Connelly v. State Farm Mutual Automobile Insurance
135 A.3d 1271
| Del. | 2016Background
- In 2007 Ronald Brown rear-ended Christina Connelly; Brown was insured by State Farm with $100,000 per-person/$300,000 per-occurrence limits.
- Connelly sued Brown; State Farm controlled Brown’s defense and settlement decisions under the policy.
- Connelly offered to settle for $35,000 on May 10, 2011; State Farm rejected the offer and proceeded to trial.
- A jury awarded Connelly $224,271.41; final judgment (including interest and costs) exceeded policy limits and State Farm paid part of the judgment but left a large unpaid excess.
- Connelly (later assigned Brown’s claim) sued State Farm in 2014 alleging bad-faith refusal to settle; State Farm moved to dismiss as time-barred under Delaware’s three-year statute of limitations.
- The Superior Court dismissed, reasoning the limitations period began when State Farm refused the settlement; the Supreme Court reversed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When does a third-party bad-faith failure-to-settle claim accrue for statute-of-limitations purposes? | Connelly: accrual occurs only when an excess judgment becomes final and non-appealable. | State Farm: accrual occurs when the insurer allegedly acted in bad faith (e.g., when it refused the settlement offer). | The claim accrues when an excess judgment against the insured becomes final and non-appealable. |
Key Cases Cited
- Torrez v. State Farm Mut. Auto. Ins. Co., 705 F.2d 1192 (10th Cir. 1982) (accrual of bad-faith failure-to-settle claim occurs when judgment is final)
- Taylor v. State Farm Mut. Auto. Ins. Co., 913 P.2d 1092 (Ariz. 1996) (adopting final-judgment accrual rule for third-party bad-faith claims)
- Comunale v. Traders & Gen. Ins. Co., 328 P.2d 198 (Cal. 1958) (insured’s wrongful-failure-to-settle claim arises when underlying judgment becomes final)
- Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289 (Fla. 1991) (bad-faith failure-to-settle claim does not accrue before underlying litigation concludes)
- Boyd Bros. Transp. Co. v. Fireman’s Fund Ins. Cos., 540 F. Supp. 579 (M.D. Ala. 1982) (cause of action for insurer’s bad faith does not accrue until underlying litigation ends)
- Jarvis v. Farmers Ins. Exch., 948 P.2d 898 (Wyo. 1997) (insured’s bad-faith-to-settle claim accrues only after entry of final excess judgment)