The Complex Relationship Between An Insurer And An Insured

The relationship between an insurer and an insured is difficult to describe. In part, it is contractual in nature, because the insurance agreement between the insurer and the insured is a written contract. However, it is not purely contractual, which often results in somewhat unexpected outcomes in what seem to be normal legal situations.

DO INSURERS OWE A FIDUCIARY DUTY TO THEIR INSUREDS?

Idaho courts have for years pointed out that contracts between an insurer and an insured are adhesion contracts, as they are not subject to negotiation. See Howard v. Oregon Mut. Ins. Co., 137 Idaho 214, 217, 46 P.3d 510, 513 (2002). Thus, there are rules regarding interpretation of insurance contracts that do not typically apply to other contracts. There are also duties placed on insurers that do not typically arise in other contractual relationships. For example, for Chief Justice Roger Burdick indicated that insurers have a quasi-fiduciary relationship with their insureds. Cedillo v. Farmers Ins. Co., 163 Idaho 131, 140, 408 P.3d 886, 895 (2017) (Burdick, C.J., dissenting). See also Taylor v. Riley, 162 Idaho 692, 701, 403 P.3d 636, 645 (2017) (holding a potential fiduciary relationship exists between an insurer and an insured). Fiduciary relationships give rise to duties that sound in tort, not contract. See Skinner v. U.S. Bank Home Mortg., 159 Idaho 642, 647, 365 P.3d 398, 403 (2016). The complex nature of this relationship creates odd rules that apply to insurers in ways that may not match up with other contractual situations. 

INSURERS SHOULD BE AWARE OF THE TIME OF PERFORMANCE IN UM AND UIM CLAIMS

One of these odd situations is the statute of limitations that applies to uninsured motorist (UM) and underinsured motorist (UIM) claims. These types of claims are made by an insured against their insurer when a tortfeasor either has no insurance or insufficient insurance to cover the damages caused by an accident. Under normal situations, the five-year statute of limitations, contained in Idaho Code § 5-216, begins running on a contract cause of action when there is a breach of the contract. Cuevas v. Barraza, 146 Idaho 511, 517, 198 P.3d 740, 746 (Ct. App. 2008). For most contracts, this occurs at the time of performance, which typically has a deadline built into the contract. However, this is not particularly true for UIM contracts. The question then arises, what is the time of performance? 

For most UIM claims, performance by the insurer occurs when payment is made on the UIM claim. Idaho Code § 41-1839 builds inherent timelines into UIM claims. Under that statute, an insurer is supposed to pay the amount justly due within 60 days of receipt of the proof of loss provided by the insured. However, there is no timeline when the proof of loss must be provided. 

INSURERS SHOULD CONSIDER WHETHER THEY HAVE A TIME REQUIREMENT FOR PROVIDING PROOF OF LOSS

Proof of loss could be provided days, years, or even decades after the accident. The Idaho Supreme Court agreed with this principle in Klein v. Farmers Ins. Co. of Idaho, 165 Idaho 832, 834, 453 P.3d 266, 268 (2019), where the Idaho Supreme Court affirmed that the date of accrual runs from the date of breach, or in other words, the date where the insurance company fails to pay the amount justly due. Under this rule, there is essentially an indefinite statute of limitations on UIM claims in Idaho, and an insured may bring such claim any time within five years after the proof of loss has been rejected or unsatisfactorily paid. 

While there is no case law resolving the time by which an insured must provide a proof of loss, perhaps the answer is as simple as putting a date for providing a proof of loss in the insurance contract itself. 

INSIGHTS FOR GF CLIENTS

The Idaho Supreme Court has indicated that an insurance contract may specify the proof of loss be in a particular form. See Greenough v. Farm Bureau Mut. Ins. Co. of Idaho, 142 Idaho 589, 593, 130 P.3d 1127, 1131 (2006). Perhaps this rule could stretch to include deadlines in the contract by which the proof of loss must be provided. As one authority suggests, it is common for insurance contracts to include, “the degree of promptness required in giving notice.” Rule that reasonable time allowed, 13 Couch on Ins. § 190:88. Thus, a reasonable solution is simply to require that UIM proofs of loss be made within a certain number of days or years after the accident, or such claim will be barred. 

Please contact a Gjording Fouser lawyer at 208.336.9777 if you would like any additional information about this topic or any other issues facing your company.