May 17, 2012
Arkansas Statute of Limitations Trumps Insurance Policy Language
Kenneth Graham was blinded in 2005 when a can of Easy-Off oven cleaner exploded in his face. He filed a timely proof of loss with his insurer, and after his insurer denied his claim -- and his appeal -- he filed a breach of contract claim in Federal District Court against his insurer. Mr. Graham's claim was within the five-year statute of limitations (SoL) provided under Arkansas law. However, the District Court dismissed his suit as outside the three-year SoL provided for in the policy.
In Graham v. Hartford Life and Accident Insurance Company, the Eighth Circuit reversed. The District Court had relied on Arkansas cases that permit insurance policies to set reasonable SoLs. However, the Eighth Circuit recognized a significant limitation on insurers' ability to do so:
The general rule announced and applied in Ferguson, Hawkins, and Wilkins has its limitations, however. A contractually shortened period must "not contravene somestatutory requirement or rule based upon public policy." Ferguson, 821 S.W.2d at 32. Graham contends section 23-79-202 of the Arkansas Code, which applies to property and life insurance policies,1 is one such statutory requirement. Graham further contends Hartford's policy provision, shortening the period for him to file suit to a period of less than five years, contravenes the statutory requirement. We agree.
Language in Hartford's policy setting the SoL at something less than five years was void, according to the EIghth Circuit, as inconsistent with subdivision (b) of section 23-79-202 of the Arkansas Code. Hartford argued that the statutory language was intended to encompass the holdings of the earlier case law. The Eighth Circuit was not persuaded. While the Arkansas courts have not yet addressed this issue with respect to Section 202, both the Arkansas Supreme Court and the Eighth Circuit had addressed identical language in a predecessor statute and both had rejected Hartford's argument.
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