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The 3D U.S. Circuit Court of Appeals has ruled that the clock does not start running on a claim for underinsured motorist benefits until the insured settles with the adverse driver for less than the value of his damages. State Farm Mutual Automobile Insurance Co. v. Rosenthal, No. 06-2158. The court rejected State Farm’s argument that the statute of limitations should begin to run on the date of the accident. Instead, the court sided with the insured and held that the date of the settlement with the underinsured motorist is the logical time to start the clock. “This approach is practical, in that it gives an insured time to assess his own damages and learn of the adverse driver’s policy limits,” Judge Franklin S. Van Antwerpen wrote on behalf of the panel. “In this way, it eliminates the need for the insured to prematurely file an underinsured motorist claim in order to protect his rights.” Brian Rosenthal, a lawyer, claims he lost $1 million in wages and suffered a loss of $2 million in earning capacity as a result of two accidents in 1998. In 2003, Rosenthal settled with one driver for $85,000 and notified State Farm that he intended to pursue an underinsured motorist (UIM) claim. State Farm consented to the settlement and continued to correspond with Rosenthal’s lawyer about the details of his UIM claim. When Rosenthal demanded arbitration of the claim, the insurer responded by filing a declaratory judgment action seeking a ruling that the statute of limitations had run. U.S. Judge Bruce W. Kauffman of the U.S. District Court for the District of Eastern Pennsylvania ruled in favor of Rosenthal, predicting that the Pennsylvania Supreme Court would not start running the four-year statute of limitations on UIM claims until the insurer denies such a claim. Kauffman adopted the reasoning of U.S. District Judge Cynthia M. Rufe, also of Pennsylvania’s Eastern District, who held in her 2005 decision, Motorist Mutual Insurance Co. v. Durney, that, under contract principles, a cause of action does not “accrue” in the UIM context until the insurer denies the insured’s claim. State Farm insisted that the statute of limitations begins to run on the date of the accident. Rosenthal argued the clock should start running on the date the insured settles with the adverse driver for less than the insured’s damages. Van Antwerpen agreed with Rosenthal. “While these two cases hold that an insured may pursue an underinsured claim immediately after an accident . . . nothing in these cases suggests this is when an insured must pursue such a claim,” he wrote. While Motorist Mutual was premised on the well-established principle of contract law that a cause of action doesn’t accrue until one party to the contract breaches, such an approach failed to take account of the Pennsylvania intermediate appellate court decisions on uninsured motorist (UM) claims. “Given the similarity between uninsured and underinsured claims, we believe these decisions should help guide our analysis,” Van Antwerpen wrote. In the UM context, the appellate court has held that the clock begins to run as soon as the insured knows of the uninsured status of the other owner or operator. In the UIM context, the same logic would call for starting the clock on the date the insured either settles with, or obtains an award from, the adverse driver for less than the value of his damages. “The adoption of this approach harmonizes the law with respect to the statute of limitations involving uninsured and underinsured claims,” Van Antwerpen wrote. “The date on which the statute of limitations begins to run is essentially the same, i.e., the date on which the insured definitively ascertains the deficient insurance status of the adverse driver.”

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