Nebraska Supreme Court's Ruling on Insurance Policy Limitation Periods: Key Takeaways.

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).

Legally Entitled to Recover? The case of Geerdes v. West Bend Mutual Insurance Company

The case Geerdes v. West Bend Mutual Insurance Company was decided by the United States Court of Appeals for the Eighth Circuit on June 20, 2023. The decision helps interpret the phrase "legally entitled to recover" under Iowa insurance law. In 2018, Iowa residents Gregg Geerdes and Mary Murphy (“Plaintiffs”) purchased home and automobile insurance from West Bend. The policy covered Plaintiffs as well as their son. The following year, Plaintiff’s son tragically died from injuries he sustained while a passenger on a charter bus that crashed in British Columbia, Canada. The charter bus’s insurance paid all the no-fault motorist insurance benefits that it was legally obligated to pay under the policy. Plaintiffs did not sue the bus company as personal jurisdiction for any such action would be in British Columbia. Plaintiffs did however sue West Bend seeking uninsured/underinsured benefits and additional umbrella coverage they believed they were entitled to under their policy. The West Bend Policy states policyholders are entitled to uninsured/underinsured coverage for payment of compensatory damages for bodily injury caused by an accident that an insured is “legally entitled to recover from the owner or operator.” However, Iowa case law states the benefits plaintiffs are entitled to recover from uninsured/underinsured umbrella policies are limited to the amount they would be able to recover in a tort action against the tortfeasor where the accident occurred or in the tortfeasors’ home state. Applying this law, the District Court dismissed the case via summary judgment because Plaintiffs are not “legally entitled to recover” under British Columbia law as it does not permit recovery of non-economic damages.

On appeal, Plaintiffs contended that Iowa law requires the court to interpret the phrase “legally entitled to recover” liberally, not literally. Plaintiffs introduced cases where Iowa courts have found plaintiffs were “legally entitled to recover” damages from the tortfeasor even when they may not have been able to in the tortfeasor’s home state or in the state the injury occurred. The Eighth Circuit explained that these circumstances occurred when plaintiffs were being precluded from recovery based on procedural law, not substantive law.

British Columbia’s substantive law does not permit recovery for non-economic damages. Thus, the Eighth Circuit Court affirmed the District Court's judgment, concluding that Plaintiffs were not “legally entitled to recover” and therefore the policy did not award coverage.

The Eighth Circuit’s opinion should catch the eye of Iowa insurers when it comes to how “legally entitled to recover” is interpreted and applied.

Erickson|Sederstrom Law Clerk Emily Todd assisted with drafting this article and her help is greatly appreciated.