Iowa Supreme Court Upholds Insurer’s Deadline for Filing Claims

The Iowa Supreme Court sided with the insurer being sued in a case where a woman sought compensation from her coverage provider after finding out the extent of her medical damages almost four years after crashing, with the justices upholding the validity of the policy’s language that established a two-year window for claims.

The state Supreme Court’s decision, released Friday, upheld the initial ruling from the district court and overturned the decision from the Court of Appeals.

Woman Sought Damages Under Underinsured Motorist Coverage

Karen Robinson’s lawsuit against Allied Property and Casualty stemmed from collision-related medical expenses for a neck injury she sustained on June 14, 2004, when another driver crashed into her vehicle.

The other driver’s insurer was State Farm, which was originally going to settle damages with Robinson for $40,000. But after two years of continued medical treatments and examinations, Robinson’s doctor found spinal injuries that could leave her with permanent pain for the rest of her life. After this development, in July 2008, State Farm offered Robinson $100,000, which was the maximum amount payable under the responsible driver’s policy.

Before and after the crash, Robinson also had an underinsured motorist (UIM) policy with Allied for $50,000, which she sought compensation through after maxing out the responsible driver’s policy limits.

But the Allied policy contained a clause saying that coverage would only be extended if a claim was filed within two years of the applicable crash. Since the claim was filed nearly four years after the initial crash, Allied denied the claim.

In May 2010, Robinson took Allied to court to try to force them to pay her benefits under her policy.

Court Says Contractual Deadline Applies in Case

As the case moved through the justice system, the state Court of Appeals backed Robinson, saying that the circumstances surrounding her crash and treatment made the two-year deadline in Allied’s UIM contract unreasonable because she was unable to “ascertain her damages” within that period.

The state Supreme Court, however, said that siding with Robinson would expose the state to a flood of similar litigation and inflate the cost of Iowa car insurance.

“It is easy to foresee the result will be to increase auto insurance rates for Iowans,” the court stated.

The court added that it believed the two-year limit was a “reasonable contractual deadline to file UIM claims.”

“Insurance underwriters would have to assume going forward when setting UIM rates in Iowa that two-year contractual limitation periods would be unenforceable,” the court state, referring to what would occur if they upheld the Court of Appeals’ ruling. “[M]ore insureds will be able to sue their UIM insurer 10 years after the accident after avoiding shorter limitations periods in the insurance contract.”

The Supreme Court also noted that a common practice in Iowa is for policyholders to file claims with both the responsible driver’s liability insurer and the policyholder’s own UIM insurer right after a crash. That way, the UIM claim is sure to fall within the contractual deadline.

Court Says Attorneys Not Liable for Bringing Early Cases

The Supreme Court also said in its decision that attorneys should consider litigation in such cases in which contractual deadlines are in effect, even if they have to move forward before the deadline without definitive information.

“We could find no case sanctioning an attorney for a frivolous pleading filed to preserve a UIM claim on the eve of a deadline,” the court stated.

The finality of contract terms should emphasize the importance of action prior to the deadline, according to the court.

“The future course of a person’s medical condition—especially a neck injury as here—is inherently open to some doubt,” the court stated. “Attorneys facing a contractual deadline should assume the UIM action will be barred once the contractual deadline expires and should act to protect the client’s interests.”

Iowa Case Follows Other in Michigan

In Michigan late last month, the state Supreme Court backed State Farm in a case in which justices ruled that a claim filed for a man killed in a hit-and-run was submitted past contractual deadlines in his policy.

William DeFrain sustained severe head injuries in a crash on May 31, 2008. State Farm’s uninsured motorist (UM) insurance policy required that the insurer report incidents “as soon as reasonably possible” after initial treatment, but a specific provision about hit-and-runs required a report by 30 days.

State Farm was first notified on Aug. 25, 2008, according to court documents, and was brought to court in October of that year. DeFrain died the following month, and an executor of his estate carried on the lawsuit against the insurer.

In its majority opinion, the justices stated that the fact that UM coverage is an optional form of insurance allows “the policy language alone [to control] the circumstances entitling a claimant to an award of benefits.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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