Statute of Limitations for UIM Claims: Interpretation by Arizona Court of Appeals

Statute of Limitations for UIM Claims: Interpretation by Arizona Court of Appeals

In State Farm Mut. Auto. Ins. Co. v. Frank, 1 CA-CV 23-0282 (Ariz. Ct. App. Mar. 21, 2024) Arizona Court of Appeals has issued a published opinion interpreting and clarifying the situation where application has been filed by an uninsured person under A.R.S. § 12-555.

This appeal arose out of the case filed by Karen Frank in 2019 against State Farm that both her policies being automobile policy and umbrella policy covers her accident. Similar cases are still pending in the superior Court. State Farm filed an appeal before Arizona Court of Appeals stating that plaintiff failed to give written notice to the insurer of her intent to pursue the claim against the uninsured motorist and thus, her complaint should be dismissed. At first, the Arizona Court of Appeals denied Star Farm’s motion and ruled in favor of Karen Frank and said that she has complied with the statute of limitations.

State Farm then moved for reconsideration against this Order. This next time the Court reversed the previous Order and decided in favor of State Farm. In doing so, the Court elucidated that if no settlement is reached concerning a UIM claim, A.R.S. § 12-555 outlines a three-step process to ascertain whether the claim has been timely filed, regardless of whether it proceeds to arbitration or court. Firstly, A.R.S. § 12-555(B) mandates that an insurer bears no responsibility for UIM benefits unless the claimant submits written notice indicating the UIM claim under the insurance policy “within three years after the date of the accident that caused the bodily injury.” Secondly, under A.R.S. § 12-555(C)(1), the UIM insurer is to issue written notice indicating non-liability unless the claimant “requests arbitration or files suit pursuant to the terms of the insurance contract within three years” of notifying the insurer regarding the UIM claim. The insurer holds a two-year period from the receipt of notice of the UIM claim to furnish this written notification. Lastly, under A.R.S. § 12-555(C)(2), if “the person” fails to request arbitration or initiate a lawsuit within three years of providing written notice of a UIM claim, “the insurer is not liable for” UIM benefits.

Applying, these steps to the above case, the Court concluded that the superior court partially erred in its decision. According to the Auto Policy terms, Karen Frank was obligated to request arbitration within three years of initially making a claim, which she failed to do. Consequently, State Farm rightfully obtained a judgment declaring the Underinsured Motorist (UIM) coverage under the Auto Policy as time-barred. However, Karen Frank’s situation isn’t entirely bleak. In contrast, the Umbrella Policy stipulated that Karen Frank must initiate a lawsuit in either state or federal court within three years of making a claim, which she fulfilled by filing the 2019 Lawsuit. Hence, State Farm was not entitled to a judgment declaring the UIM coverage under the Umbrella Policy as time-barred. The court partially affirmed and partially vacated the judgment, directing further proceedings.

With increasing costs of insurance policies and all the hidden conditions and interpretations of the terms and conditions of the insurance policies, a lot of people do not buy a policy. But this choice should not become an obstacle for them in receiving compensation for the injuries and damages caused in accidents under underinsured motorist claims.

Further, Courts have a narrow scope of escape while deciding the applications under A.R.S. § 12-555, as on hand any erroneous interpretation of the statute may leave a plaintiff/victim of an accident without any financial support. On the other hand, it may force the insurance companies to pay the money where it might not be due on their part.

Although such interpretations can only be made on case to case basis, but there is certainly a need for transparency in the terms and conditions of the insurance policies. Also, the insurers need to apply the three step process outlined by A.R.S. § 12-555 to determine whether the claimant has filed the claims within limitation period or not.