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The statute of limitations begins to run on a claim for under-insured motorist benefits only when a dispute arises over coverage and not when the right to UIM benefits “vests” due to the settlement of the claim against the under-insured motorist, a federal judge has ruled. In her 10-page opinion in Motorist Mutual Insurance Co. v. Durney, U.S. District Judge Cynthia M. Rufe ruled on a fundamental issue in automobile insurance litigation that has never been addressed by either the Pennsylvania Supreme Court or the 3rd U.S. Circuit Court of Appeals. Forced to predict how the Pennsylvania courts would rule on the issue, Rufe rejected the insurer’s argument that the clock begins to run as soon as a UIM claim is vested by virtue of a settlement with the under-insured motorist. Instead, Rufe said, Pennsylvania would likely “follow well-settled rules of contract law and find that the statute of limitations begins when there is a breach of contract.” The dispute between MMIC and Dale E. Conklin Durney arose from a September 1997 auto accident in which Durney suffered severe injuries when her car was struck by a vehicle driven by Kimberly Poate. Durney had $1 million in UIM coverage — $500,000 in stacked coverage on two vehicles — but Poate had just $35,000 in coverage. According to court papers, Durney notified MMIC that her medical treatment would exceed the limits of Poate’s policy. For more than five years, MMIC claims adjusters corresponded with Durney’s lawyer about her claim, and the lawyer routinely sent the insurer medical records of Durney’s continuing treatment. But MMIC’s lawyers filed a declaratory judgment suit in July 2004 seeking a ruling that the statute of limitations had run on Durney’s UIM claim. Durney responded by filing a petition for arbitration of the claim and by filing a counterclaim for bad faith. Both sides later moved for summary judgment on the statute of limitations issue. MMIC’s lawyer, Stephen A. Scheuerle of Hohn & Scheuerle, argued that the clock began to run in August 1999 when MMIC gave its written consent to Durney’s settlement with Poate and waived any subrogation rights against Poate. Scheuerle argued that MMIC was entitled to summary judgment because Durney “failed to take any action to commence litigation or compel arbitration within the statutory four-year limitation.” But Durney’s lawyer, Mark R. Cuker of Williams Cuker & Berezofsky, argued that Durney was “still actively treating, having undergone 16 operative procedures under anesthesia in the previous three years.” Since there was a $1 million policy in place, Cuker said, “it was not unreasonable as a matter of law for the insured to see whether her condition would reach a medical plateau before she made a settlement demand on MMIC, or demanded arbitration.” Cuker also noted that “MMIC never took issue with this approach.” A ruling in MMIC’s favor, Cuker said, would make for bad public policy. “Requiring the insured to file a petition to compel arbitration while the parties are still evaluating the claim and before they manifest any disagreement would also contravene policies favoring amicable resolution of disputes and waste the financial resources of both insureds and insurers,” Cuker wrote. Rufe agreed, saying Durney could not be expected to begin litigating against her insurer until she knew that it was denying her claim. “MMIC never denied coverage, never advised Durney that she needed to file a legal action or petition for arbitration in order to receive UIM coverage, and never made an offer of coverage that Durney rejected,” Rufe wrote. “Durney’s file was open and active at the time this suit was filed. Durney was never informed that MMIC intended to raise the statute of limitations defense to her UIM claims prior to the filing of this suit,” Rufe wrote. Cuker argued that the vesting date was irrelevant because Durney’s policy provided for arbitration “only when the parties manifest a disagreement” about the amount of UIM coverage owed. MMIC, he said, offered no evidence that there was ever a disagreement about the amount owed and never notified Durney that it was denying coverage or refusing to pay. Instead, Cuker said, MMIC indicated that it was continuing to assess the extent of Durney’s injuries before offering a claim settlement amount. As a result, Cuker said, Durney was unaware of any disagreement between the parties, and had no legal right under the insurance contract to petition to compel arbitration. The statute of limitations began to run, Cuker argued, when Durney first learned of a disagreement, which was when MMIC filed suit. Rufe agreed with Cuker’s reasoning and found that Durney’s petition for arbitration was timely filed. Turning to Durney’s counterclaim for bad faith, Rufe rejected MMIC’s argument that the claim should be dismissed because Durney was represented by a lawyer and MMIC’s non-attorney claims adjusters had no duty to advise the lawyer of the statute of limitations. Cuker argued that the policy language requires “candor” to the insured, and that MMIC’s conduct violated that provision. MMIC acted in bad faith, Cuker argued, when it led Durney to believe it delayed evaluation of the claim until she completed medical treatment, when it really delayed evaluation of the claim until after it believed the statute of limitations had run. Rufe concluded that Durney had a valid bad faith claim. “The parties’ respective positions raise genuine issues of material fact. Therefore, MMIC’s motion for summary judgment on Durney’s counterclaims must be denied,” Rufe wrote.

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