In McDonald v. Farm Bureau Ins. Co., 2008 WL 1810169 (Mich.), the Supreme Court of Michigan answered the questions of whether a contractual limitations period in an insurance policy was tolled from the time a claim was made until the insurance company denied the claim; and, if it was not, whether the limitations period could be avoided under the doctrines of waiver or estoppel.

 

In McDonald, the plaintiff was injured in an automobile accident in November, 2001. Although the policy under which she was covered included UIM coverage, it contained an endorsement that provided: “No claimant may bring a legal action against the company more than one year after the date of the accident.” The policy also had a clause prohibiting the insured from settling without defendant's written consent, and stating that defendant “shall be obligated” to respond within 30 days to the insured's request to settle.

 

The insured brought an action against the UIM carrier after the expiration of the contractual one-year limitations period. The circuit court granted the insured's summary disposition motion and the carrier appealed. The court of appeals affirmed, and the carrier's application for leave to appeal was granted.

 

The Supreme Court reversed and remanded, holding that the one-year period for bringing legal action against the carrier after the accident was not automatically tolled by filing a claim (this abrogated West v. Farm Bureau Gen. Ins. Co. of Michigan, 723 N.W.2d 589). And, the period was valid when the parties entered into the contract before the Office of Financial and Insurance Services prohibited limitations periods of less than three years. Finally, the “legal action” within the meaning of the limitations period was the lawsuit and the carrier was not equitably estopped from relying on the period.

 

In its decision, the court explained that delays allegedly caused by the UIM carrier in settling the claim did not equitably estop the carrier from relying on the one-year contractual limitations period known to the insured's attorney, as the insured did not rely on anything the carrier said or did, and the insured's attorney pursued the UIM claim and received permission to settle with the tortfeasor before the expiration of the period.

 

The court stated that the insured's reliance on the Michigan Supreme Court decision in Tom Thomas Org., Inc. v. Reliance Ins. Co., 396 Mich. 588 (1976), and the delay in bringing suit because she thought the one-year contractual limitations was tolled, were not reasons to estop the UIM carrier from relying on the period because the carrier's acts or representations did not induce the delay.

 

Further, the court explained that its decision in Rory v. Continental Ins. Co., 473 Mich. 457 (2005), which overruled Tom Thomas on the automatic tolling of contractual limitations period in insurance policy when a claim was filed, could be applied retroactively to a claim by an insured whose attorney acknowledged the deadline and did not rely on the overruled decision.

 

Therefore, the court held that there is no automatic tolling when a claim is filed unless the contract so provided. Although, the court explained, traditional contract doctrines such as waiver and estoppel could apply when the facts supported them, in the present case the plaintiff did not show that she relied on any misconduct by the defendant. Thus, the defendant could not be estopped from applying the limitations period to plaintiff's claim.