American States Ins. Co. v. Laflam

• Decision Date: 17 February 2012
• Docket Number: No. 11–1562.,11–1562.
• Citation: 672 F.3d 38
• Parties: AMERICAN STATES INSURANCE COMPANY, Plaintiff, Appellee, v. Joann LaFLAM, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

672 F.3d 38

AMERICAN STATES INSURANCE COMPANY, Plaintiff, Appellee,

v.Joann LaFLAM, Defendant, Appellant.

No. 11–1562.

United States Court of Appeals, First Circuit.

Heard Dec. 6, 2011.Decided Feb. 17, 2012.

Lauren E. Jones, with whom Robert S. Thurston and Jones Associates were on brief, for appellant.

Anthony R. Leone, II and Leone Law, LLC on brief for Rhode Island Association for Justice, amicus curiae.

Kevin J. Holley, with whom Kevin N. Rolando and Gunning & LaFazia, Inc. were on brief, for appellee.

Before LYNCH, Chief Judge, TORRUELLA and SELYA, Circuit Judges.

LYNCH, Chief Judge.

On April 25, 2007, JoAnn LaFlam was badly injured in an accident in Rhode Island while driving an automobile insured under a policy issued to her employer by American States Insurance Company (ASIC). That policy, subject to certain exclusions and limitations, indemnifies its insureds from injuries caused by negligent uninsured or underinsured motorists. When it became clear that the tortfeasors were underinsured, LaFlam requested and received authorization from ASIC to settle her claims pursuant to Rhode Island's uninsured and underinsured motorist (UM/UIM) insurance statute, R.I. Gen. Laws Ann. § 27–7–2.1.

Within three months of receiving authorization to settle, LaFlam and the tortfeasors agreed to a settlement of $1 million. However, when LaFlam made a claim that ASIC pay the settlement amount under the UM/UIM policy, ASIC refused. Instead, ASIC filed a federal lawsuit seeking a declaratory judgment that LaFlam's claim was too late because it did not comply with the policy requirement that a claim be made within three years after the date of the accident. LaFlam, in turn, counterclaimed that ASIC had breached the contract and that the denial of the claim was in bad faith. The district court granted ASIC's cross-motion for judgment on the pleadings and denied LaFlam's motion for judgment on the pleadings. See Am. States Ins. Co. v. LaFlam, 808 F.Supp.2d 400, 405 (D.R.I.2011). LaFlam appealed.

Our examination of the Rhode Island statutory scheme, the cases interpreting the scheme, and the insurance policy itself persuades us that this appeal turns on unresolved questions of Rhode Island law. We are also persuaded the better course for resolving those questions is to certify the questions to the Rhode Island Supreme Court.

Rhode Island has clearly expressed a strong public policy against insurers using contractual language to limit an insured's recovery under the UM/UIM statute. See, e.g., Rueschemeyer v. Liberty Mut. Ins. Co., 673 A.2d 448, 450 (R.I.1996); DiTata v. Aetna Cas. & Sur. Co., 542 A.2d 245, 247 (R.I.1988). However, the Rhode Island Supreme Court has not had occasion to address whether considerations of public policy bar insurers from (1) imposing a contractual limitations period on UM/UIM claims which is shorter than the ten-year statute of limitations provided by statute, or (2) requiring that the limitations period begin to run on the date of the accident. These two aspects of the ASIC clause at issue, moreover, are interrelated. A short contractual limitations period that begins to run on the date of the accident may operate to bar an insured from recovery before the insured even knows she has a UM/UIM claim.

Because we have found “no controlling precedent” in Rhode Island law to guide us on these issues, we certify the question identified below to the Rhode Island Supreme Court. See R.I. Sup.Ct. R., Art. I, R. 6(a).

I.

The material facts are not in dispute. Nearly one year after the accident, on April 3, 2008, LaFlam, through counsel, sent ASIC notice of a potential claim under ASIC's UM/UIM coverage. ASIC acknowledged the notice on April 23. Between September 2008 and May 2009, ASIC made several requests for additional information, including photographs of the damage to the vehicles and updates regarding LaFlam's medical status, lost wages, and medical bills.

The ASIC insurance contract specified that any insured wishing to settle with a UM/UIM tortfeasor must first request authorization to do so from ASIC. On January 25, 2010, LaFlam requested such authorization to settle her underlying tort claims with the two underinsured tortfeasors responsible for the accident. LaFlam also sent ASIC copies of the policy limit declaration sheets from the tortfeasors' insurers, a copy of the amounts already paid by those insurers, and a copy of the police report. On February 18, 2010, ASIC authorized LaFlam to settle the claims.

Three months later, on May 19, 2010, LaFlam sent ASIC a letter asserting a claim for payment of a settlement amount of $1 million, the ASIC policy limit. LaFlam alleges that ASIC's authorized representative told her not to request arbitration because ASIC was still reviewing the file and would soon make LaFlam an offer. No offer appears to have been made.

On August 25, 2010, ASIC brought this action seeking a declaratory judgment that the three-year limitations provision contained in its UM/UIM policy “precludes LaFlam's present claim for underinsured motorist benefits under the policy.” The three-year contractual limitations period is set out in a provision of the policy entitled, “Legal Action Against Us,” which states:

Any legal action against us under this Coverage Form must be brought within three years after the date of the ‘accident’. However, this [paragraph] does not apply to an ‘insured’ if, within three years after the date of the ‘accident’, we or the ‘insured’ have made a written demand for arbitration in accordance with the provisions of this Coverage Form.

LaFlam counterclaimed for breach of contract and bad faith, arguing that any application of the three-year contractual limitations period was void as against Rhode Island public policy. In response, ASIC moved to sever and stay discovery on LaFlam's counterclaim for bad faith until her breach of contract counterclaim was resolved. Both parties moved under Rule 12(c) for a judgment on the pleadings.

The district court observed that “[a]ny provision that restricts the coverage afforded by [the UM/UIM statute] is ‘void as a matter of public policy.’ ” Am. States, 808 F.Supp.2d at 404 (quoting Casco Indem. Co. v. R.I. Interlocal Risk Mgmt. Trust, 929 F.Supp. 65, 70 (D.R.I.1996), rev'd on other grounds, 113 F.3d 2 (1st Cir.1997)). The court concluded, however, that the three-year contractual limitations period “operates not to restrict coverage, but to fix the time within which an insured may bring legal action against the insurer.” Id. The court noted that the Rhode Island Supreme Court had upheld a one-year contractual limitations period in the fire insurance context, see DiIorio v. Abington Mut. Fire Ins. Co., 121 R.I. 689, 402 A.2d 745 (1979), and a two-year contractual limitations period in the property insurance context, see Hay v. Pawtucket Mut. Ins. Co., 824 A.2d 458 (R.I.2003). The Rhode Island Supreme Court had also upheld a contractual limitations period governing notice of arbitration decisions in the UM/UIM context. See Progressive N. Ins. Co. v. Lyden, 986 A.2d 231 (R.I.2010).

Finally, the district court reasoned that while the Rhode Island General Assembly has governed the period of contractual limitations provisions in other contexts—such as actions for breach of contracts for sale, actions for default under lease contracts, and actions for breach of warranty of quality—it included no such restriction in the UM/UIM statute. Am. States, 808 F.Supp.2d at 404–05 & n. 8.

The district court did not address LaFlam's argument that the contractual limitations period is void as against public policy because it begins to run from the date of the accident, rather than from the date that it becomes clear the insured has a UM/UIM claim.

The district court denied LaFlam's motion for judgment on the pleadings, and granted ASIC's cross-motion. Id. at 405. LaFlam appealed. LaFlam has filed an original motion with this Court requesting that we certify legal questions to the Rhode Island Supreme Court.

II.

We sketch the background to explain our decision to certify. Rhode Island enacted its UM/UIM statute in 1962. See R.I. Gen. Laws Ann. § 27–7–2.1, as enacted by 1962 R.I. Pub. Laws ch. 161, § 1. Rhode Island's UM/UIM statute requires “that in each liability-insurance policy an insurer must provide some minimum protection against property damage and personal injury caused by an uninsured or a hit-and-run motor vehicle for the protection of persons insured thereunder.” Ladouceur v. Hanover Ins. Co., 682 A.2d 467, 469 (R.I.1996); see also R.I. Gen. Laws Ann. § 27–7–2.1. “[T]he purpose of enacting the uninsured-motorist coverage statute was to afford protection to the insured against economic loss resulting from injuries sustained by reason of the negligent operation of uninsured motor vehicles or hit-and-run motor vehicles.” McVicker v. Travelers Ins. Co., 785 A.2d 550, 553–54 (R.I.2001) (quoting Pin Pin H. Su v. Kemper Ins. Cos./Am. Motorists Ins. Co., 431 A.2d 416, 419 (R.I.1981)) (internal quotation marks omitted). “This statute was premised on the concept that responsible motorists who carry liability insurance should not be uncompensated when they are without recourse against an uninsured tortfeasor.” Amica Mut. Ins. Co. v. Streicker, 583 A.2d 550, 553 (R.I.1990). In 1985, the Rhode Island legislature expanded the definition of “uninsured motorist” to include underinsured motorists. Id.

Rhode Island's UM/UIM statute provides that “[a] person entitled to recover [UM/UIM] damages ... shall not be required to make a claim against or bring an action against the uninsured or underinsured tortfeasor as a prerequisite to recover damages from the insurer providing coverage pursuant to this section.” R.I. Gen. Laws Ann. § 27–7–2.1(h). The UM/UIM statute also defaults to Rhode Island's ten-year statute of limitations for civil actions, see id. § 9–1–13(a), and it does not specify when that statute of limitations begins to...