(Insured's Action For Breach of Contract and Bad Faith Against Disability Insurer Not Time-Barred Because, Although Insurer Issued Claim Denial Letter Over Four Years Prior to Action, Insured's Claims Did Not Accrue Until Insurer Ceased Paying Benefits Approximately One Year Before Insured Filed Suit)
(September 2023) - In Bennett v. Ohio National Life Assur. Corp., 92 Cal.App.5th 723 (June 20, 2023), the California First District Court of Appeal reversed summary judgment for Ohio National in a disability insurance matter in which Ohio National argued that the insured's claims for breach of contract and bad faith were barred by the four-year and two-year limitations periods, respective.
Under the plaintiff-insured's disability insurance policies, monthly benefits were payable for life if the insured was totally disabled due to injury; if due to sickness, benefits would only be paid until the age of 65. Ohio National initially approved the plaintiff's January 2014 claim that he was totally disabled due to an injury sustained when thrown from his horse. But on June 8, 2015, Ohio National notified him of its determination that his disability was due to a sickness, not an injury. Ohio National continued to pay disability benefits until September 3, 2018, the policy year Plaintiff turned 65 years old. On August 13, 2019, the plaintiff sued for breach of contract and breach of the implied covenant of good faith and fair dealing.
In granting summary judgment to Ohio National, Marin County Superior Court Judge Andrew E. Sweet concluded that both causes of action accrued when Ohio National issued an unconditional denial of liability on June 8, 2015, not when benefits ceased on September 3, 2018.
On appeal, the Court of Appeal held that claims for breach of contract and bad faith regarding disability insurance payments do not accrue until there is a breach and the plaintiff sustains damages. The Court held that, on the facts at bar, the elements of the plaintiff's causes of action were not complete until September 3, 2018, when Ohio National ceased making its monthly disability payments.
Ohio National argued that, because its June 2015 letter unequivocally denied lifetime benefits, the plaintiff had all the facts necessary to sue at that time. The Court rejected this argument on the grounds that "some actual damages must be incurred before the statute of limitations runs." 92 Cal. App. 5th at 732. Because Ohio National did not actually withhold any benefits until September 3, 2018, the plaintiff's causes of action did not accrue until September 3, 2018. Before then, the plaintiff had no actual damages and therefore no cause of action.
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