Every Texas building owner knows that shortly after a hail or wind storm the doorbell knockers will follow. These doorbell knockers are typically contractors or public adjusters, but may even now be attorneys (or their illegal case-runners), who arrive with promises of riches from the insurance claims process and resulting lawsuits. Often, the doorbell knockers arrive shortly after the storm. But sometimes they arrive many years after the storm and long after the building owner has already filed and resolved its insurance claim.

So how long do these doorbell knockers trolling for lawsuits have to resurrect previously resolved and closed claims?

In the Texas first-party property insurance context, the Texas Insurance Code and Deceptive Trade Practices Act specifically provide that policyholders must bring claims for insurance code violations within two years. The Texas Supreme Court has long held that causes of action under the insurance code and DTPA start, or accrue, when an insurer denies a claim.[1] This appears cut and dried at first blush. Yet, despite the statutory directive and Texas Supreme Court’s instruction regarding accrual, much litigation has ensued. This litigation has attempted to further flush out an unwittingly ambiguous issue.

The Statutory Scheme

Texas Insurance Code § 541.162 contains the statutory limitation periods. It provides: “[a]ctions must be brought before the second anniversary of 1) the date the unfair method of competition or unfair or deceptive act or practice occurred, or 2) the date the person discovered, or by the exercise of reasonable diligence, should have discovered, that the unfair method of competition or deceptive act or practice occurred.”

Easy translation: suit for an alleged bad act must be brought either two years after the alleged bad act actually occurred, or two years after an insured knew or should have known it occurred.

An accompanying Deceptive Trade Practices tie-in statute is located at Texas Business & Commerce Code § 17.565. It provides: “[a]ll actions must be commenced within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered or in the exercise of reasonable diligence should have discovered the occurrence of the false, misleading, or deceptive act or practice.” It still seems easy. The DTPA fits with the Texas Insurance Code with respect to the time frame for filing suit. Nonetheless, an abundance of case law makes clear the provisions are not as well-defined as they appear.

The General Case Law Analysis

The Texas Supreme Court’s original holding that the statute of limitations begins to run when a claim is denied provided incomplete direction on this topic. Thus, the Texas Supreme Court, as well as other Texas courts, has offered the following additional guidance to further define the scope of the issue:

• Even if damage continues after an insurer’s initial denial, the statutory period continues to run.[2]
• Filing of suit does not interrupt the statutory period unless due diligence is exercised in the issuance and service of citation.[3]
• A denial letter need not use the word “denial,” it must only explain the reasons the claim is not being paid. There are no magic words an insurer must use.[4]
• When the insurer denies a claim for a second time following an insured’s provision of additional information for reconsideration of a first denial, the statute of limitations begins at the first denial. It is not reset.[5]
• When there is no outright denial of coverage, an exact accrual date is on a case-by-case basis.[6]

The above are only a sample of the numerous opinions expounding upon the accrual issue.

De Jongh vs. State Farm — More Clarity

The rule that causes of action under the Texas Insurance Code and DTPA accrue when an insurer denies a claim may feel like there should be a denial letter involved. The Texas Supreme Court has not explicitly addressed this issue, but the Fifth Circuit Court of Appeals issued De Jongh v. State Farm Lloyds in November 2016, finding that a written denial was not required to start the limitations clock.[7]

De Jongh involved a claim for wind and hail damage from a storm in April 2012. An adjuster found no storm damage. The insurer noted its intention to deny the claim in its file on June 11 and 12, 2012, also referencing a denial letter. It closed its file altogether on July 12, 2012. Following a reinspection in August 2012, a second adjuster identified previously overlooked damage. Because the damage amount was under the deductible, the insurer did not issue any payment. Instead, it again closed its file, and sent a letter on Aug. 23, 2012 to explain the absence of payment. The insured alleged the August 2012 letter was the only letter he received.

The insured filed suit in November 2012 for breach of contract, insurance code violations, and violations of the DTPA. Due to a procedural defect, a take-nothing judgment was entered in February 2013. The insured did not sue the proper insurer until July 14, 2014. When sued, the insurer filed a motion for summary judgment, asserting the breach of contract claims were barred by the limitations clause in the policy (two years and one day), and the insurance code and DTPA claims were barred by the statutes of limitation (two years each).[8] The district court granted the insurer’s motion.

For ease of reading, below is a timeline of relevant events:

• May 2012: claim filed for April 2012 wind/hail damage
• June 11-12: insurer noted intention to deny claim and referenced denial letter in its file
• July 12, 2012: insurer closed its file
• Aug. 17, 2012: insured requested reinspection
• Aug. 20, 2012: insurer reopened its file
• Aug. 23, 2012: second adjuster identified previously overlooked damage, no payment issued
• Aug. 23, 2012: insurer sent letter to the insured explaining the reason for no payment despite identification of new damage
• November 2012: insured filed suit for breach of contract, insurance code violations and violations of the DTPA;
• December 2012; insurer removed to federal court
• Feb. 27, 2013: take nothing judgment entered in favor of insurer because the wrong insurer entity was named
• July 14, 2014: insured amended petition to include proper insurer; insurer removed to federal court and moved for summary judgment on the basis that all claims were time-barred

The Fifth Circuit agreed that the insured’s insurance code and DTPA claims were barred by the applicable statutes of limitation. 

In its analysis, the Fifth Circuit cited longstanding Texas precedent regarding accrual of claims in first-party cases: a cause of action accrues when an insurer denies coverage. Of all the events in the above timeline, the court noted the italicized event was pivotal. In doing so, it agreed with the insurer that by closing the insured’s file on July 12, 2012, the insurer unequivocally denied coverage and triggered the limitations clock. Relying on cases from the Southern District of Texas, the Corpus Christi Court of Appeals, and the 14th District Court of Appeals in Houston, it stated: “Admittedly, the accrual date is often tied to a written notice of denial. However, courts have used the claim closure date as the accrual date where there is no notice of denial.”[9] The Fifth Circuit saw no need to deviate from these cases. 

The court also addressed the fact that the claim was reopened for investigation at the insured’s request, noting: “The accrual date remains unchanged, even though [the insurer] reopened the claim … Requesting that an insurance company reinvestigate a closed file does not in and of itself reset the limitations clock.”[10] 

De Jongh appears to not only comport with generally established Texas precedent, but it also supports the idea that the Texas Insurance Code and DTPA statutes of limitation should be enforced as drafted. In the first-party insurance context, this means an insured cannot rest on the premise that it did not receive a denial letter in an effort to avoid or extend the limitations clock. It is evident more than just a written denial letter can trigger the statute of limitations in an appropriate circumstance. Utilizing the date on which an insurer closes its file as an alternative in the event there is no written denial tasks the insured with the responsibility of staying abreast of his or her claim.

De Jongh is an important decision as it provides clarity as to how long an insured has to file a bad faith lawsuit. This is particularly important in the current litigious Texas first-party claims environment where contractors, public adjusters and even attorneys troll building owners long after a claim is resolved for purposes of reopening claims and generating lawsuits. De Jongh should bring an outside window to this process. Initially, De Jongh clarifies that the insurance company is not at risk of “renewing” the statute of limitations by taking a good faith look at the supplemental claim. So the troller’s strategy of getting the insurance company to extend the statute of limitations by responding to the supplemental claim will prove ineffective. More importantly, De Jongh provides clarity as to the date on which the statute of limitations runs for closed claims: when the claim was paid or denied as measured.

The lawsuit trollers will now need to get their calendars out.

[1] Celtic Life Insurance Co. v. Coats, 885 S.W.2d 96, 100 (Tex. 1994).

[2] Murray v. San Jacinto Agency Inc., 800 S.W.2d 826, 832 (Tex. 1990).

[3] Rigo Mfg. Co. v. Thomas, 458 S.W.2d 180, 182 (Tex. 1970).

[4] Provident Life & Health Insurance Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003).

[5] Pace v. Travelers Lloyds of Tex. Insurance Co., 162 S.W.3d 632 (Tex.App. – Houston [14th Dist.] 2005, no pet.)

[6] Murray, 800 S.W.2d at 832.

[7] See De Jongh v. State Farm Lloyds, 2016 WL 7009088 (5th Cir. Nov. 30, 2016) (per curiam) (not designated for publication)

[8] Id. at *2. (Citing Tex. Insurance Code Ann. § 541.162; Tex. Civ. Prac. & Rem. Code Ann. § 16.003(a); Provident Life & Accident Insurance Co. v. Knott, 128 S.W.3d 211, 220-21 (Tex. 2003)).

[9] Id. at *3.

[10] Id.