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(Article from Insurance Law Alert, January 2019)

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The Delaware Supreme Court rejected a policyholder’s assertion that a statutory bad faith claim does not accrue until a coverage determination is made, finding instead that accrual occurs when the policyholder could have pled damages under the relevant statute.  Homeland Ins. Co. of N.Y. v. Corvel Corp., 2018 WL 6061261 (Del. Nov. 20, 2018).

CorVel, a national Preferred Provider Organization network operator, sued Homeland Insurance, alleging statutory bad faith pursuant to a Louisiana statute that provides that an insurer that knowingly misrepresents pertinent facts or policy provisions shall be liable for damages sustained by the insured.  See La. R.S. 22:1973.  The bad faith claim was based on Homeland’s alleged misrepresentations in a declaratory judgment action filed against CorVel.  A Delaware superior court found that CorVel had established bad faith under the relevant Louisiana statute and awarded it approximately $9 million in damages (the amount of CorVel’s underlying settlement payment), together with $4.5 million in penalties.  The Delaware Supreme Court reversed.

The Delaware Supreme Court ruled that the bad faith claim was barred by the applicable three-year statute of limitations under Delaware law.  The statute, 10 Del. C. § 8106, requires a claim to be brought within three years “from the accruing of the cause of such action.”  The lower court held that the bad faith claim did not accrue until a court had made a coverage determination, which was within the three-year period.  Rejecting this reasoning, the Delaware Supreme Court concluded that CorVel could have pled damages on the date upon which it settled the underlying claims, which was nearly four years before it alleged bad faith.