Eastern District Holds that Four Year Statute of Limitations Applies to Gallagher Claims

The United States District Court for the Eastern District of Pennsylvania recently held that the four year statute of limitations for breach of contract claims applies to claims brought pursuant to the Pennsylvania Supreme Court’s Gallagher decision, and granted an insurer’s motion to dismiss breach of contract and bad faith claims.  See O’Brien v. GEICO Emp. Ins. Co., 2019 WL 2866092 (E.D. Pa. 2019).

In O’Brien, the insured was injured in a 2014 motorcycle accident. The insured sought underinsured motorist (“UIM”) benefits, and the claim was denied pursuant to the “household vehicle exclusion” in the policy because the motorcycle she was driving at the time of the accident was not insured under the policy.  The denial was issued on September 19, 2014.

On January 23, 2019, the Pennsylvania Supreme Court issued its opinion in Gallagher v. GEICO Indem. Co., holding that a similar household vehicle exclusion violated the Motor Vehicle Financial Responsibility Law and that such exclusions were unenforceable as a matter of law.  201 A.3d 131 (Pa. 2019).  After the decision in Gallagher, the insured again requested UIM benefits related to the 2014 accident.  The insurer denied the claim as time barred.  On April 3, 2019, the insured filed a lawsuit for breach of contract and bad faith, alleging that she was entitled to damages in light of Gallagher. The insurer moved to dismiss the insured’s claims, arguing that the claims are barred by the statute of limitations.

In granting the insurer’s motion, the Court noted that the four year statute of limitations for a UIM claim commences upon at the time of the claim denial or alleged breach of contract.  The Court rejected the insured’s argument that the “discovery rule” tolled the statute of limitations until after the Gallagher decision was announced, because the insured was aware of the initial claim denial and could have challenged the denial prior to Gallagher.  As such, the Gallagher decision did not excuse the insured’s untimely breach of contract claim.  With respect to the bad faith claim, the Court held that it was both barred by the two year statute of limitations and insufficient under the Twombly pleading standard.