Earlier this week, I tweeted a Washington Court of Appeals opinion in the case Moratti v. Farmers Insurance Company of Washington, et al. That case held that the statue of limitations against an insurer begins to run when the underlying judgment against the insured becomes final. In Washington, the three-year statute of limitations for torts applies to a bad faith claim against an insurer. In other words, a bad faith claim against an insurer must be filed within three years of the date the claim accrues.
But when does the claim accrue? This was the question addressed in Moratti. There, a girl sued her landlord after she was injured in a fire in 2002. Her injuries were due, at least in part, to the fact that the home did not have adequate, working smoke detectors. The girl (Moratti) sued the landlord in 2003, and the landlord tendered suit to his insurer, Farmers. Farmers accepted defense, and at first reserved only $5,000 to settle the claims, knowing that Moratti’s medical expenses alone totaled almost $800,000. Approximately a year later, a new adjustor was assigned to the case, and the landlord was advised for the first time that his liability could exceed his policy limits. Despite this, Farmers offered only $100,000. Finally, in 2004, Farmers offered to tender its policy limits to settle the claim, but this offer was rejected.
Facing significant personal exposure, the landlord confessed judgment for $17 million in 2007. $600,000 of this judgment was paid out of the landlord’s own pocket; the rest was as of yet unfunded. In exchange, Moratti agreed not to execute on the judgment against the landlord personally, and took an assignment of the landlord’s rights against Farmers. A reasonableness hearing was held, and Farmers appeared but did not contest the judgment amount.
The following year, in 2008, Moratti filed suit against Farmers as the assignee of the landlord’s bad faith and CPA claims. After a four-week jury trial, the jury returned a verdict in favor of Moratti. The trial court set aside the jury verdict, holding that the bad faith claim against Farmers was barred by the statute of limitations. Alternatively, the court held that even if the claim was not barred, Farmers was entitled to a new trial.
On appeal, Farmers argued that the bad faith occurred in 2002, when the claim was denied without investigation. Farmers further argued that the claim could not have accrued after 2004, because in 2004 Farmers offered its policy limits, thereby correcting any bad faith.
The court, in an opinion authored by Judge Grosse and joined by Judge Becker and Judge Spearman, disagreed. An insurer’s duties to defend and indemnify “are continuing duties that do not stop merely because the insurer offers the policy limits two years after it left the insured with the belief that there was no liability.” The court continued to hold that the claims were timely, and not barred by the statute of limitations.
This case will no doubt have lasting impact for bad faith claims going forward.