Contractual Limitation Defense: Using Equitable Estoppel against Tennessee Insurance Policies

Seven years ago, Merlin Law group attorney Shane Smith wrote a blog post on how insurance policies often shorten Tennessee’s statutory limitations.¹ The statute of limitations as applied to contracts is stated in Tenn. Code Ann. § 28-3-109(a)(3) and limits the time in which an insured may bring suit against their insurance company to six years. Shane noted that Tennessee courts have held that shortening how soon a case must be brought before a court from six years to one year remains valid Tennessee law and enforceable under any Tennessee insurance policy. But what if this one-year limitation has expired? Is there anything an insured can do? Fortunately, there is!

To overcome this contractual limitation, an equitable estoppel argument could be successful. In Imperial Park, LLC v. Penn-Start Insurance Company, the insureds make a number of arguments in response to the insurance company’s Motion for Summary Judgment barring recovery on the contractual limitation—one of which is equitable estoppel. The standard for determining whether equitable estoppel is applicable is as follows:

Where by promises or appearances one party is induced to believe that the other party is going to pay a claim or otherwise satisfy the claims of the first party, and in reliance on that representation that fist party delays filing suit within the applicable statute of limitations, the party making the representation may be estopped to raise the statute of limitations as a defense.²

In Imperial Park, the insurance company continued to negotiate with the insured before, during, and after the contractual limitations date. The court found that this continued negotiation led the insureds to believe that the parties were working on a resolution. The continued negotiations served as the inducement, on which the insureds relied in not bring suit within the contractual limitation. On this reasoning, the court held that the insurance company is estopped from raising the limitations argument.

Another Tennessee case is Certain Underwriter’s at Lloyd’s of London v. Transcarriers. Here, the insurance company never actually denied the claim and stated that they were continuing to investigate the claim.³ The appellate court side-stepped the issue by stating whether the contractual limitations defense is estopped is a finding of fact for the trial court that is not before them now; however, in dicta, the court did note that:

The insurer may also be estopped from asserting the limitations period as a defense where it has mislead the insured into believing its claim will be paid, thereby lulling the insured into inaction, or where the insurer intentionally delayed adjustment of the claim until after the limitations period had expired.⁴

Alternatively, in Das v. State Farm Fire and Casualty Company, the Tennessee Supreme Court denied a petition where the appellate court held that renewing discussions of coverage after denial did not toll or reinitiate the contractual limitations in the insurance policy.⁵ The court found that “there is no evidence that the defendant [the insurance company] requested a delay in suit or that plaintiffs [the insureds] were induced to delay their suit by the agreement of the defendant.”⁶ The insurance company merely agreed that the insureds could seek additional inspections at their own costs, which is not enough to satisfy the inducement requirement. However, the court does note that if the additional report had been delayed pasted the contractual limitations date, inducement might exist.

Also, an insured cannot just sit and wait for the insurance company to act. In Brick Church Transmission, Inc. v. Southern Pilot Insurance Company, insureds also raised the estoppel argument in response to a contractual limitations provision in the policy, but the court found no basis for estoppel based on the record.⁷ The court noted that the record noted no action by the insureds or the insurance company for the previous 23 months before the contractual limitations expired.

Equitable estoppel is a fairness doctrine that seeks to prevent one party (the insurance company) from taking advantage of the other party (the insured) through words or conduct. The availability of the equitable estoppel defense in any given case is very fact-dependent and not particularly favored in courts. But such defense may save an otherwise dead case from a Motion to Dismiss.
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¹ Shane Smith. Policy language which shortens the Tennessee statute of limitations. Property Ins. Coverage Law Blog. Jan. 19, 2014. https://www.propertyinsurancecoveragelaw.com/2014/01/articles/insurance/policy-language-which-shortens-the-tennessee-statute-of-limitations/
² Imperial Park, LLC v. Penn-Start Ins. Co., 133 F.Supp.3d 1003, 1027-28 (M.D. Tenn., 2015), quoting Sparks v. Metro Gov’t of Nashville, 771 S.W.2d 430 (Tenn. Ct. App. 1989).
³ Certain Underwriter’s at Lloyd’s of London v. Transcarriers Inc., 107 S.W.3d 496, 500 (Tenn. Ct. App., 2002), citing Das v. State Farm Fire & Cas. Co., 713 S.W.2d 318, 323 (Tenn. Ct .App. 1986).
4 Id.
⁵ Das v. State Farm Fire and Cas. Co., 713 S.W.2d 318 (Tenn. Ct. App. 1986).
⁶ Id. at 323.
⁷ Brick Church Transmission, Inc. v. Southern Pilot Ins. Co., 140 S.W.3d 324 (Tenn. Ct. App. 2003).