November 24, 2011
On Monday, the Indiana Court of Appeals described a new test to be used to determine the availability of equitable estoppel in
Davis v. Shelter Ins. Cos., ___ N.E.2d ___ (Ind. Ct. App. 2011), Cause No. 02A05-1105-CT-256. The Court described this test as an emerging national trend. What is it? Read on.
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A plaintiff was injured in an automobile accident and spoke at various times with the tortfeasor's insurer about various issues. More than two years after the accident, the plaintiff retained counsel for the first time and filed a complaint. The defendant moved to dismiss based on the statute of limitations. The plaintiff argued that the defendant was equitably estopped from raising the statute of limitations as a defense, but the trial court granted the defendant's motion.
On appeal, the Court looked to cases from around the country that have applied the doctrine of equitable estoppel in similar situations. The Court used this case review to create a two-part test for determining the availability of equitable estoppel.
This analysis of both Indiana and national case law indicates that while not explicitly stated, a two-part test has emerged to determine the availability of equitable estoppel. The first part of the test, drawing on the national case law, is to determine whether the insurer has engaged in any of the following: (1) a promise to settle; (2) discouraging the claimant from filing suit; (3) discouraging the claimant from obtaining counsel; or (4) otherwise egregious conduct. If one of those behaviors is present, then the court will engage in the second part of the test by looking at the totality of the circumstances surrounding the insurer's actions. Equitable estoppel will be available to the claimant when the circumstances surrounding the insurer's conduct have induced the claimant to delay timely action and the claimant's reliance on the insurer's statements or actions was reasonable.
In this case, equitable estoppel was not available because the insurer did not commit any of the four acts described by the Court above.
State Farm's only action at issue in this case was to tell Davis to contact them when she was done with her medical treatment. This conduct can hardly be considered egregious and should not have overridden Davis's common sense that she needed to actively pursue her claim with State Farm. As a result, this claim fails the first prong of the test, making equitable estoppel unavailable.
Even if the first prong of the test had been satisfied, Davis still would not have an equitable estoppel argument based on the second prong of the test. Considering the totality of the circumstances, including the fact that Davis was not represented by counsel during her conversations with State Farm and the fact that State Farm would not suffer prejudice from the application of equitable estoppel, this is not a situation in which the doctrine of equitable estoppel is appropriate. First, State Farm's conduct did not induce Davis to delay timely action. The statement from State Farm that is at the center of this case was one indicating that Davis should not contact them until she was done with treatment. This is not sufficient to constitute behavior that delays timely action of a claim. Second, Davis's reliance on the statements made by State Farm was not reasonable; an exercise of common sense and judgment would have prompted Davis to pursue her claim for her medical bills despite the one statement made by State Farm. As a result, this case also fails the second prong of the equitable estoppel test. The trial court was therefore correct in granting summary judgment to State Farm and Culver.
As a practical matter, the two parts of the Court's test seem to overlap. Under the Court's rationale, the reasons why the insurer's conduct is not sufficiently egregious under the first part of the test are the same reasons why the conduct does not meet the totality of the circumstances prong of the test. Thus, it is questionable whether this is really a two-part test. One time, and subsequent cases, will tell.
Lessons:
- Equitable estoppel to estop an insurer from making a statute of limitations defense will be available when (1) the insurer has engaged in egregious conduct and (2) that conduct has induced a claimant to delay time action and the claimant's reliance on that conduct was reasonable.
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