Arizona Court of Appeals Clarifies Statute of Limitations for UIM Claims

State Farm v. Frank
Arizona Court of Appeals
March 21, 2024
JSH Attorneys: Patrick Gorman

In State Farm v. Frank, the Arizona Court of Appeals issued a published opinion regarding the application of A.R.S. § 12-555, which describes the statute of limitations for underinsured motorist (“UIM”) claims.  In Frank, the insured was rear ended by another driver who maintained the state minimum insurance liability limits.  Frank then made a claim with State Farm for UIM coverage under his personal auto policy and personal umbrella policy.  State Farm denied claims under both policies due to them being filed too late. Two lawsuits were filed. In 2019, Frank sued State Farm under both policies. In the second lawsuit, which was on appeal, State Farm sued Frank seeking a declaration that UIM coverage under both policies was time barred under the applicable statute of limitations.

The Court analyzed A.R.S. § 12-555 to determine the statute of limitations period. The Court ruled that if a settlement is not reached on a UIM claim, A.R.S. § 12-555 sets forth a three-step process to resolve if the claim has been timely filed, whether in arbitration or court.  First, A.R.S. § 12-555(B) provides that an insurer is not liable for UIM benefits unless the claimant provides written notice that she has a UIM claim under an insurance policy “within three years after the date of the accident that caused the bodily injury.”  Second, under A.R.S. § 12-555(C)(1), the UIM insurer must give written notice that it will not be liable unless the claimant “request[s] arbitration or file[s] suit pursuant to the terms of the insurance contract within three years” of providing the insurer notice of the UIM claim. The insurer has two years from receiving notice of the UIM claim to provide this written notice.  Third, under A.R.S. § 12-555(C)(2) , if “the person” does not request arbitration or file a lawsuit within three years of providing written notice of a UIM claim, “the insurer is not liable for” UIM benefits.

Applying this three-step process to the facts of the case, the Court of Appeals determined that Frank’s UIM claim under his personal auto policy was barred because he did not request arbitration (as required by the policy) within three years of the date of making the initial claim. Interestingly, State Farm itself requested arbitration during that period of time, but according to the Court, that was insufficient to meet the statute of limitations.  In addition, the Court held that an insurer’s failure to give notice under A.R.S. § 12-555(C)(1) did not extend the limitations period available to make a UIM claim.

The Court reached a different conclusion on Frank’s personal umbrella policy, which did not contain a provision requiring a notice of intent to pursue arbitration.  Rather, the umbrella policy required that the insured file a lawsuit against State Farm within three years of providing notice of the claim if they could not resolve legal entitlement to UIM or the amount of damages in a UIM claim.  The Court ruled the Frank did file suit within the three year period, and therefore his UIM claim under the umbrella policy was not time barred.

Frank is the second recent, published decision from an Arizona court regarding the statute of limitations for a UIM claim.  There are several takeaways from the case, but the most important is that insures may apply their policy language to A.R.S. § 12-555, under the three-step process described above, to determine if an insured has timely made a claim for UIM benefits, whether in arbitration or a lawsuit.