Bad Faith Insurance And Statute Of Limitations

Lawyers handling insurance claim must have an understanding of the statute of limitations for bad faith claims.  This is illustrated in a 2023 opinion from the Western District of Texas, Waco Division.  The opinion is styled, Yvan Jayne v. Health Care Service Corp., A Mutual Legal Reserve Co., D/B/A Blue Cross And Blue Shield Of Texas., et al.

A reading of the case will show the facts of this specific case but shown here is the law relating to the statute of limitations on bad faith claims.

Defendant moved to dismiss Plaintiff’s badfaith breach and Chapter 541 causes of action, arguing that they are barred by the statute of limitations.  Defendant has the burden of proving its affirmative defense, including the date on which limitations commenced.

A person must bring an action under Chapter 541 before the second anniversary of the date the unfair or deceptive act or practice happened, or the date the person discovered or should have discovered that the unfair or deceptive act or practice occurred.  This is pursuant to Texas Insurance Code, Section 541.162(a).  A cause of action under the Texas Insurance Code for unfair or deceptive acts or practices based on a denial of insurance coverage accrues when the insurer denies coverage.

A cause of action for breach of the duty of good faith and fair dealing must be brought within two years of the date on which the cause of action accrued.  Under Texas law, a cause of action for badfaith breach of a firstparty insurance contract accrues when the insurer denies the insured’s claim.  When there is no outright denial of a claim, the exact date of accrual is a question of fact.

Defendant argues that both causes of action accrued on July 30, 2018, when Defendant processed the denial of Plaintiff’s claim and mailed it to Plaintiff.  To support this accrual date, Defendant submitted a Declaration of Suzanne Livorsi, a senior project coordinator.  Ms. Livorsi asserted that Plaintiff’s claim determination was “processed on July 30, 2018 and mailed to [Plaintiff] on or about the same day.”  Defendant also submitted a copy of the explanation of benefits (“EOB”).  The EOB lists the processing date as July 30, 2018.  Under this theory, the challenged claims are clearly barred by limitations since Plaintiff filed suit nearly four years later.

Plaintiff argues that Defendant has failed to conclusively establish its affirmative defense
because Defendants “July 2018 EOB did not authorize [Plaintiff] to seek a judicial remedy.”
  Plaintiff argues that he “was not authorized to seek a judicial remedy until [Defendant] denied his appeal in early 2020.”  Plaintiff further argues that the EOB “was not an outright denial of a claim.”  Plaintiff contends that it was reasonable for him to “contact his medical provider to find out if he owed more than the allowed amount, not pursue a judicial remedy.”

Plaintiff’s arguments are unavailing. Texas law does “not require an insurer to include ‘magic words’ in its denial of a claim if an insurer’s determination regarding a claim and its reasons for the decision are contained in a clear writing to the insured.”  The EOB clearly stated the amount covered and uncovered under the plan.  Thus, Plaintiff’s causes of action under the Texas Insurance Code and for common law breach of the duty of good faith and fair dealing accrued on July 30, 2018, when Plaintiff’s claim was processed and denied.

Plaintiff appears to argue that the availability of internal and external review procedures prevented Plaintiff from filing suit.  Plaintiff cites no case law supporting this argument.  Case law governing reviews of coverage denials holds the opposite.  The law governing reinvestigation situations requires that, in order to restart the limitations clock, the insurance company must expressly or impliedly withdraw or change their position with regard to a claim by an action such as making a new payment or taking another action inconsistent with their previous decision.  Plaintiff agrees that Defendant never changed its position on the denial.  There is also no indication that Defendant took any action inconsistent with its prior decision.  Thus, the limitations clock did not restart, and Plaintiff’s causes of action are barred by limitations.

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