A few months later, on April 25, 2011, Ms. Klein resolved her claim against Mr. Hale for $25,000, that is, the full liability insurance limit from Allstate.

On November 7, 2012, Ms. Klein submitted a demand letter and accompanying UIM package to Farmers, demanding $250,000 in UIM benefits under her policy.

Approximately one month later, Farmers issued a check to Ms. Klein for $75,000 for the undisputed portion of her UIM benefits.

Ms. Klein cashed the check. Nevertheless, her claim with Farmers remained open. In an email from Farmers dated December 13, 2012, the Farmers adjuster acknowledged "that [the $75,000 payment] does not resolve the UIM claim. I did make this offer to resolve the claim but there has not been any signed release from your client and I will be keeping the claim open."

For the next few years, Farmers continued to contact Ms. Klein and her prior attorney – who negotiated the settlement with Allstate – to finalize the claim but, according to Farmers, it rarely received any response in return.

On July 7, 2016, Ms. Klein's new attorney, Kenneth Lyon, contacted Farmers, indicating that Ms. Klein had hired his firm to "resolve her outstanding underinsured motorist claim."

Farmers responded on August 12, 2016, stating that it was prepared to respond to any demand for payment within 60 days of receipt of proof of loss.

On February 7, 2017, Ms. Klein provided Farmers with a supplemental demand packet.

On April 4, 2017, Farmers' adjuster confirmed receipt of the supplemental demand and indicated that he had completed his evaluation. The adjuster also requested a two-week extension to respond to the supplemental demand as his supervisors reviewed the evaluation of Ms. Klein's claim. Ms. Klein agreed to the extension.

When the two-week extension passed, Ms. Klein reached out to Farmers for an update.

Farmers informed Ms. Klein that her claim was barred by the statute of limitations and invited Ms. Klein to participate in mediation to resolve her claim.

The parties later participated in mediation, but they were unsuccessful in reaching a resolution. Subsequently, Ms. Klein informed Farmers that the issue would need to be resolved through arbitration pursuant to the terms of her policy. Ms. Klein sent a letter to Farmers putting it on notice that she "intended to seek pre-judgment/pre-arbitration interest and attorney fees . . . unless other alternatives would be reached."

Farmers interpreted this as a demand for arbitration, and informed Ms. Klein that it was seeking permission to file a declaratory action to resolve the statute of limitations question.

On November 22, 2017, Ms. Klein sued Farmers.

Farmers moved for summary judgment, asserting that Ms. Klein's suit was barred by the applicable five-year statute of limitations. Farmers asserted that the statute of limitations had begun to run on either the date of the accident or the date Ms. Klein settled Mr. Hale, both of which had occurred more than five years prior to the day Ms. Klein filed her complaint.

The trial court denied the motion, finding that Ms. Klein's action was not time barred, and the dispute reached the Idaho Supreme Court.

The Idaho Supreme Court's Decision

The court affirmed.

In its decision, the court explained that, under Idaho law, an action on a written contract must be initiated within five years. It then considered whether, pursuant to that statute, the accrual date for the statute of limitations on a UIM claim began on the day:

(1) The insurance company breached its contract with the insured;

(2) The insured reached a settlement or obtained a judgment against the third party tortfeasor; or

(3) The accident occurred.

The court then pointed out that although each accrual rule has been applied in various jurisdictions, the majority of jurisdictions deciding this issue have applied the "breach of contract" rule.

The court reasoned that the Farmers policy was "a written contract," Ms. Klein's claim for UIM benefits concerned a right bestowed by the contract, and the essence of the relationship between Farmers and Ms. Klein was "defined by the terms of the contract."

The court added that, "[p]erhaps most importantly," the "breach of contract" rule provides the court with "an actual justiciable controversy" – a fundamental precursor to any lawsuit.

Moreover, the court continued, the "breach of contract" rule "corresponds well with existing Idaho case law," which mandates that "[a] cause of action accrues and the statute of limitations begins to run when a cause of action exists."

The court concluded that the "breach of contract" rule did not bar Ms. Klein's claim on timeliness grounds, and it affirmed the trial court decision denying Farmers' motion for summary judgment.

The case is Klein v. Farmers Ins. Co., No. 46314 (Idaho Nov. 26, 2019). Attorneys involved include: Cooper & Larsen, Pocatello, for Appellant. Gary Cooper argued. Law Office of Kenneth E. Lyon, III, Reno, Nevada, for Respondent. Kenneth E. Lyon, III argued.