March 22, 2005
This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey’s Litigation Report: Insurance Bad Faith, Vol. 18, #22, p. 31 (March 22, 2005). © Copyright Butler 2005.
Imagine your insured is at fault in an accident that kills her and causes devastating injury to another individual. You (the insurer) fail to meet a settlement demand within policy limits. Liability is clear and excess exposure is inevitable. The claimant files a civil lawsuit naming the “estate” of the insured as the defendant. However, the estate of the insured is not set up yet. Having no entity to actually serve with the complaint, the claimant petitions the probate court for administration of the decedent’s estate, has a personal representative appointed, and immediately serves legal process on that representative. A multi-million dollar excess judgment is obtained in the civil action.
So the insurer is going to get hit hard, right? Perhaps, . . . perhaps not.
Does your state’s probate code require that a “claim” against the decedent be filed in the probate court within a specified period of time after the decedent’s death? If the claimant fails to timely file a claim against the decedent’s estate in the probate court, the claimant may not be able to use that excess judgment in a bad faith action against the decedent’s insurer.
I. Nonclaim Statutes
Most states have jurisdictional statutes of “nonclaim” which generally require that all claims be brought against a decedent within a specified time following the decedent’s death. This leaves the responsibility to a claimant to be mindful of the nonclaim deadline, to set up an estate (if one is not already created), and to timely file a notice of claim. Nonclaim statutes frequently define what is meant by a “claim” and usually require that a technical “Statement of Claim” be filed in the decedent’s estate. However, a “Statement of Claim” generally cannot be filed when the decedent’s estate has not been set up in the probate court. If a decedent’s estate is not established and/or the claim not filed within the prescribed period, then the claimant may be barred from any recovery against the decedent.
A common exception in nonclaim statutes allows an untimely claim to be brought, but only to the extent of insurance limits. A claimant who brings an action against a decedent’s estate solely to obtain an excess judgment as a prerequisite to sue its insurer for bad faith may be in for a rude awakening. If the claimant failed to timely present a claim in the probate proceeding, the insurer may
II. Can An Untimely Probate Claim Be Revived?
A claimant may try desperately to resuscitate an untimely probate claim to pursue an excess judgment and proceed with a bad faith action.
||The Court May Not Extend The Time For Filing A Claim If The Nonclaim Statute Is Jurisdictional
In the absence of any statutory authorization, a court may not extend the time for filing a claim fixed by the nonclaim statute. A probate nonclaim statute generally sets an absolute jurisdictional deadline beyond which no claim against an estate may be entertained. Failure to strictly comply may preclude a claim altogether. The public policy behind the jurisdictional nonclaim statutes is to provide finality and speedy resolution to the administration of an estate. A probate court generally has no jurisdiction to enlarge the time period under a nonclaim statute as it would “frustrate the obvious purpose underlying [the statute] to provide an absolute bar date on the estate’s liability. . . .” The time periods set forth in probate nonclaim statutes are generally not subject to waiver or equitable tolling. While some states will allow equitable tolling or waiver for fraud or other misconduct, other nonclaim statutes do not permit the time for filing a claim to be extended for any reason whatsoever.
||Filing A Civil Lawsuit Within The Probate Nonclaim Time Period May Not Suffice As A “Claim” In The Probate Court
Your state’s probate code may specifically define a “claim” and detail the procedure for filing one. Technical compliance may be strictly required. Filing a lawsuit outside of the probate action is not the equivalent of a “claim” under the nonclaim statute. Even a personal representative’s knowledge of a claim against the estate is not a probate “claim.”
||If The Excess Judgment Is Not Binding On The Estate Of The Insured, Then It Is Not Binding On The Decedent’s Insurer
Uncollectible judgments are commonly used to reach an insurer in a third-party bad faith scenario. An early view in the law of insurer bad faith provided that the insured is not damaged unless he or she had the ability to pay an excess judgment. If the insured could not pay the excess amount, then no actionable bad faith could exist. This “payment rule,” as it became known, has been abandoned in most states. The more prevalent “judgment rule” allows the claimant to proceed with a bad faith action against an insurer as soon as an excess judgment is entered against its insured. The insured’s insolvency is no defense because the judgment is binding, albeit uncollectible.
This “judgment rule” is intended to prevent the bad faith practice of an insurer refusing to settle simply because of an insured’s insolvency. Many courts find that the entry of an excess judgment itself is damage enough to the insured, whether collectible or not, to reach an insurer for bad faith exposure. Therefore, a majority of jurisdictions have held that an excess judgment against a decedent’s estate, collectible or not, may be used as the vehicle upon which a claimant may bring a bad faith action against an insurer.
However, jurisdictional time lines set forth in the probate codes typically insulate a decedent’s estate from liability in excess of casualty insurance limits. The estate is not liable because a binding excess judgment cannot be entered. This is different from a binding – albeit uncollectible – judgment being entered. No bad faith cause of action against an insurer for failure to settle within policy limits accrues where the excess judgment is not binding on (as opposed to uncollectible from) the estate.
||The Nonclaim Statutes Are Generally Not Subject To Waiver By The Estate
A personal representative cannot waive the requirement for timely presentation of claims. A nonclaim statute, unlike a statute of limitations, is not subject to equitable tolling. The failure of a personal representative to object in a probate proceeding to a creditor’s notice of claim does not waive the statute’s timeliness requirements for a notice of claim. Depending on the wording of the probate code in your jurisdiction, this may not apply to claims brought against an estate to recover up to the decedent’s liability insurance coverage limits. Therefore, an untimely claim against a decedent’s estate may be permitted to proceed, but only to recover up to the limits of defendant’s liability coverage. Either way, both the estate and the insurer will not be liable in excess of policy limits.
III. Conclusion and Recommendations
Most states have a jurisdictional statute of “nonclaim” which requires that all claims be brought against a decedent within a specified time period. When a claim not filed within the prescribed nonclaim period, then the claimant may be barred from recovery in excess of casualty insurance limits against the decedent’s estate. The estate is thus insulated from any judgment that exceeds policy limits. Indeed, when a claimant’s estate is insulated from excess exposure, an insurer may also avert excess exposure.
The “nonclaim” statutes usually start the time period for bringing a claim from the date of the decedent’s death. It is the responsibility of the claimant to establish an estate and file a claim within nonclaim deadline. If no estate is set up and/or no claim is brought against the decedent before the nonclaim time period expires, then the claimant may be barred from any claim beyond casualty insurance limits.
In the defense of an insured decedent faced with a liability claim which may exceed policy limits, an insurer (and the insured’s defense counsel) should be mindful of the following:
||Look not only for statutes of limitations, but also for statutes of nonclaim. A jurisdictional time limit in the probate code for bringing a claim against a decedent and the failure of a claimant to follow the statutory procedural requirements may insulate the estate and the insurer from any liability in excess exposure.
||Determine whether a probate proceeding for the insured has been timely commenced by an interested party. It is NOT the insurer’s responsibility, since doing so would expose the estate to potential claims, which is clearly not in the best interest of the insured. The responsibility for setting up an estate in which to present a claim is the responsibility of the claimant.
||Determine whether a timely Statement of Claim has been presented in the probate proceeding. If not, then consider petitioning the probate court to have all claims limited to policy limits.
||If the nonclaim time period for bringing a claim against a decedent’s estate has lapsed, but a liability action is nevertheless initiated, then consider asserting the probate nonclaim defense not only in the probate proceeding, but also in the liability matter to prevent the entry of an excess judgment.
Do not be deterred from aggressively defending against excess exposure, even if the claimant presents arguments in an attempt to circumvent his or her failure to comply with the probate statutes. Remember, statutes of nonclaim are more stringent than statutes of limitations. Their requirements are often set in stone. The probate statute of nonclaim is based on an important public policy interest – to ensure the speedy administration of probate estates. The courts vigorously defend this principle of public policy.
- Nonclaim statutes commonly provide that all claims are barred within a specified time after decedent’s death, whether or not an estate of the decedent is set up. See, e.g., ALA. CODE § 43—2—350 (Alabama); ALASKA STAT. § 13.16.460 (Alaska); ARIZ. REV. STAT. § 14—3803 (Arizona); ARK. CODE ANN. § 28—50—101 (Arkansas); COLO. REV. STAT. § 15—12—803 (Colorado); CONN. GEN. STAT. § 45a-395 (Connecticut); DEL. CODE ANN. 12 § 2102 (Delaware); FLA. STAT. §§ 733.702; 733.710 (Florida); GA. CODE ANN. § 9—3—90 (Georgia); HAW. REV. STAT. § 560:3—803 (Hawaii); IDAHO CODE § 1—535803 (Idaho); 755 ILL. COMP. STAT. 5/18—12 (Illinois); IND. CODE § 29—1—14—1 (Indiana); IOWA CODE § 633.410 (Iowa); KAN. STAT. § 59—2239 (Kansas); KY. REV. STAT. ANN. § 396.011 (Kentucky); ME. REV. STAT. ANN. 18 § 3—803 (Maine); MD. CODE ANN., Estates and Trusts, § 8—103 (Maryland); MICH. COMP. LAWS § 700.3803 (Michigan); MINN. STAT. § 524.3—803 (Minnesota); MISS. CODE ANN. § 91—7—151 (Mississippi); MO. REV. STAT. § 473.360 (Missouri); MONT. CODE ANN. § 72—3—803 (Montana); NEB. REV. STAT. § 30—2485 (Nebraska); NEV. REV. STAT. § 147.040 (Nevada); N.M. STAT. ANN. 1978 §§ 45—3—803 (New Mexico); N.C. GEN. STAT. § 28A—19—3 (North Carolina); N.D. CENT. CODE § 30.1—19—03 (North Dakota); OHIO REV. CODE ANN. § 2117.06 (Ohio); OR. REV. STAT. § 115.005 (Oregon); R.I. GEN. LAWS § 33—11—14 (Rhode Island); S.D. CODIFIED LAWS § 29A—3—803 (South Dakota); TENN. CODE ANN. § 30—2—310 (Tennessee); UTAH CODE ANN. § 75—3—803 (Utah); VT. STAT. ANN. 14 § 1203 (Vermont); WASH. REV. CODE §§ 11.40.020; 11.40.040; 11.40.070; 11.40.051 (Washington); WIS. STAT. § 859.02 (Wisconsin).
- See, e.g., McCoy’s, Inc. v. Garner, 315 S.E.2d 812, 813 (S.C. App. 1984) (holding that the nonclaim statute bars all claims which are not timely filed against an estate); In re Estate of Speaker, 603 N.E.2d 1194 (Ill. App. 1992)(holding that claimant’s personal injury claim is not barred by expiration of nonclaim statute, but only to the extent of available insurance limits, whether or not the available limits were listed in the inventory of estate).
- See, e.g., 755 ILL. COMP. STAT. 5/18—12(c) (Illinois)(“This [nonclaim statute] does not bar actions to establish liability of the decedent to the extent the estate is protected by liability insurance.”); See also, May v. Illinois Nat’l Ins. Co., 771 So. 2d 1143 (Fla. 2000)(holding that neither the decedent’s estate, the personal representative, if any, nor the beneficiaries were liable for a judgment beyond what was available in insurance limits since a valid claim had not been filed against the decedent’s estate within two years of the decedent’s death, even though the personal representative knew of the claim, and allowed the liability action to proceed to judgment against the decedent’s estate).
- See, e.g., May v. Illinois Nat’l Ins. Co., 771 So. 2d 1143 (Fla. 2000). May involved a two car automobile accident in which the tortfeasor was killed. The claimant, in the midst of failing to properly file a claim against the decedent in the probate court, obtained a consent to liability and an excess judgment. The claimant, by assignment, proceeded to bring an action for bad faith against the decedent’s insurer. The court found that since the excess judgment was entered in violation of the probate code, it could not be used to reach the insurer for bad faith.
- See, e.g., Estate of Staples, 672 A.2d 99 (Me. 1996); May v. Illinois Nat’l Ins. Co., 771 So. 2d 1143 (Fla. 2000).
- See, e.g., Comerica Bank and Trust, F.S.B. v. SDI Operating Partners, LP., 673 So. 2d 163 (Fla. App. 1996).
- See, e.g., May v. Illinois Nat’l Ins. Co., 771 So. 2d 1143 (Fla. 2000); State v. Probate Court of Hennepin County, 177 N. W. 354, 355 (Minn. 1920).
- Comerica, 673 So. 2d at 166.
- See, e.g., In re Estate of Ongaro, 973 P.2d 660 (Colo. App. 1998), reh’g denied, cert. granted, aff’d, 998 P.2d 1097 (Colo. 2000)(holding that the statutory one-year time limit for bringing a claim against a decedent’s estate could not be tolled, even when the personal representative had personal knowledge of the claim which was not asserted within the time limit because the statute was a nonclaim statute and as such tolling would conflict with the purpose of Colorado’s Probate Code to promote a speedy and efficient settlement of estates and their distribution to successors); Burnett v. Villaneuve, 685 N.E.2d 1103, 1110 (Ind. App. 1997)(holding that the nonclaim statute is not subject to equitable tolling).
- In re Estate of Reynolds, 970 P.2d 537 (Kan. 1998)(holding that the nonclaim statute may be tolled for fraud or some other form of unconscionable conduct).
- See, e.g., Comerica, 673 So. 2d at 167 (finding the nonclaim statute is to be self executing, providing absolute immunity to claims filed beyond the nonclaim time period which may not be extended for fraud or estoppel).
- See, e.g., Ivory v. Fitzpatrick, 445 So. 2d 262, 265 (Ala. 1984)(holding that even though the claimant had filed complaint for wrongful death within the applicable statute of limitations for wrongful death, since the claimant did not file a claim in the probate proceeding within the six month nonclaim period, claimant’s action could not be maintained); Clarke v. Organ, 329 S.W.2d 670, 673 (Mo. 1959) (stating that the nonclaim statute bars all claims, whether filed in the probate court or instituted in the circuit court, unless the claim or the required notice of suit or copies of the process and return are timely filed in the probate court); Smith v. Maynard, 339 S.W.2d 737 (Mo. 1960) (finding that the nonclaim statutes allow a civil suit to be conducted and concluded when a “claim” has not been filed in the probate court, but prohibit collection on any judgment against the estate).
- Ivory v. Fitzpatrick, 445 So. 2d at 266; Comerica Bank and Trust, F.S.B. v. SDI Operating Partners, LP, 673 So. 2d 163 (Fla. App. 1996); But cf., Spohr v. Berryman, 589 So. 2d 225 (Fla. 1991)(holding that the filing of a complaint outside of the probate proceeding is not the same as bringing a “claim” in the probate proceeding for purposes of Florida Statutes Section 733.702—a probate statute of limitations).
- See, e.g., Levantino v. Ins. Co. of North America, 422 N.Y.S.2d 995, 999 (NY Sup. Ct. 1979).
- See, e.g., Carter v. Pioneer Mut. Cas. Co., 423 N.E.2d 188, 190—91(Ohio 1981)(reasoning that entry of judgment against an insured is damage enough, whether collectible or not, and is sufficient for a bad faith cause of action) and cases cited therein.
- See, e.g., Carter v. Pioneer Mut. Cas. Co., 423 N.E.2d 188, 190—92 (Ohio 1981)(reasoning that the insolvency of an insured or his estate should not excuse the insurer from exercising the same good faith it would be expected to exercise were the insured fully financially responsible).
- See, e.g., Wolfberg v. Prudence Mut. Cas. Co., 240 N.E.2d 176, 180 (Ill. App. 1968)(reasoning that if payment or demonstration of the ability to pay was required before a bad faith action could accrue, then an insurer may be encouraged to refuse to settle a claim if an insured is insolvent); But cf., Stockdale v. Jamison, 330 N.W.2d 389 (Mich. 1982)(holding assignees of default judgment against insured were entitled to recover same amount from insurer in a bad faith action that insured would have recovered had the insured brought an action to recover damages for the breach, that is, the amount measured by loss the insured would have suffered had assignees attempted to enforce their judgments against him); Levantino v. Ins. Co. of North America, 422 N.Y.S.2d 995, 1002 (N.Y. Sup. Ct. 1979)(holding that if an insured becomes insolvent or petitions for bankruptcy in the face of an excess judgment, then the judgment rule applies; if, however, the insured were insolvent beforehand, then the payment rule applies.)
- See, e.g., Carter v. Pioneer Mut. Cas. Co., 423 N.E.2d 188, 190—91 (Ohio 1981) and cases therein.
- See, e.g., Carter v. Pioneer Mut. Cas. Co., 423 N.E.2d 188, 191 (Ohio 1981)(holding that the entry of judgment against an estate is damage enough for there to be potential liability for bad faith); Maguire v. Allstate Ins. Co., 341 F. Supp. 866, 869 (D. Del. 1972) (applying Delaware law)(finding it not necessary to address the question of whether the “judgment” or “payment” rule would apply in Delaware because a policy provision stated that neither bankruptcy nor insolvency of the insured would relieve the insurer from its obligations); Smiley v. Manchester Ins. & Indem. Co. of St. Louis, 301 N.E.2d 19, 22 (Ill. App. 1973)(holding that an insolvent estate may become solvent and then be forced to satisfy a seemingly worthless judgment); Jessen v. O’Daniel, 210 F. Supp. 317, 328 (D. Mont. 1962), judgment aff’d, 329 F.2d 60 (9th Cir. 1964)(reasoning that even an insolvent estate is damaged by the entry of an excess judgment); National Farmers Union Property & Casualty Co. v. O’Daniel, 329 F.2d 60, 66 (9th Cir. 1964)(holding that excess judgment need not be paid before a bad faith cause of action accrues, even against an insolvent estate); Wolfberg v. Prudence Mut. Cas. Co., 240 N.E.2d 176, 180 (Ill. App. 1968)(holding that the entry of an excess judgment itself is damage sufficient to permit recovery); Henke v. Iowa Home Mut. Casualty Co., 97 N.W.2d 168, 181 (Iowa 1959)(adopting the view that mere entry of an excess judgment is sufficient to accrue a bad faith action); Farmers Ins. Exchange v. Schropp, 567 P.2d 1359, 1369 (Kan. 1977)(reasoning that because an excess judgment against an individual is sufficient for a bad faith action, an excess judgment against an estate should be as well); Lee v. Nationwide Mut. Ins. Co., 286 F.2d 295, 298 (4th Cir. 1961)(reasoning that damages do not have to be “paid” to be considered “incurred”); Sweeten v. National Mut. Ins. Co. of D.C., 194 A.2d 817, 819 (Md. 1963)(reasoning that before payment the mere existence of an excess judgment may cause injury); Torrez v. State Farm Mut. Auto. Ins. Co., 705 F.2d 1192, 1201 (10th Cir. 1982)(reasoning that the insurer’s duty of good faith extends to an insured’s estate).
- See, e.g., May v. Illinois Nat’l Ins. Co., 190 F.3d 1200, 1203 (11th Cir.1999), citing Camp v. St. Paul Fire & Marine Ins. Co., 616 So. 2d 12 (Fla. 1993)(rejecting the plaintiff’s contention that since an insured’s bankruptcy and consequent relief of liability to the debtor from an excess judgment does not prevent a bad faith action by the bankruptcy trustee, a claimant similarly should be able to use an uncollectible excess judgment entered against an estate to bring a bad faith action against an insurer).
- See, e.g., In re Estate of Ongaro, 973 P.2d 660 (Colo. App.1998), reh’g denied, cert. granted, aff’d 998 P.2d 1097 (Colo. 2000); State v. Probate Court of Hennepin County, 177 N.W. 354, 355 (Minn. 1920).
- See, e.g., May v. Illinois Nat’l Ins. Co., 771 So. 2d 1143 (Fla. 2000).
- See, e.g., Pezzi v. Brown, 697 So. 2d 883 (Fla. App. 1997), review denied, 705 So. 2d 7 (Fla. 1997)(finding that an untimely claim may still be brought against a decedent’s estate, but only to the extent of insurance proceeds); Nicholls v. Lowther, 491 S.W.2d 3, 5—6 (Mo. App. 1973)(holding that failure to comply with the nonclaim statute does not bar plaintiff from instituting his litigation in the Circuit Court nor from obtaining a judgment against the administrator, although it may preclude plaintiff from any recovery on the judgment obtained out of assets being administered upon); Thorpe v. Wilson, 293 S.E.2d 675, 678 (N.C. App. 1982)(finding the failure of petitioner to file a claim for unliquidated damages with appellant does not bar his action, where he is seeking to recover damages for an alleged wrongful death, and to collect it out of the automobile liability insurance policy issued to the decedent); Pierce v. Johnson, 571 S.E.2d 661, 667 (N.C. App. 2002)(finding that liability, if any, is limited to the amount of insurance coverage available for deceased defendant’s alleged negligence).
- See, e.g., May v. Illinois Nat’l Ins. Co., 771 So. 2d 1143, 1159 (Fla. 2000), citing Pezzi v. Brown, 697 So. 2d 883 (Fla. App. 1997), review denied, 705 So. 2d 7 (Fla. 1997). In Pezzi, the plaintiff brought an injury action against a decedent more than two years after that decedent’s death. The plaintiff sought to recover damages only from the decedent’s liability insurance and not from the assets of the estate. The court allowed this and reasoned that the nonclaim statute protects only the estate’s assets, the personal representative individually, and the beneficiaries. The statute is not designed to protect a liability carrier’s limits. Accordingly, the court allowed the claim to proceed.