to Mercury, those days will be subtracted from your one-year period. We are not suggesting that you file legal action. We are simply advising you of the time limits outlined in your property policy.

(Emphasis added.)

About two weeks later, on August 18, Ms. Hufstedler sent Mercury an email disagreeing with Mercury's denial and requesting all of Mercury's file on her claim.

Mercury sent a letter the next day, on August 19, honoring the request by enclosing all claim-related documents, and also said it would "be more than happy to reconsider its position based on any new or additional information or documentation that you have or may acquire in the future."

Mercury's letter, however, was clear that Ms. Hufstedler's claim remained closed: "Please refer to our letter of August 6, 2015 wherein we advised you that we have closed your claim. Your claim remains closed."

The parties engaged in further correspondence but, in every letter, Mercury made it clear that Ms. Hufstedler's claim still was denied and that it had been closed in August 2015.

On September 28, 2016 – about 13 1/2 months after Mercury initially denied Ms. Hufstedler's claim – Ms. Hufstedler sued Mercury.

The insurer moved for summary judgment, based on the 12-month suit provision in Ms. Hufstedler's insurance policy.

The trial court granted the motion, ruling that Ms. Hufstedler's suit was time-barred due to the policy's 12-month suit provision.

Ms. Hufstedler appealed, arguing that because Mercury allowed for the possibility that she might be able to supply it with new information bearing on the claim, Mercury was required as a matter of law to explicitly tell her again – when she later sent new information to Mercury – that the one-year suit provision still was running as of the date of the first denial letter. Because it had not done so, Ms. Hufstedler contended, the one-year had not begun running as of August 6.

The Appellate Court's Decision

The appellate court affirmed, finding that Ms. Hufstedler had all the information she needed to sue Mercury as of the date of its August 6 written denial of her claim.

In its decision, the appellate court rejected Ms. Hufstedler's argument that Mercury had to remind her in its continuing correspondence that the one year litigation period had been running since August 2015.

That contention, the appellate court said, would lead to "counterproductive consequences by punishing insurers for trying to do the right thing, for being willing to reconsider new information instead of doubling down on an early denial." Under Ms. Hufstedler's theory, the appellate court added, insurers would have the "Hobson's choice of either losing the benefit of the one-year suit provision, or acting in bad faith by announcing an early denial and then refusing to consider any new information," which would contravene the general rule that insurers should investigate claims in good faith.

Moreover, the appellate court added, Ms. Hufstedler's theory had the practical effect of "nullifying" the one-year suit limitation because an insured could make many requests for reconsideration that would "extend the one-year statute at will."

Accordingly, the appellate court concluded that Ms. Hufstedler's main theory that an insurer's willingness to reconsider an unequivocal denial somehow delayed or otherwise rewound the one-year suit litigation period was "unworkable."

The case is Hufstedler v. Mercury Ins. Co., No. G056113 (Cal. Ct. App. Sep. 9, 2019). Attorneys involved include: Hunt & Adams and John C. Adams III for Plaintiff and Appellant. O'Connor, Schmeltzer & O'Connor and Lee P. O'Connor for Defendant and Respondent.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.