Thousands of insured Iowans are facing a completely avoidable calamity in the form of a 1-yr statute of limitations (SOL) on filing suit against their insurer. This SOL, which will expire on Aug. 10, 2021, will prevent many homeowners from recovering from the losses inflicted by the Aug. 10, 2020 derecho which blew across Iowa.
The 2020 derecho was classified as the costliest thunderstorm in US history. Governor Reynolds declared disasters in 27 Iowa counties—mostly in the central and eastern portions of the state. The Iowa Insurance Division reported that 200,000 claims were filed in Iowa alone (https://iid.iowa.gov/press-releases/iowa-derecho-claims-top-16-billion). Pair this unprecedented catastrophe with the Covid-19 pandemic, widespread building material shortages, contractor and adjuster shortages and it’s a recipe for disaster. Indeed, a drive through Cedar Rapids, IA (epicenter for the derecho) today still reveals many tarped roofs and un-repaired homes; even some of the buildings downtown remain bandaged.
As the owner of an Iowa-based public adjusting firm, I recognized early this spring that there was no way that all of my clients’ open claims would be resolved by Aug. 10, 2021. This worried me and I’ll explain why.
Insurance policies contain a truncated statute of limitations
Most property insurance policies include a provision in the conditions section that limits the amount of time a policyholder (insured) can file suit against their insurer. A suit that is filed after the statute of limitations period has passed can be challenged and dismissed for untimeliness. Most policies contain either a 1-yr or 2-yr deadline from the date of loss (DOL) for the policyholder to file suit. This amount of time is significantly abbreviated from Iowa’s 10-yr statute of limitations on written contracts. Whereas the codified statute of limitations in some other states (e.g. South Dakota) overrules the limitations in a contract (i.e. parties in South Dakota have 6-yrs to bring suit on a written contract even if the contract only allows 3-yrs), precedent has been set in Iowa that the policy’s SOL overrules the state’s SOL. Most insurance companies reduce Iowa’s SOL of 10yrs to a minimum of 1-yr simply by writing it in the policy.
This policy condition is even more unconscionable than it originally appears because the clock starts at the date of loss, not at the date of the alleged breach—which may not accrue until multiple months after the DOL.
Insurance companies rarely extend the statute of limitations voluntarily
With these quickly approaching deadlines in mind, my firm began preparing and requesting tolling agreements from insurers with 1-yr SOLs in their policy. A tolling agreement is a document signed by both parties mutually agreeing to toll (extend) the statute of limitations a set amount of time. Our requests were modest—asking only for an additional 90 days. Out of the 100+ tolling agreements that were sent by my firm to insurers, only 5 were accepted. The rest were outright denied or simply ignored.
With insurers largely unwilling to grant extensions to the SOL voluntarily, myself and a few other policyholder advocates began bringing this issue to the attention of the Iowa Insurance Division. To their credit, the Division responded to our pleadings by releasing Bulletin 21-04 on July 26.
This bulletin from Commissioner Doug Ommen clearly informs insurers that refusal to pay recoverable depreciation by enforcement of an unachievable deadline and refusal to update price lists to reflect market pricing at the time of repairs “may be viewed as a failure to act in good faith to effectuate fair and equitable settlement of a claim.” On these points, this bulletin provides great benefit to the consumer.
However, only one paragraph in the bulletin is dedicated to the statute of limitations on filing suit. It reads:
Concerns have also been raised that these delays may limit a policyholder’s ability to later file an action against the carrier for disputed claims. Carriers must use great care in applying these provisions in the current circumstances as policyholders request extensions in claims handling. Insurance carriers have a duty to pay what is owed under the contract in a timely manner and cannot compel insureds to institute litigation by offering substantially less than what is ultimately recoverable under a claim.
Since the release of this bulletin, we have sent it in conjunction with a repeated request for a tolling agreement on a number of claims with various carriers that previously rejected our request. To date, no insurance company has changed their position on our tolling agreement as a result of the Commissioner’s bulletin.
Some insurers have responded favorably to the bulletin. For example, Farm Bureau—while they still refuse to sign a tolling agreement—has granted an extension to the statute of limitation in writing. West Side Mutual also sent out a memo to my firm (and presumably all their policyholders) that stated they were extending the statute of limitations to Nov. 10, 2021. The good faith actions of Farm Bureau, West Side Mutual and a few other small insurers that have voluntarily granted extensions to the statute of limitations on filing suit should be commended and I desperately hope that other insurers follow suit.
It is my opinion that the insurers who refuse to sign tolling agreements or grant extensions to the statute of limitations know that the policy’s statute of limitations bars their policyholders’ ability to later file suit and are intentionally pushing toward this end. I have come to this conclusion based on the experience I have had in the past trying to negotiate disputed claims after the statute of limitations has passed. In these instances, the insurance carriers unconditionally refused to engage in any good faith negotiation of the claim. With my clients’ access to the courts barred, adjusters acted with impunity in delaying, denying and underpaying legitimate claims. Even pleas to the Insurance Division did not help these policyholders.
To avoid a similar fate, derecho victims facing a 1-yr statute of limitations must file a protective suit on or before Aug. 10, 2021. While the Commissioner warns insurers against forcing their insureds to file such lawsuits, it may be difficult for an insured to prove they were compelled to bring suit as the insurer could argue that they would have made payment in good faith even if the insured hadn’t filed suit and there’s no way to prove otherwise. Indeed, without being able to see what the claim settles for in the future it is impossible to state that insurers are “compelling insureds to institute litigation by offering substantially less than what is ultimately recoverable under a claim” by refusing to grant these extensions. Nevertheless, should the claim settle for substantially more than what was offered prior to suit being filed, then the insured certainly was compelled to bring the suit and the refusal to grant an extension should be viewed as a failure to act in good faith to effectuate fair and equitable settlement of the claim.
Yet, undeterred by this potential bad faith liability, most insurers continue to deny extensions with seemingly no consideration of the ramifications alluded to in the Commissioner’s bulletin.
I spoke with Ryan Hubbert at the Iowa Insurance Division on 08/04/2021 about carriers refusing to grant extensions despite the request being accompanied by the Commissioner’s bulletin. Mr. Hubbert wasn’t shocked, but I could tell that he was disappointed that insurers hadn’t changed their tune as a result of the bulletin. He recommended that complaints be filed with the Division on any claims where the carrier refused to grant extensions. While this is helpful on a case-by-case basis, it doesn’t really solve the underlying issue like a mandatory order to toll the statute of limitations another year (or at least 6mo) would. When I asked Mr. Hubbert if the Commissioner have any intention of taking any further action on this issue, I was told no.
Insurance Companies mislead policyholders by conflating deadlines
I believe many insurance companies are adding confusion to chaos by misleading their clients while granting vague extensions to claims. Indeed, many policyholders mistakenly think that their SOL has been extended by their insurer when it in fact has not.
There is more than just one deadline in play on property insurance claims; an insured must also be mindful of the deadline on recovering depreciation. This deadline is also policy specific and can range from 180 days to 2 years. Whereas insurance companies are often willing to grant extensions on the deadline to recover depreciation, they are generally unwilling to grant extensions to the statute of limitations.
Confusion arises because a lot of insurance adjusters do not understand or are unaware of the statute of limitations, so when they receive a request for an extension of it, they assume the insured is asking for more time to get the work done and they respond by granting an extension to the deadline to recover depreciation—this is particularly true for out of state adjusters.
Specifically, when policyholders ask for an extension to their claim, most are granted an extension to the deadline on recovering depreciation, but not on the statute of limitations on filing suit. Often, the statute of limitations isn’t even mentioned in the answer to the extension request.
On the other hand, an unscrupulous adjuster may very well know that the insured is asking for an extension to the SOL, but unwilling to do so, he crafts his response in a way that an uneducated insured may think the extension on the SOL was granted when it was not. An adjuster saying things like “we’ll give you another 6 months to close your claim” or “complete you claim” or “settle your claim” may sound like an extension of the SOL to an unsophisticated homeowner, but probably couldn’t be relied upon in court to prove the timeliness of a suit.
As an example of how widespread this misinformation issue is, consider the attached voice message left by an unidentified SF adjuster for one of my firm’s adjusters. This voicemail was left in response to our follow up on a tolling agreement requested back on July 8. This adjuster wrongfully states that the insured has two years to settle their claim and insists that no action is needed to preserve those rights.
This adjuster has no idea what he’s talking about, but he’s very sure of what he’s saying. An unrepresented policyholder would have no reason not to take this adjuster for his word. I’m sure there have been thousands of calls like this to policyholders who don’t know any better and believe that they have been granted an extension or don’t need one. I’m sure of this issue due to the overwhelming number of posts and comments in derecho Facebook groups saying it was easy to get an extension from the same insurance companies that have unilaterally denied our requests.
It can only be expected that if policyholders who have been misled by calls like this move to file suit against their insurer at a later date, the insurers will vehemently deny any extension of the SOL having been granted or intended by the phone call. Without a clear extension of the SOL in writing, there’s no way for the insured to prove otherwise.
I don’t believe this particular State Farm adjuster was purposefully misrepresenting the terms of the policy, but I believe that there are plenty of unscrupulous adjuster who do. In my opinion, that’s not only a failure to act in good faith and fair dealing, but also fraudulent.
I think this issue will come to a head once insurance companies stop negotiating with their clients a few months after the SOL has expired and they are clear of the suit serving window. Then, when the insureds take action to sue, they will find that their insurance company really didn’t extend their SOL like the insured thought they did.
Policyholders face a difficult choice to sue their insurance company
With the ineffectiveness of the Commissioner’s bulletin to persuade carriers to toll their 1-yr SOL, policyholders face a grueling choice: sue or don’t.
If possible, I recommend that policyholders retain an attorney and file a pre-emptive (also called protective) lawsuit prior to the SOL running because it guarantees that they retain their right to seek relief from the courts. However, going legal isn’t always a viable option for policyholders in Iowa. First, there’s no statutory provision for attorney fees in Iowa so the policyholder must pay their legal fees out of pocket or out of proceeds. We have found that most attorneys are unwilling to take cases on contingency that have less than $100,000 in dispute. This leaves a large number of insureds with small and medium sized claims to finance their legal efforts out of pocket. While there are exceptions, a $2500 retainer for filing suit is common. A lot of policyholders simply can’t afford this cost, especially when its only purpose is to buy them time and it doesn’t get them any closer to proper payment of their claim. If the claim isn’t resolved by the time service to the defendant is due, legal costs will skyrocket as discovery and litigation proceedings commence. The fear of these ballooning legal expenses prevents many claimants from even considering litigation.
Suit also becomes extremely undesirable on policies that remove appraisal from the table once suit is filed. For example, State Farm commonly includes as a part of their policy’s appraisal provision the following clause: “A party may not demand appraisal after that party brings suit or action against the other party relating to the amount of loss.” If this provision is enforceable, a State Farm policyholder may not bring preemptive suit and then demand appraisal at a later date. Consequently, if the policyholder/attorney/public adjuster isn’t able to resolve the claim through negotiation with SF in the time after the suit is filled, the claim can only be resolved through litigation, arbitration or mediation—which in my opinion are all considerably less efficient than appraisal for resolving disputes over the amount of loss.
Finally, the influx of policyholders seeking legal assistance has already overwhelmed many of the available attorneys. It will be very difficult for policyholders just now seeking legal assistance to find an attorney that will be able to file suit on time. The burden all these preemptive suits will place on the already backed-up courts is worth mentioning as well.
If a policyholder chooses not to sue, they are gambling on their insurer’s good faith willingness to continue negotiating with them and paying their claim. While many insurers are willing to keep claims open past the statute of limitations, we’ve seen carriers cease negotiations and refuse to pay claims after the statute of limitations frequently enough to know that their continued willingness to negotiate is not something to bet on—especially if the claim is hotly disputed. I fear that this will be the case on most derecho claims that run past the statute of limitations with notable amounts still in dispute. Even if the carrier does continue to negotiate with the policyholder or public adjuster, all leverage on the claim is gone; suit is off the table and in our experience most carriers will refuse to engage in appraisal after the statute of limitations has run.
My firm has considered appraisal as an option for clients who can’t afford to bring suit; however, it’s not a perfect solution. Appraisal can only address disputes over the amount of loss and cannot address issues of coverage. Second, the carrier has to agree to participate and sometimes they don’t. This problem has proven to be more of an issue on derecho claims than I anticipated. My firm’s prior clients have never had much of an issue demanding appraisal on Iowa claims in the past and Iowa has pretty good legal precedent surrounding appraisal. Nevertheless, carriers are frequently ignoring our appraisal demands, refusing to participate until certain onerous conditions are met or agreed to and attempting to limit the appraisal to an “agreed” scope of damages. Our 11th hour appraisal demand plus the 20 days provided by the policy for the insurer to name their appraiser leaves us very little time to change the insurer’s mind on their refusal to participate in appraisal prior to the SOL running. Even worse, a considerable number of the appraisal demands being denied are on State Farm claims where the policy states that the right to appraisal is forfeited once suit is brought; it’s a catch-22. Even when the carrier does agree to participate in appraisal, there’s no guarantee that they won’t refuse to pay part or all of the appraisal award once concluded.
To my knowledge, there’s no standing for appraisal tolling the SOL in Iowa; however, general counsel for American Family Insurance recently stated during a court-appointed umpire hearing in Iowa that it was his client’s position that appraisal did indeed toll the SOL on his client’s claims.
State officials should take action to provide relief and implement public policy changes
I don’t know if there remains any hope for derecho claimants. I continue to hold out hope that the Iowa Insurance Division, the Attorney General, the Governor or the Iowa Supreme Court will step in to provide relief. The goal is to ensure that all policyholders have a path to indemnity. Ideally that would come in the form of some action or order extending the SOL on filing suit on all derecho claims.
The Iowa Insurance Division, along with releasing the bulletin mentioned, has advised policyholders to file complaints with the Division if an insurer doesn’t grant an extension.
While the assistance provided by the Division to consumers and their advocates thus far is sincerely appreciated, I hope they can do more.
I hope that the Attorney General could step in to put some heat on the insurance adjusters that are fraudulently misrepresenting the statute of limitations on filing suit to policyholders.
The Governor exercised significant executive powers throughout the Covid-19 pandemic, and I hope she could use similar authority to grant a moratorium on the statute of limitations for derecho claims.
The Supreme Court ordered the tolling of all statutes of limitations for 76 days in 2020 due to Covid-19. I think the court should do something similar for derecho claimants. Indeed, a tolling would benefit the courts as well as policyholders since the courts are so backlogged.
Whether those in the executive and judicial branches take any action or not, my firm will be collecting as much data as possible regarding the harm caused by the unyielding enforcement of this one year statute of limitations and sharing that information with policyholder advocacy groups like the American Policyholder Association and United Policyholders for their use in promoting public policy changes that prevent this issue from afflicting so many innocent policyholders ever again.