Noland v. Virginia Insurance Reciprocal: Powerful New Tools in West Virginia Bad Faith Defense

September 30, 2009

Frost Brown Todd members Greg Mitchell and Jim McQueen recently helped obtain an important victory for the insurance industry. In Noland v. Virginia Insurance Reciprocal, et al., the West Virginia Supreme Court of Appeals announced two new syllabus points which will serve as powerful tools in the defense of first-party bad faith actions in West Virginia. According to the Court:

Syllabus Point 4: The one year statute of limitations contained in W. Va. Code § 55-2-12(c) (1959) (Repl. Vol. 2008) applies to a common law bad faith claim.

Syllabus Point 5: In a first-party bad faith claim that is based upon an insurer's refusal to defend, and is brought under W. Va. Code § 33-11-4(9) (2002) (Repl. Vol. 2006) and/or as a common law bad faith claim, the statute of limitations begins to run on the claim when the insured knows or reasonably should have known that the insurer refused to defend him or her in an action.

It was clear before Noland that a statutory first-party bad faith claim is governed by a one year statute of limitations. Before the Court announced its opinion in Noland, however, no such clarity existed regarding first-party common law claims. In confirming that common law claims are governed by the same one-year statute of limitations, the Court has provided relief to insurers trying to examine their potential extra-contractual exposure.

More important, Noland also provides strong support for the insurance industry by limiting the time period in which first-party bad faith claims -- whether statutory or contractual -- may be brought in connection with a refusal to defend. Unlike other first-party bad faith claims, which are stayed until the underlying claim resolves, bad-faith claims arising out of an allegedly wrongful failure to defend must be brought within one year of when the purported insured knew or should have known that it was not going to be defended.

In reaching its decision, the Court relied upon rulings from other jurisdictions in which insureds had assigned their right to sue for non-defense to the underlying plaintiff in exchange for a release. Because such agreements are generally not made within one year of the denial of the defense, such a practice will likely not occur in West Virginia. Particularly when read in conjunction with the Court's decision in Strahin v. Sullivan, the Noland decision is a potentially powerful tool in limiting an insurer's extra-contractual exposure.

If you would like a copy of the Noland decision or would like to discuss any aspect of Frost Brown Todd's insurance practice, please do not hesitate to contact any member of Frost Brown Todd's Tort Defense and Insurance Practice Group or click here to visit its website.