In Arizona, the “Prejudice” Rule Applies to Late Lawsuits Filed Against Insurance Companies

Kenneth Kan – May 19, 2014

In my previous blog I discussed how in Arizona, if a policyholder submits a claim that is deemed late, the insurance company cannot deny the claim on that basis unless it can show actual prejudice from the delay. Now, what happens when the policyholder files a lawsuit after the statute of limitations has already expired? Is the policyholder’s lawsuit automatically barred? The short answer is no.

In Arizona, the statute of limitations applicable on a case involving a breach of a written contract is 6 years.1 However, when it comes to insurance contracts or policies, similar to many other states, Arizona permits insurance companies to contractually shorten the limitation period by which to bring suit against the insurance company.2 In most homeowners policies, the time limitation by which a lawsuit must be initiated is shortened to 1 year from the date of loss; in most business policies, the time limitation is 2 years.

The rule of “actual prejudice” that applies to a delayed notice of a claim also applies to a lawsuit that has been delayed, i.e., not filed within the time limitation period. In the seminal case of Zuckerman v. Transamerica Insurance Company,3 the Arizona Supreme Court held that while insurance policies may use provisions that shorten the statute of limitations:

[T]he insurer may be estopped from raising a defense based upon such an adhesive clause where the enforcement of the clause would work an unjust forfeiture. The key factor in the determination of this issue is the question of whether the insurer has shown prejudice by reason of the delay in filing suit.

In the insurance claim context, the usual circumstance that causes a lawsuit to be filed late is not any ignorance of the time limitation, but the claims process itself is often protracted (many policyholders will say unnecessarily so) and, quite frequently, the claim is not resolved within the one or even two year time limitation. In Arizona, as long as the insurance company has had a reasonable opportunity to investigate or evaluate the claim, it is very difficult to show that it suffered prejudice from any delay by the policyholder in bringing suit. Moreover, having personally dealt with a motion filed by an insurance company seeking to dismiss a late lawsuit, the mere fact that the insurance company has to defend a lawsuit when it otherwise would not, if the time limitation was enforced, does not constitute prejudice.

For policyholders and those who represent policyholders, if you have questions as to whether a lawsuit can still be brought even though the time to sue set forth in the policy has already passed, please consult with an insurance professional. At least in Arizona, the old adage “Better Late than Never” might apply.

1 A.R.S. 12-548.

2 A.R.S. 20-1115 (A)(3) [the time limitation shall not be limited to a period of less than one year].

3 Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 146 (1982).

via In Arizona, the “Prejudice” Rule Applies to Late Lawsuits Filed Against Insurance Companies : Property Insurance Coverage Law Blog.

Superstorm Sandy May Help Change New Jersey Court View on Recovery of Attorneys’ Fees

Larry Bache – May 17, 2014

Florida law allows first-party claimants to recover attorneys’ fees in the event litigation is required for an insured to be made whole.1 New Jersey has a similar rule with a dramatic difference. New Jersey Rule 4:42-9(a)(6) provides:

(a) Actions in Which Fee Is Allowable. No fee for legal services shall be allowed in the taxed costs or otherwise, except:

* * * *

(6) In an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.

At first glance, it appears that any policyholder may seek attorneys’ fees when an insurer fails to fulfill its obligations requiring litigation. The reasoning is simple to understand: When a policyholder suffers property damage, it is difficult to restore their property if attorneys’ fees are deducted from the recovery. Hence, a fee statute provides a policyholder with the opportunity to recover those fees against the insurance carrier that underpaid or wrongly denied their claim.

Unfortunately, New Jersey courts have refused to apply Rule 4:42-9(a)(6) to first-party actions. Instead, New Jersey currently only allows recovery for attorneys’ fees to third-party claimants.2

It is well documented that Superstorm Sandy caused catastrophic damages to the Garden State, and recently carriers are getting more attention for mistreating their policyholders as thousands of lawsuits have been filed. As a result of these lawsuits, policyholders’ advocates are getting the opportunity to show the judges that first-party claimants are deserving of the same remedies under Rule 4:42-9(a)(6) as third-party claimants.

1 See Florida Statute 627.428.

2 Giri v. Med. Inter-Ins. Exch. of New Jersey, 251 N.J. Super. 148, 151-52, 597 A.2d 561, 562-63 (N.J. Super. Ct. App. Div. 1991).

via Superstorm Sandy May Help Change New Jersey Court View on Recovery of Attorneys’ Fees : Property Insurance Coverage Law Blog.

Judge Rejects Flimsy Excuses Re: Expert Disclosure Deadlines

Joshua Fruchter, Esq. – May 8, 2014

Has an adversary ever offered up an outrageous excuse for missing a court-imposed deadline for disclosure of expert testimony? Was the judge indulgent, or did he/she throw the book at opposing counsel? The strict enforcement of deadlines governing expert disclosures against a party with decidedly flimsy excuses for its tardiness was recently illustrated in Advanced Analytics, Inc. v. Citigroup Global Markets, Inc., 2014 WL 1243685 (S.D.N.Y. Mar. 26, 2014) (“AAI”).

The litigation in AAI had been pending for over nine years. The plaintiff had sued the defendant for allegedly misappropriating plaintiff’s trade secrets — mathematical models used to determine the present value of mortgage-backed securities with greater accuracy than existing methods. Due to the complexity of the subject matter, discovery dragged on for many years, and it was not until January 17, 2012, that the court fixed May 17, 2012 as the deadline for the plaintiff to submit all expert disclosures required under Rule 26(a)(2) of the Federal Rules of Civil Procedure.

Notwithstanding the court’s deadline, plaintiff attempted to serve a supplemental expert report from Dr. Jianqing Fan (the “Fan Report”) on June 6, 2013 — more than a year after the May 17, 2012 deadline. Defendants moved to strike the Fan Report on the grounds that it was untimely and contained new information and opinions that were not within the scope of either parties’ prior expert disclosures. The court agreed and granted the defendants’ motion.

Undaunted, in opposition to defendants’ subsequent motion for summary judgment, plaintiff incorporated the previously stricken Fan Report into its response. Defendants cried foul, arguing that inclusion of the Fan Report in plaintiff’s opposition paper violated the deadline imposed by the court and Federal Rule 26, thus warranting preclusion of the Fan Report as evidence.

The court once again agreed with the defendants. Citing the requirement in Federal Rule 26 to provide a “complete statement of all opinions” of an expert witness, and to supplement any such disclosures in a “timely manner,” the Court noted that these rules are intended to “prevent the practice of ‘sandbagging’ an opposing party with new evidence.” The sanction for “sandbagging” is spelled out in Federal Rule 37 — the party making an untimely disclosure of expert opinions is precluded from using those opinions as “evidence on a motion, at a hearing, or at a trial.”

To be sure, the court considered mitigating factors that might prevent preclusion. However, it found that none of those factors applied here. For example, the opinions expressed in the Fan Report fell outside the scope of Dr. Fan’s initial expert report. As such, the new material would require discovery to be reopened to afford defendants an opportunity to rebut the new opinions. After eight years of discovery, the Court was not about to allow that to happen.

Several of the plaintiff’s excuses for the untimely disclosures – all rejected by the Court – bordered on the comical (not quite “the dog ate our expert report,” but close). For example, the plaintiff argued that the difficulty of the subject matter prevented timely disclosure of the Fan Report. The court agreed that the subject matter was difficult, but noted that after 8 years of discovery, plaintiff “had more than enough time to get its expert disclosures in on time.”

Plaintiff also contended that Dr. Fan is a “very, very busy [and] very, very expensive” expert and, thus, plaintiff had only been in touch with him “a few times” preceding the close of discovery. The court’s response stated the obvious — “if a retained expert lacks the time to comply with the schedule set by the Court, the party should retain another expert.”

Finally, the court rejected as completely unfounded plaintiff’s allegations that the defendants had committed fraud during discovery by destroying or withholding relevant evidence.

Based on the foregoing, the court precluded the plaintiff from using the Fan Report in opposition to defendant’s motion for summary judgment.

The moral of the story is clear – compliance with court-imposed expert discovery deadlines is not optional, absent mitigating factors identified in the relevant caselaw. And to the extent such mitigating circumstances exist, they should be brought promptly to the court’s attention. And the longer a case drags on, the less patience a court is likely to have for flimsy excuses for non-compliance.

We invite you to share any “war stories” you may have relating to non-compliance with expert discovery deadlines.

via Judge Rejects Flimsy Excuses Re: Expert Disclosure Deadlines.