Bad Faith - Colorado Court Of Appeals Holds Insurer Not Liable For Bad Faith Because It Has No Duty To Inform Insured That Statute Of Limitations Would Run
Last week, in Olson v. State Farm Mutual Automobile Insurance Co., No. 06CA2164 (Nov. 29, 2007), the Colorado Court of Appeals considered an issue not previously addressed under Colorado law. It held that an insurer had no
quasi-fiduciary, statutory, or contractual duty to inform the insured in a first-party context about when the statute of limitations would run.
The insured, Olson, was involved in a vehicle collision on February 27, 2002. Olson made an uninsured motorist (“UM”) claim with his insurer, State Farm. State Farm subsequently sent Olson a $1,000 check to settle the
claim (which Olson cashed). State Farm did not tell Olson that if he disputed the payment as a full and final settlement, the only way to preserve his claim would be to demand arbitration or file suit within three years of the accident.
Olson sought legal counsel in October 2005, and subsequently asked State Farm to waive the three-year statute of limitations because it did not inform him of the time limit to dispute the settlement. After State Farm refused, Olson
filed suit for UM benefits, breach of contract and bad faith. State Farm subsequently obtained summary judgment on statute of limitations grounds. Olson appealed.
On appeal, State Farm argued that the claims for UM benefits and breach of contract were barred by a three-year statute of limitations and that the bad faith claim was barred by a two-year statute of limitations contained in the
applicable Colorado statutes. Olson argued that: (1) his claims did not accrue until he consulted an attorney in October 2005, and first learned of State Farm’s alleged misconduct; (2) his bad faith claim did not accrue until
February 27, 2005, when the three-year statute of limitations ran for his UM and breach of contract claims, because State Farm had a duty to inform him of the limitations period and he was injured by State Farm’s failure to
do so; and (3) State Farm committed misconduct that equitably tolled the statute of limitations for all of his claims. The Colorado Court of Appeals rejected Olson’s first argument, concluding that the relevant issue was when
a plaintiff discovers facts essential to the cause of action, not the legal theory upon which the cause is based. It further noted that Olson’s position would, in effect, indefinitely toll the time when a cause of action accrues
unless and until a plaintiff consults counsel, which the court found to be contrary to the purpose of the statutes.
The court rejected Olson’s second argument for among the following reasons: (1) as a matter of law, there was no quasi-fiduciary duty between an insurance company and an insured in a first-party claim, and thus, State Farm
had no duty to inform Olson about the limitations period for his UM claim; (2) while other state legislatures had enacted statutes specifically requiring insurers to notify their insureds when the statute of limitations for filing
a claim will run, Colorado had not done so; (3) although an insurance contract contains an implied covenant of good faith and fair dealing, this implied covenant did not impose upon the insurance company a legal duty to inform the
insured of when the statute of limitations would run; and (4) State Farm’s claims manuals, which contained its claims philosophy to pay “promptly, courteously and efficiently” and its “Commitment to Our
Policyholders” did not state that State Farm was committing to inform its insureds about the statute of limitations, and thus, no duty was assumed through the manuals. The court rejected Olson’s third argument because
there was no evidence to indicate that State Farm engaged in any conduct intended to deceive Olson about the limitations period.