On October 6, 2023, the Nebraska Supreme Court issued an opinion further supporting freedom to contract and held that a choice of law provision in an insurance policy controlled resulting in the application of a two-year contract limitation period.

Teresa Rose of Carter Lake, Iowa, was injured when the vehicle she was driving was struck by an under-insured motorist on February 3, 2018. The car Rose was driving belonged to her boyfriend, Christopher Stark, a Nebraska resident. Rose was insured under her sister’s American Family auto policy at the time of the accident. Following the accident, Rose settled with the at-fault motorist’s insurer and Stark’s insurer. Rose then attempted to claim underinsured benefits under the American Family Policy but was denied.

Rose attempted to sue American Family following the denial of benefits; however, the insurance contract stated, “any suit against [American Family] will be barred unless commenced within two years from the date of the accident.” In addition to the two-year limitation, the Policy contained a choice of law provision that stated any disputes would be governed by the laws of the state shown in the declaration of residence, which in this case, was Carter Lake, Iowa.

The district court for Douglas County determined that Iowa courts have expressed a strong public policy in favor of freedom to contract, including enforcing an underinsured motorist policy that contained a two-year limitation on actions, and thus, determined Rose’s claim time-barred. Rose appealed.

The Supreme Court analyzed the district court’s finding, stating that Rose’s claim, although based on the car accident which is a tort, actually arose out of the insurance policy, which is a contract. Because of this, contract law was applied, along with it the public policy encouraging freedom to contract which supports adherence to the black-letter terms of the policy. As the Policy terms stated, Iowa law was to be applied, and as Iowa law has historically supported a two-year limitation period for an uninsured motorist claim, that is the rule of law that the Nebraska court applied. Further, although Nebraska law has a five-year statute of limitations for contracts, Nebraska’s limitation was not found to prohibit contractual limitation periods arising from policies issued in other states, just those policies issued in Nebraska. Ultimately, the Nebraska Supreme Court affirmed the order of the district court.

Rose v. American Family Insurance Co. provides important insight not only into how far one’s freedom to contract extends but also what to keep in mind when working with insurance policies that may reach over state lines.

See Rose v. American Family Ins. Co., 315 Neb. 302 (2023).