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A federal district court in Georgia has refused to dismiss asuntimely a lawsuit against State Farm Fire and Casualty Companyalleging that it failed to pay for “diminished value” under ahomeowners' insurance policy. The court found that the plaintiffshad plausibly alleged that the insurer had waived the policy'sone-year suit limitations period. This is the second recentdistrict court decision to reach this conclusion.

The case

Tonya and Jason Long filed a lawsuit against State Farm Fire andCasualty Company on behalf of themselves and others similarlysituated for State Farm's alleged refusal to assess and pay fordiminished value when its insureds claimed losses covered undertheir State Farm homeowners' insurance policies.

According to the Longs' complaint, on April 28, 2014, their home“suffered wind and/or hail damage,” an event that was covered undertheir State Farm homeowners' insurance policy. The Longs timelyreported the loss to State Farm, and State Farm adjusted theirclaim, authorized repairs, and subsequently paid certain repaircosts.

But, the Longs said in their complaint, despite the repairs, asa result of the wind and hail damage to the property, the fairmarket value of the property was diminished. They claimed thatState Farm failed to perform an assessment for diminution in thefair market value of the property and failed to compensate them forthe diminution in value loss. The Longs asserted that by failing toaccount for diminution in value as an element of loss and byfailing to pay the diminution in value of their property State Farmbreached their policy, entitling the Longs to damages, injunctiverelief, or both.

State Farm argued that the Longs' claim was barred by acontractual limitations period in their homeowners' policy. Inparticular, State Farm argued that the Longs' complaint was barredbecause it was filed on Jan. 25, 2017, almost three years after theloss.

For their part, the Longs argued that State Farm had waived thelimitation, which, even if not sufficiently alleged in theiroriginal complaint, was sufficiently alleged in the proposedamended complaint that they tried to file.

The State Farm policy stated that no action could be broughtunless the insured was in compliance with the policy provisions andthat any suit had to be brought within one year after the date ofloss or damage.

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What the court said

The district court granted the Longs' motion for leave to amendtheir complaint and denied State Farm's motion to dismiss.

In its decision on the motions, the district court reasoned thatthe Longs had plausibly alleged that State Farm had waived theone-year suit limitation provision in its policy.

The district court noted that the Longs contended that:

— State Farm had waived the limitation provision by acceptingliability on the Longs' claim and making payments on it without anymention of, or adjustment for, diminished value in an attempt to“run[] out the clock on its insureds by purposefully concealing itslegal and contractual duty to assess for diminution in value.”

— State Farm's acceptance of liability without any mention ofdiminished value was, in light of State Farm's practice ofexplaining all relevant coverage, calculated to lull the Longs andsimilarly situated insureds into believing that their claim wouldbe paid in full without the need to bring suit, as was State Farm'spolicy of remaining silent on the issue of diminished value unlessdiminished value were “affirmatively raised by an insured.”

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The court then ruled that the Longs' proposed amended complaintalleged facts that “plausibly support[ed] these arguments,”including the following:

— State Farm accepted the Longs' claim as a covered event underthe policy.

— State Farm adjusted the claim arising out of the loss,authorized repairs to the Longs' home, and subsequently paidcertain repair costs.

— State Farm assured the Longs that their claim was progressingtoward conclusion without notifying them that State Farm would notassess for diminution in value and either pay it or deny itsexistence as required by Georgia law.

— State Farm never indicated that any portion of the Longs' losswas not covered despite having “an internal policy on how to avoidwaiver of a contractual provision, which requires claims handlersto put an insured on notice if there is a question regardingcoverage.”

— State Farm was obligated to explain to insureds if there wasno coverage and, if there was coverage, some assessment ofdamage.

— State Farm's actions were part of a “policy of concealing fromits insureds its duty to assess for diminution in value and paydiminution in value when found.”

The district court rejected State Farm's argument that theLongs' proposed amended complaint's additional allegations as toState Farm's general practices and guidelines had “no connectionwhatsoever” to the Longs or the facts of their individual claim. Inthe district court's view, the policies and procedures were“relevant to show how State Farm acted in relation to the Longs.”It reasoned that the Longs alleged that State Farm had beenaccepting coverage for claims, paying claims, and communicating toits insureds what was purported to be a full disclosure of theircoverage, but simply omitting any mention of diminished value.

The district court found that it was “reasonable” to infer thatState Farm, in an effort to avoid two Georgia Supreme Court rulingsregarding diminished value, did this to “sleep” the claims throughthe limitations period. The district court said that if this wereproven true, it was “clear” under Georgia law that State Farm couldnot raise the limitations period in defense to the Longs' claimsbecause it plausibly could be inferred that State Farm may havewaived the one-year limitation.

The case is Long v. State Farm Fire and CasualtyCo.

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FC&S Legal Comment

This is the second recent Georgia federal court decisioninvolving State Farm reaching the same conclusion on the same issuein similar circumstances.

In Thompson v. State Farm Fire and Cas. Ins. Co., StateFarm moved for summary judgment, arguing that all claims with adate of loss more than one year prior to the filing of the lawsuitwere barred by the one-year limitations provision in insureds'policies. State Farm claimed that its actions could not, as amatter of law, constitute waiver according to Georgia law.

The district court in the Thompson case denied StateFarm's motion, finding “genuine disputes of material fact as towhether State Farm waived the policies' one-year contractuallimitations period” on a record similar to the Longs' allegations.The district court ruled that, under Georgia law, a jury could findthat “State Farm's actions and conduct, when taken together andconsidered as a whole, may amount to an intentional relinquishmentof a known right.”

Another court in the Middle District of Georgia, hearing adiminished value case (Morrow v. Allstate IndemnityCompany), recently denied the insurance company's motion todismiss for failure to state a claim when the plaintiffs amendedtheir complaint to allege conduct similar to the actions the Longsalleged State Farm had taken, thereby waiving the contractuallimitations period.

Related: Hail insurance claims jumped 48% in 2016

Steven A. Meyerowitz, Esq., is the directorof FC&S Legal, the editor-in-chief of the InsuranceCoverage Law Report, and the founder and president of MeyerowitzCommunications Inc. Email him at [email protected].