Insurer’s Failure to Use Statutory Limitation Language Expanded Limitations Period Regarding All Claims Related to the Policy

Summary of Blue Shield Of California Life & Health Insurance Company V. The Superior Court Of Los Angeles County (Ct. App. Cal. February 9, 2011) :

Blue Shield approved the claimant’s gastric bypass surgery. Subsequently, it learned that the claimant’s height and weight were incorrect on the policy application. It then rescinded the policy. Claimant sued for breach of contract and tortious breach of the implied covenant of good faith and fair dealing. Blue Shield sought to have the tortious bad faith cause of action dismissed, claiming it was subject to a two-year statute of limitation and thus, time barred. Section 10350.11 of the California Insurance Code requires that health insurance policies contain a provision stating that all actions on a policy must be brought within three years of the date on which written proofs of loss must be furnished. Blue Shield argued that the provision only applied to contractual claims, not tortious claims. Therefore, the tortious bad faith claim was subject to the statutory two year limitations.

Blue Shield’s policy did not adopt the statutory language. The court found it was irrelevant whether a tortious bad faith claim fell outside the statute’s requirements because Blue Shield’s policy provided a limitation that was “far different” from what the statute required. Blue Shield’s policy provided a three year statute of limitations for all claims and “any other matter arising out of this Plan.” The court held because the statute allowed insurers to provide more favorable language to the insured, and the Plan’s language broadly expressly referred to “any other matter,” the policy’s three year statute of limitations applied to the tortious bad faith claim.

Impact: A policy’s language may create obligations for the insurer beyond what statutes require. When a policy’s language is broader, a court will not allow the insurer to look to statutes to limit its obligations.