The team at Dodson Parker Behm & Capparella, PC shares updates and thoughts on developments in the law.

Insurance Company Can’t Have It Both Ways, Estopped From Statute of Limitations Defense

November 7, 2016

In the recent case of Clark  v. Powers, the Tennessee Court of Appeals determined that an insurance company couldn’t avoid liability under a statute of limitations defense by arguing lack of service of process when it had allowed a co-defendant to enter into a written agreement to delay service.  

The lawsuit arose from a car accident that occurred on July 6, 2012.  Plaintiffs Sandra and Sandy Clark filed suit against Christopher Powers, alleging that Powers was at fault for the accident.  The plaintiffs served Allstate Insurance Company, their uninsured/underinsured motorist carrier.  Plaintiff’s counsel also sent a copy of the complaint to Powers’ insurer, The General Insurance.

Plaintiff’s counsel and The General began to engage in settlement negotiations.  They agreed in correspondence that Mr. Powers would not be served with the complaint unless and until they were unable to settle the lawsuit.

The General tendered the $25,000 policy limits, contingent upon Allstate’s release of its subrogation rights.  Plaintiff’s UM carrier responded by agreeing to “front” the limits of The General policy in order to preserve its subrogation rights in accordance with Tenn. Code Ann. § 56-7-1206(k).

The case remained pending through 2014 and into 2015, with Allstate noting via correspondence that its “investigation is continuing.”  Meanwhile, the summons issued for Powers was never returned to the trial court and Plaintiffs never requested to have the summons reissued within one year of its initial issuance in accordance with Tenn. R. Civ. P. 3.  On January 26, 2015, Powers filed a motion to dismiss based upon the lack of service of process.  Allstate filed a similar motion to dismiss on March 26, 2015.

The trial court considered the motions to be motions for summary judgment because matters outside the pleadings were presented, and asked the parties to submit statements of material facts.  Plaintiff’s counsel submitted an affidavit asserting that there had been an agreement with counsel for The General that Powers would not be served “unless negotiations stopped and The General Insurance hired counsel to begin the litigation process.”  No opposing affidavits on behalf of Powers or Allstate were submitted.

The trial court denied the motions, concluding that plaintiff’s counsel and The General had a clear agreement regarding forbearance of service and that this agreement applied with equal force to Allstate.  An interlocutory appeal ensued.

Ruling

The parties did not dispute that Mr. Powers was not served with process prior to the expiration of ninety days following the issuance of process.  Nor was it disputed that new process was not issued within one year.  Powers argued that the statute of limitations had expired regarding the claims against him, so the lawsuit should be dismissed.  Allstate argued that because Powers was never served, there can be no liability imposed upon Allstate as the plaintiff’s UM carrier.

Plaintiffs’ central argument was that Powers and Allstate should be equitably estopped from relying upon the statute of limitations as a defense because of the agreement that Powers would not be served while settlement negotiations were ongoing.  Moreover, plaintiffs contended that Allstate, though not a party to this agreement, was bound by the agreement because it had agreed to front The General’s policy limits without objecting to the lack of service of process on Powers.

The Court reviewed relevant case law and ultimately agreed with plaintiffs.   The existence of the forbearance agreement estops Powers from relying on the statute of limitations defense.  In addition, neither Powers nor Allstate challenged the existence or terms of this agreement by offering any countervailing proof at the motion for summary judgment.  No settlement agreement was ever reached between the parties and all parties were properly apprised of the status of the litigation.  Thus, the trial court correctly denied summary judgment.

The trial court was affirmed and the case was remanded for further proceedings.

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