STRINE, Chief Justice:
The resolution of this appeal turns on a single issue: When does a claim that an insurer acted in bad faith by failing to settle a third-party insurance claim accrue for purposes of the statute of limitations? Christina Connelly — who appeals the Superior Court's dismissal of her claim against State Farm Mutual Automobile Insurance Company — contends that a claim accrues only when the insured suffers a judgment in excess of policy limits, and that judgment becomes final and non-appealable. State Farm counters that the claim accrues when the insurer allegedly
Although this Court has never addressed that precise issue, courts in other states that have considered it, and the weight of expert authority on insurance law, are in accord that a bad-faith failure-to-settle claim accrues when an excess judgment becomes final and non-appealable. That approach conserves litigant and judicial resources. It also properly aligns the incentives of the insurer and its insured by allowing them to join efforts in defending the underlying third-party insurance claim without a stayed breach-of-contract claim causing a conflict of interest between them. Further, to state a claim that the insurer breached its implied duty to act in good faith, the insured must plead damages, which she cannot do before there is a final excess judgment against her.
The majority position is also consistent with Delaware courts' traditional approach to indemnity claims, which are analogous to insurance claims in that both involve a contractual obligation to compensate the indemnified party that arises only once certain conditions are met, and in both cases requires that the underlying cause of action must be resolved and the indemnified party must suffer a loss before the indemnifying party is required to cover the indemnified party's liability. That approach avoids premature suits that may never need to be brought, and ensures that litigation ensues only when necessary and when the key facts are settled.
In view of these considerations, we find that a claim against an insurer for acting in bad faith by failing to settle a third-party insurance claim accrues when an excess judgment against an insured becomes final and non-appealable. Accordingly, we reverse the Superior Court's decision.
The incident that led to this action happened on October 12, 2007, when Ronald Brown rear-ended Connelly's Chevrolet Cavalier with his Dodge Caravan. Brown was insured under a State Farm policy that provided automobile liability coverage of $100,000 per person and $300,000 per occurrence. When Connelly sued Brown for injuries she suffered as a result of the car crash, State Farm provided Brown legal counsel in accordance with his policy. Under the policy, State Farm had the exclusive right to control defense strategy and settlement.
On May 10, 2011, Connelly offered to settle her case against Brown for $35,000. State Farm rejected the offer and required Brown to defend Connelly's claim at trial. State Farm and Brown also stipulated that "Brown admits his negligence was the proximate cause of this October 12, 2007 automobile accident."
After the jury verdict, Brown and Connelly filed four post-trial motions.
On September 3, 2014, Connelly brought a claim against State Farm and Brown as Brown's judgment creditor. In her complaint, Connelly pled that "State Farm acted in bad faith, maliciously and without any reasonable justification, when it refused to settle [her] claim against its insured for a payment that was only 35% of the policy limit coverage purchased by [Brown]."
After State Farm moved to dismiss Connelly's complaint for lack of standing, on March 3, 2015, Connelly obtained an assignment of Brown's rights to pursue legal action against State Farm. Connelly then moved to amend her complaint to reflect Brown's assignment, which the Superior Court granted on April 2, 2015.
On July 22, 2015, the Superior Court granted State Farm's motion to dismiss Connelly's claims. In considering when the statute of limitations began to run, the trial court placed importance on Connelly's allegations as to when State Farm breached its contractual duties.
"Whether a complaint is barred by a statute of limitations is a question of law that we review de novo."
A duty of good faith and fair dealing is implied in every contract.
Connelly claims that State Farm breached its duty to Brown and acted in bad faith by refusing a $35,000 settlement offer, which was substantially below Brown's $100,000 policy limit. She asks us to adopt the majority position that a claim against the insurer for bad-faith failure to settle accrues only once there is a judgment in excess of policy limits against the insured and that judgment can no longer be appealed. Connelly points out that the majority position is based on sound policy because the excess judgment is speculative until it becomes final, and because an earlier statute of limitations would cause a conflict of interest between the insurer and the insured, and would waste judicial resources. Finally, Connelly asserts that had Brown brought a claim against State Farm before there was an excess judgment, the action would have likely been dismissed as premature.
By contrast, State Farm contends that the claim against State Farm for bad-faith failure to settle accrued either on May 10, 2011 when it refused to accept Connelly's settlement offer, or thirty days later when the offer expired. To support its position, State Farm primarily cites Delaware cases outside of the insurance context in which our courts have held that claims of breach of fiduciary duty, tort, or breach of contract, accrued at the time of the alleged wrongful act or breach.
Although we have never addressed the issue of when a claim that the insurer acted in bad faith by rejecting a settlement offer accrues, decisions of our sister state courts have and they provide helpful insights in addressing what position our state should embrace.
The majority rule — that a bad-faith failure-to-settle claim against an insurer accrues only once there is a final and non-appealable judgment — advances several important policy objectives. First, the majority rule reduces the possibility of a conflict of interest between the insurer and the insured. If we were to accept State Farm's position, an insured would have to bring a cause of action against the insurer while expecting the insurer to zealously defend her interests in the underlying insurance
In pressing its argument that Delaware should adopt a different approach than the one taken by other states, State Farm is largely unable to call on relevant precedent to buttress its position.
Admittedly, State Farm and the Superior Court both relied on an earlier unpublished decision of the Superior Court in Hostetter v. Hartford Insurance Co., which supports State Farm's position and appears to hold that a third-party's claim that an insurer breached its implied duty of good faith to the insured accrued for statute of limitations purposes when the third party learned that the insurer refused to cover or defend her claim.
As to that issue, we note, by way of analogy, that Delaware courts have followed the settled principle — which is reflected in our corporate code
Insurance claims are a type of indemnity claim because in both cases, the obligation
For these reasons, we hold that a claim that an insurer acted in bad faith when it refused to settle a third-party insurance claim accrues when an excess judgment against an insured becomes final and non-appealable.
Thus, Brown's bad-faith failure-to-settle claim against State Farm, which was later assigned to Connelly, accrued when Brown's opportunity to appeal the excess judgment against him expired. Accordingly, we reverse the Superior Court's judgment that dismissed Connelly's complaint as untimely.
State Farm also cites Worrel v. Farmers Bank of State of Delaware, where this Court found that a "claim for recovery of a deficiency balance for [a debtor's] breach of the sales-debt instrument accrued and the four-year limitation ... began to run from the date following debtor's default...." 430 A.2d 469, 470 (Del. 1981).
Finally, State Farm cites Albert v. Alex Management Services, Inc., where the Court of Chancery found that "[a] cause of action accrues under 10 Del. C. § 8106 at the time of the wrongful act, even if the plaintiff is ignorant of the cause of action" in the context of addressing claims against fund managers for breach of fiduciary duties, breach of contract, fraud, negligence, unjust enrichment, and conspiracy. 2005 WL 1594085, at *13 (Del. Ch. June 29, 2005).
We note that a minority of jurisdictions have extended the time for accrual of a bad-faith failure-to-settle claim even further and held that a claim accrues only when the insured actually pays the excess judgment. See, e.g., Am. Mut. Liab. Ins. Co. of Bos., Mass. v. Cooper, 61 F.2d 446, 448 (5th Cir.1932) ("The cause of action did not accrue until the judgment in favor of [the injured party] was affirmed by the Supreme Court of Alabama and was satisfied by [the insured]...."); see also STEPHEN S. ASHLEY, BAD FAITH ACTIONS LIABILITY & DAMAGES § 3:36 (2d ed. 1997), Westlaw (database updated September 2015) ("A few courts have held that the insured must pay the excess judgment before suing the insurer for bad faith.... Most courts, however, take the view that the insured acquires a cause of action against an insurer guilty of bad faith as soon as an excess judgment against him becomes final and need not first pay the excess judgment."); id. § 7:6 ("[A] minority [of courts] follow the rule that the limitations period begins to run when the judgment is satisfied.").
But, the competing policy reason that has led most courts to determine that payment of the excess judgment is not a prerequisite to bringing a claim against the insurer, is that an insured should not have to pay a judgment that was caused by the insurer's bad-faith actions in violation of a duty that the insurer owed to the insured, just to recover that amount from the insurer. See, e.g., 63 A.L.R.3d 631, supra note 12 ("Courts have stated that it would be unjust to require as a condition of obtaining relief that the insured pay a judgment, the wrongful imposition of which constitutes the gravamen of his complaint."); 1 LEO P. MARTINEZ ET AL., NEW APPLEMAN INSURANCE LAW PRACTICE GUIDE § 6.08[e] (2015) ("[M]ost courts have not required that [the excess] judgment [has] been satisfied by the insured as a pre-condition to suing the insurer....").