Last April I became licensed as an attorney in the State of Alabama. When discussing claims with insureds, one of the first questions asked is, “what is the statute of limitations in xxxxx state?” Our blog has not addressed the statute of limitations in Alabama, and below is a quick cheat sheet for Alabama insureds.
Simple answer:
- 6 years from the date of denial of the claim for breach of contract.
- 2 years from knowledge of facts for bad faith.
But I don’t want to stop here without giving some background and basic insurance principles.
Breach of Contract:
In Alabama, an insurance contract is governed by the same general rules as other contracts. Auto Owners Ins. Co. v. Culpepper, 426 So.2d 435 (Ala. Civ. App. 1983). The applicable statute of limitations is six years for written contracts. §6-2-34(4), Ala. Code 1975.
Further, “[t]he statute of limitations on a contract action runs from the time a breach occurs rather than from the time actual damage is sustained.” AC, Inc. v. Baker, 622 So.2d 331 (Ala. 1993).
The breach occurs when the insurance company refuses to pay for the damages. Hackleburg Church of Christ v. Great American Ins. Companies, Inc., 675 So.2d 1309 (Ala. Civ. App. 1995).
Finally, insurance policies cannot shorten the six-year statute of limitations. Any contract provisions attempting to shorten this time is void. §6-2-15, Ala. Code 1975.
Bad Faith:
The statute of limitations for bad faith refusal to pay insurance benefits accrues “when the party seeking to bring the action knew of facts which would put a reasonable mind on notice of the possible existence of [bad faith].” Alfa Mut. Ins. Co. v. Smith, 540 So.2d 691 (Ala. 1988).
Courts have interpreted a denial letter from the carrier as sufficient facts to put the insured on notice of possible bad faith. Thus, it is important to note that the statute of limitations to bring the bad faith claim is significantly shorter than the statute of limitations to bring a breach of contract claim.
As I work through my Alabama cases I will continue to provide updates regarding issues affecting Alabama insureds. If you have any specific questions relating to Alabama insurance law please reach out to me!