A federal court recently granted summary judgment in favor of two insurers based upon the statute of limitations after concluding that the statute of limitations for the insured’s declaratory judgment, breach of contract, and bad faith claims began to run when the insurer denied coverage, not when the underlying litigation for which the insured sought coverage concluded. See Allegheny Ludlum, LLC v. Liberty Mut. Ins. Co., 2020 WL 6361858 (W.D. Pa. Sept. 17, 2020).
Allegheny Ludlum was sued in Alabama by employees of a company from whom the insured bought products. In January 2009, the Alabama Supreme Court dismissed the plaintiff employees’ injury claims that occurred before 1999, citing the statute of limitations. In 2010, the insurers communicated to Allegheny Ludlum that they did not intend to provide coverage for the clams asserted in the lawsuit. Allegheny Ludlum settled the lawsuit in 2017 and sought coverage from its insurers. After the insurers denied coverage, the insured sued the insurers for declaratory judgment, breach of contract/failure to defend, and bad faith.
The insurers argued that the insured’s declaratory judgment action was untimely pursuant to the four year statutory period for declaratory judgment actions and breach of contract claims. The insurers argued that the statutory period begins to run when a claim accrues. Conversely, Allegheny Ludlum argued that the statute of limitations did not begin run until the termination of the underlying lawsuit.
The Court found that under Pennsylvania law a statute of limitations begins to run “as soon as the plaintiff could have first maintained the action to a successful conclusion.” The Court found that the insurers’ 2010 denial of coverage provided the insured with a sufficient factual basis that the insurers did not intend to provide coverage. Accordingly, the Court held that the statute of limitations began to run in 2010 and expired in 2014—three years before the instant suit was filed—and therefore the insured’s request for declaratory relief was time barred. The Court applied the same principle governing the accrual of claims in dismissing the insured’s breach of contract claims.
The Court also dismissed the insured’s claims for insurance bad faith. The Court found that a two-year statute of limitations applied to the statutory bad faith claim, and a four-year statute of limitations applied to the common law bad faith claim. The Court further found that it is well-established in Pennsylvania that the statutes of limitations for bad faith claims run when an insurer clearly and unequivocally denies coverage. Because the insurers denied coverage in 2010, the Court held that the insured’s bad faith claim was time-barred by the time suit was initiated in 2017. The Court found that the insured could not “sidestep” this conclusion on the theory that there were “continuing” acts of bad faith because Pennsylvania rejects the “continuing violation” theory.