Perry W. Oxley Lonnie C. Simmons
Dinsmore & Shohl, LLP Joshua I. Barrett
Charleston, West Virginia DiTrapano, Barrett & DiPiero
AND Charleston, West Virginia
Scott W. Andrews Attorneys for the Appellees, Virginia Insurance
Huntington, West Virginia Lisa Hyman; and Coverage Options Associates
Attorneys for the Appellant (Kentucky Hospital Service Company)
Greg E. Mitchell Jeffrey M. Wakefield
Frost Brown Todd Jaclyn A. Bryk
Lexington, Kentucky Elizabeth L. Taylor
Attorney for the Appellee, Flaherty, Sensabaugh & Bonasso
Kentucky Hospital Association Charleston, West Virginia
Attorneys for the Appellee, Mr. Stocks
JUSTICE DAVIS delivered the Opinion of the Court.
1. Appellate review of a partial summary judgment order is the same as that of a summary judgment order, which is de novo. Syllabus point 1, West Virginia Department of Transportation, Division of Highways v. Robertson, 217 W. Va. 497, 618 S.E.2d 506 (2005).
2. Appellate review of a circuit court's order granting a motion to dismiss a complaint is de novo. Syllabus point 2, State ex rel. McGraw v. Scott Runyan Pontiac- Buick, Inc., 194 W. Va. 770, 461 S.E.2d 516 (1995).
3. The interpretation of an insurance contract, including the question of whether the contract is ambiguous, is a legal determination that, like a lower court's grant of summary judgment, shall be reviewed de novo on appeal. Syllabus point 2, Riffe v. Home Finders Associates, Inc., 205 W. Va. 216, 517 S.E.2d 313 (1999).
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.
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.
Lloyd Michael Noland, the appellant herein and plaintiff below (hereinafter referred to as Mr. Noland), appeals from an order of the Circuit Court of Raleigh County granting partial summary judgment in favor of the appellee herein and defendant below, Virginia Insurance Reciprocal (hereinafter referred to as VIR), (See footnote 1) and dismissing the claims Mr. Noland brought against the remaining appellees herein and defendants below, Richard Stocks; Lisa Hyman; Coverage Options Associates; and Kentucky Hospital Association (hereinafter referred to as Mr. Stocks, Ms. Hyman, COA and KHA). (See footnote 2) In this appeal, Mr. Noland contends that the trial court committed error in concluding that VIR had no duty to defend him in another action after a certain date and in ruling that the statute of limitations barred his claims against the other four defendants. (See footnote 3) After careful review of the parties' briefs and the record submitted on appeal, and having heard the arguments of the parties, we reverse the circuit court's partial summary judgment in favor of VIR. However, we affirm the dismissal of the claims against Mr. Stocks, Ms. Hyman, COA and KHA.
This case has its origins in a medical malpractice lawsuit that was brought in 1998 by Ireland and Charlene Noel against Beckley Appalachian Regional Hospital (hereinafter referred to as BARH). (See footnote 4) The Noels filed their action in the Circuit Court of Kanawha County. The Noels' lawsuit was filed against BARH as a result of severe injuries Mr. Noel sustained while being treated by BARH. (See footnote 5) The action against BARH was covered by both primary and umbrella insurance policies issued by VIR. Consequently, VIR provided counsel for BARH.
After the lawsuit against BARH was filed, BARH filed a third-party complaint against its employee, Mr. Noland, on May 24, 2000. (See footnote 6) The third-party complaint alleged that, as a result of Mr. Noland's negligent treatment of Mr. Noel, Mr. Noland was liable to BARH for a percentage of any fault that was attributed to BARH in the action brought by the Noels. (See footnote 7)
Although Mr. Noland was an insured under the policy VIR had issued to BARH, VIR wrote a letter to Mr. Noland on October 23, 2000, denying coverage, and further denying a duty to defend him in the third-party action. (See footnote 8)
Subsequent to BARH's third-party complaint being filed, the Noels were granted leave to file an amended complaint to assert a bad faith claim against BARH's insurer, VIR. (See footnote 9) On August 1, 2000, the Noels agreed to settle their claims against BARH and VIR for $2.5 million. (See footnote 10)
On July 25, 2001, Mr. Noland filed an action against VIR in the Raleigh County Circuit Court. (See footnote 11) Mr. Noland's complaint set out five counts against VIR that are summarized as follows: (1) VIR had a duty to defend and indemnify Mr. Noland under its primary policy from May 24, 2000, through August 1, 2000; (2) VIR had a duty to defend and indemnify Mr. Noland under its primary policy after August 1, 2000; (3) VIR had a duty to defend and indemnify Mr. Noland under its umbrella policy after August 1, 2000; (4) VIR breached its common law duty of good faith and fair dealing in refusing to defend and indemnify Mr. Noland under the primary and umbrella policies; and (5) VIR violated the West Virginia Unfair Trade Practices Act in refusing to defend and indemnify Mr. Noland under both the primary and umbrella policies. (See footnote 12)
On August 9, 2001, BARH was permitted to amend its third-party Kanawha County Circuit Court complaint to allow its insurer, VIR, to enter the case as the real party in interest. In the amended third-party complaint, VIR sought declaratory judgment relief to determine whether it owed Mr. Noland a duty to defend against BARH's third-party complaint; VIR also set out a bad faith claim against Mr. Noland's personal liability insurer, ACE American.
On February 8, 2002, the Kanawha County Circuit Court consolidated VIR's declaratory judgment claim against Mr. Noland with Mr. Noland's claims against VIR and transferred the consolidated matters to the Raleigh County Circuit Court. (See footnote 13) Subsequent to the consolidation, VIR and Mr. Noland filed motions for summary judgment on the duty to defend issue. On July 25, 2003, the circuit court entered a partial summary judgment order finding that VIR owed Mr. Noland a duty to defend against BARH's third-party complaint during the period from May 24, 2000, the date the third-party complaint was filed, until August 1, 2000, the date the Noels agreed to settle their claims against BARH and VIR. The circuit court's order also found that VIR had no duty to defend Mr. Noland after August 1, 2000. Mr. Noland thereafter filed a motion for reconsideration of the adverse partial summary judgment ruling. (See footnote 14)
While the motion for reconsideration was pending, the circuit court entered an order on August 25, 2005, granting Mr. Noland leave to amend his complaint to assert statutory and common law bad faith claims against Mr. Stocks, Ms. Hyman, COA and KHA. (See footnote 15) The four defendants filed motions to dismiss. On December 8, 2006, the circuit court entered an order granting Mr. Stocks' motion to dismiss. On December 20, 2006, the circuit court entered an order granting Ms. Hyman's motion to dismiss. On March 12, 2007, the circuit court entered an order granting the motion to dismiss filed by COA and KHA.
Pursuant to motions filed by Mr. Noland asking the circuit court to render its previous orders final and appealable under Rule 54(b) of the West Virginia Rules of Civil Procedure, the circuit court entered an order on March 28, 2008, that certified as final and appealable its partial summary judgment order in favor of VIR as well as its orders dismissing the claims against Ms. Hyman, COA and KHA. On August 21, 2008, the circuit court issued an order certifying as final and appealable its order dismissing the claims against Mr. Stocks. (See footnote 16) It is from these rulings that Mr. Noland appeals to this Court.
In this proceeding, the circuit court entered an order granting partial summary judgment in favor of VIR, and entered orders dismissing the claims against Mr. Stocks, Ms. Hyman, COA and KHA pursuant to Rule 12(b)(6) of the West Virginia Rules of Civil Procedure. With respect to the partial summary judgment order, this Court has made clear that [a]ppellate review of a partial summary judgment order is the same as that of a summary judgment order, which is de novo. Syl. pt. 1, West Virginia Dep't of Transp., Div. of Highways v. Robertson, 217 W. Va. 497, 618 S.E.2d 506 (2005). We have indicated that [a] motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law. Syl. pt. 3, Aetna Cas. & Sur. Co. v. Federal Ins. Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963).
Our standard of review of the Rule 12(b)(6) dismissal orders provides that the [a]ppellate review of a circuit court's order granting a motion to dismiss a complaint is de novo. Syl. pt. 2, State ex rel. McGraw v. Scott Runyan Pontiac-Buick, Inc., 194 W. Va. 770, 461 S.E.2d 516 (1995). We also have held, in Syllabus point 3 of Chapman v. Kane Transfer Co., 160 W. Va. 530, 236 S.E.2d 207 (1977), that [t]he trial court, in appraising the sufficiency of a complaint on a Rule 12(b)(6) motion, should not dismiss the complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.
With the above standards in mind, we review the merits of the issues presented.
The circuit court's partial summary judgment order, involving the duty-to-
defend issue, made two dispositive rulings. First, the order concluded that VIR did, in fact,
have a duty to defend Mr. Noland from the date BARH filed its third-party complaint, on
May 24, 2000, until August 1, 2000, which was the date the Noels agreed to settle their
claims against BARH and VIR. This ruling represented partial summary judgment in favor
of Mr. Noland.
It is important to understand that the partial summary judgment in favor of Mr. Noland has not been challenged by VIR. That is, VIR did not set out in its brief, as a cross assignment of error, the trial court's determination that it had a duty to defend Mr. Noland from May 24, 2000, to August 1, 2000. (See footnote 17) As a consequence of VIR's failure to challenge that finding in this appeal, any error in that ruling has been waived for purposes of this appeal. See Tiernan v. Charleston Area Med. Ctr., Inc., 203 W. Va. 135, 140 n.10, 506 S.E.2d 578, 583 n.10 (1998) (Issues not raised on appeal or merely mentioned in passing are deemed waived. (citation omitted)). (See footnote 18) More importantly, [w]e treat this ruling as the law of the case since [VIR] did not challenge it on appeal. Clifton v. Clifton Cable Contracting, L.L.C., 680 S.E.2d 348, 351 n.1 (Va. Ct. App. 2009). See also Dunlap v. Dunlap, 131 P.3d 471, 475-76 (Alaska 2006) (Although our doctrine of law of the case generally refers to issues that have previously been reviewed at the appellate level, the doctrine is equally applicable to issues that have been fully litigated in the superior court and as to which no timely appeal has been made.); American Gen. Home Equity, Inc. v. Kestel, 253 S.W.3d 543, 548 (Ky. 2008) (That ruling [on the issue of applicability of a contract provision] is now the law of the case because Kestel did not file a cross-motion for discretionary review in this Court of the adverse ruling [below].); Lee Acquisition Fund, L.P. v. Deloitte & Touche, 489 S.E.2d 470, 472 (S.C. 1997) ([An] unappealed ruling is the law of the case[.]).
The second dispositive ruling made by the circuit court was that VIR's duty to defend Mr. Noland terminated after the August 1, 2000, settlement, and thus that Mr. Noland's personal insurer, ACE American, had a duty to defend him after that date. (See footnote 19) It is this issue which we have been called upon to review. To resolve the issue of whether VIR owed Mr. Noland a duty to defend after August 1, 2000, we must examine the relevant language of the policies involved.
We begin by observing relevant legal principles applicable to the interpretation
of the language of an insurance policy. This Court has held that [t]he interpretation of an
insurance contract, including the question of whether the contract is ambiguous, is a legal
determination that, like a lower court's grant of summary judgment, shall be reviewed de novo on appeal. Syl. pt. 2, Riffe v. Home Finders Assocs., Inc., 205 W. Va. 216, 517 S.E.2d
313 (1999). See also Syl. pt. 1, Tennant v. Smallwood, 211 W. Va. 703, 568 S.E.2d 10
(2002) (Determination of the proper coverage of an insurance contract when the facts are
not in dispute is a question of law.). We have also made clear that the [l]anguage in an
insurance policy should be given its plain, ordinary meaning. Syl. pt. 1, Soliva v. Shand,
Morahan & Co., Inc., 176 W. Va. 430, 345 S.E.2d 33 (1986), overruled on other grounds
by National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W. Va. 734, 356 S.E.2d 488 (1987).
Further, [w]here the provisions of an insurance policy contract are clear and unambiguous
they are not subject to judicial construction or interpretation, but full effect will be given to
the plain meaning intended. Syl., Keffer v. Prudential Ins. Co., 153 W. Va. 813, 172 S.E.2d
714 (1970). However, [w]henever the language of an insurance policy provision is
reasonably susceptible of two different meanings or is of such doubtful meaning that
reasonable minds might be uncertain or disagree as to its meaning, it is ambiguous. Syl. pt.
1, Prete v. Merchants Prop. Ins. Co., 159 W. Va. 508, 223 S.E.2d 441 (1976). Finally, [i]t
is well settled law in West Virginia that ambiguous terms in insurance contracts are to be
strictly construed against the insurance company and in favor of the insured. Syl. pt. 4, National Mut. Ins. Co. v. McMahon & Sons, 177 W. Va. 734, 356 S.E.2d 488 (1987),
overruled on other grounds by Potesta v. U.S. Fid. & Guar. Co., 202 W. Va. 308, 504 S.E.2d
VIR issued a primary policy to BARH that provided $1 million in coverage as well as an umbrella or excess policy that provided $5 million in coverage. The language of the primary insurance policy that was relied upon by the circuit court in resolving the issue of VIR's duty to defend after the settlement is as follows:
Our right and duty ends when we have exhausted the applicable limit of liability stated in Section III of the Declarations in the payment of judgments or settlements under this policy.
The language of the umbrella policy that was relied upon by the circuit court is as follows:
This coverage is subject to the same terms, conditions,
exclusions and limitations as the primary insurance except with
respect to any provisions to the contrary contained in this
The circuit court determined that the above language in the policies was unambiguous. The circuit court found that because the primary policy was exhausted when VIR paid the policy limit of $1 million to the Noels, VIR's duty to defend Mr. Noland under the primary policy terminated. The circuit court further found that, insofar as there was no longer any duty to defend under the primary policy because of exhaustion, the umbrella policy could not be invoked because it was subject to the same terms, conditions, exclusions and limitations as the primary policy. We agree with the circuit court that the above language from the policies is not ambiguous. We disagree as to how the circuit court applied the policies' language. (See footnote 20)
Although the Noels' action against BARH and BARH's action against Mr. Noland represented two causes of action, the two causes of action represented only one claim for purposes of the primary and umbrella policies. That is, to resolve both causes of action, VIR was obligated to pay not more than $6 million ($1 million under the primary policy and $5 million under the umbrella policy). The circuit court concluded that because VIR paid $1 million to the Noels under the primary policy, nothing was left to pay a potential award against Mr. Noland under the primary policy. Consequently, VIR had no duty to continue to defend Mr. Noland because the umbrella policy was not triggered until payment was first made under the primary policy. The circuit court's reasoning is flawed. It allowed BARH to tap into the umbrella policy to pay the remaining settlement amount of $1.5 million, but precluded Mr. Noland from having access to the remaining $3.5 million under the umbrella policy which would then give rise to VIR's duty to defend Mr. Noland against BARH's cause of action. (See footnote 21) We have found no language in the primary policy nor the umbrella policy which extinguished VIR's duty to continue defending Mr. Noland under the funds remaining in the umbrella policy. In fact, the very purpose of the umbrella policy was to provide coverage once the primary policy limits had been exhausted. It is generally recognized that [a] primary policy imposes on an insurer a 'primary duty of defense' while an . . . 'umbrella' policy attaches only after primary coverage has been exhausted. Padilla Constr. Co., Inc. v. Transportation Ins. Co., 58 Cal. Rptr. 3d 807, 821 (Ct. App. 2007). See also U.S. Fire Ins. Co. v. Worcester Ins. Co., 821 N.E.2d 91 (Mass. App. Ct. 2005) (finding that once primary policy had been exhausted, insurer under umbrella policy had duty to defend insured).
Further, as is argued by Mr. Noland, the umbrella policy expressly provided coverage and a duty to defend to him. The umbrella policy stated in relevant part:
If the limits of liability of the primary insurance have been exhausted by payment of claims . . . we shall defend any claim or suit brought against any insured covered for damages under this policy.
Insofar as there is no dispute that Mr. Noland was a covered insured under the umbrella
policy, that policy unambiguously provides that it will defend Mr. Noland if the limits of the
primary policy are exhausted. That is exactly what occurred in this case.
VIR argued at the trial court level and before this Court that the other insurance provision of its umbrella policy precluded coverage because Mr. Noland had coverage with ACE American. However, the circuit court did not rely on this argument in making its decision. Therefore, we reject it here for the following reasons.
The umbrella policy issued by VIR contained the following other insurance clause:
If other insurance or self-insurance applies to claims not covered by this policy, coverage provided by this policy is excess and we will not make any payments until the other insurance is used up.
VIR contends that because Mr. Noland had other insurance with ACE American, the umbrella policy could not be triggered until the liability limits under the ACE American policy were exhausted. This argument is also flawed. The ACE American policy also had an other insurance clause which stated:
If there is other insurance which applies to the loss
resulting from your professional services, the other insurance
must pay first. It is the intent of this policy to apply the amount
of loss which is more than . . . [t]he limits of liability of the other
insurance[.] (See footnote 22)
Most courts addressing the issue have found that [w]hen two insurance policies cover the same risk and each contains an [other insurance] clause, the clauses are considered mutually repugnant and are disregarded. Once disregarded, the general coverage
of each policy applies and the insurers are obligated to share the loss. Reliance Ins. Co. v. St. Paul Surplus Lines Ins. Co., 753 F.2d 1288, 1290 (4th Cir. 1985). This result is reached because 'other insurance' clauses cannot be permitted to operate to produce a total forfeiture of coverage. Schoenecker v. Haines, 277 N.W.2d 782, 785 (Wis. 1979). Accord National Sur. Corp. v. Ranger Ins. Co., 260 F.3d 881, 885 (8th Cir. 2001); Methodist Healthcare v. American Int'l Specialty Line Ins. Co., 310 F. Supp. 2d 976, 979 (W.D. Tenn. 2004); Fireman's Fund Ins. Co. v. Empire Fire & Marine Ins. Co., 155 F. Supp. 2d 429, 434 (E.D. Pa. 2001). See also W9/PHC Real Estate LP v. Farm Family Cas. Ins. Co., 970 A.2d 382, 396 (N.J. Super. Ct. App. 2009); ([W]here the two policies in question each have an other-insurance clause stating that it is excess over any other policy, the provisions are 'mutually repugnant,' and are disregarded.); Fireman's Fund Ins. Co. v. Maryland Cas. Co., 77 Cal. Rptr. 2d 296, 311 (Ct. App. 1998); (same); Travelers Ins. Co. v. Lexington Ins. Co., 478 So. 2d 363, 365 (Fla. Dist. Ct. App. 1985) (same); Universal Underwriters Ins. Co. v. Allstate Ins. Co., 638 A.2d 1220, 1224 (Md. Ct. Spec. App. 1994) (same); Titan Indem. Co. v. American Justice Ins. Reciprocal, 758 So. 2d 1037, 1040 (Miss. Ct. App. 2000) (same); Wentzville Park Assocs., L.P. v. American Cas. Ins. Co. of Reading, 263 S.W.3d 736, 740 (Mo. Ct. App. 2008) (same); Great N. Ins. Co. v. Mount Vernon Fire Ins. Co., 685 N.Y.S.2d 411, 414 (1999) (same).
Insofar as ACE American is not a party to this litigation, we are without jurisdiction to hold as a matter of law that it has a duty to share in the defense of Mr. Noland. (See footnote 23) However, VIR is a party to this litigation, and, as such, we conclude that the other insurance clause in its umbrella policy cannot be invoked to preclude its defense of Mr. Noland after August 1, 2000. Consequently, the circuit court committed error by concluding that VIR had no duty to defend Mr. Noland after August 1, 2000.
Mr. Noland also has asserted unfair settlement practices (See footnote 24) or statutory bad faith claims (See footnote 25) and common law bad faith claims against Mr. Stocks, Ms. Hyman, COA and KHA. (See footnote 26) The circuit court dismissed Mr. Noland's statutory bad faith claims against Mr. Stocks, Ms. Hyman, COA and KHA on statute of limitations grounds. (See footnote 27) Although the circuit court dismissed Mr. Noland's common law bad faith claim against COA and KHA on statute of limitations grounds, it dismissed the common law bad faith claim against Mr. Stocks and Ms. Hyman on the grounds that no contractual relationship existed between the parties. (See footnote 28) Insofar as the common law bad faith statute of limitations issue is applicable to all four defendants, we will also address the dismissal of the common law bad faith claim against Mr. Stocks and Ms. Hyman in the context of the statute of limitations. See Hoover v. Moran, 222 W. Va. 112, 119, 662 S.E.2d 711, 718 (2008) ([O]ur cases have made clear that 'it is permissible for us to affirm the granting of [dismissal] on bases different or grounds other than those relied upon by the circuit court.' (quoting Gentry v. Mangum, 195 W. Va. 512, 519, 466 S.E.2d 171, 178 (1995))); U.S. Steel Mining Co., LLC v. Helton, 219 W. Va. 1, 3 n.3, 631 S.E.2d 559, 561 n.3 (2005) (De novo review on appeal means that the result and not the language used in or reasoning of the lower tribunal's decision, is at issue. A reviewing court may affirm a lower tribunal's decision on any grounds.); Yourtee v. Hubbard, 196 W. Va. 683, 690 n.9, 474 S.E.2d 613, 620 n.9 (1996) ([W]e are not confined to affirming the judgment strictly on the grounds given by the lower court. In reviewing an appeal of a circuit court's order, we look not to the correctness of the legal ground upon which the circuit court based its order, but rather, to whether the order itself is correct, and we will uphold the judgment if there is another valid legal ground to sustain it.).
Before we address the circuit court's dismissal of the statutory and common law bad faith claims, we first must determine the issue of what statute of limitations applies to those claims.
1. Statute of limitations for statutory and common law bad faith claims. This Court previously has held that a one year statute of limitations applies to a statutory bad faith claim. See Syl. pt. 1, Wilt v. State Auto. Mut. Ins. Co., 203 W. Va. 165, 506 S.E.2d 608 (1998) (Claims involving unfair settlement practices that arise under the Unfair Trade Practices Act, West Virginia Code § 33-11-1 to -10 (1996 & Supp. 1997), are governed by the one-year statute of limitations set forth in West Virginia Code § 55-2-12(c) (1994).). Although the circuit court and the parties assumed that a one year statute of limitations applies to a common law bad faith claim, this Court has never expressly determined what statute of limitations period covers a common law bad faith claim. However, we were asked in Sizemore v. State Farm General Insurance Co., 202 W. Va. 591, 505 S.E.2d 654 (1998), whether the one year statute of limitations contained in W. Va. Code § 55-2-12(c) (1959) (Repl. Vol. 2008) was applicable to a common law bad faith claim.
The Sizemore case came to this Court based upon certified questions from the Circuit Court of Mercer County. Two of the certified questions were formulated as follows: (See footnote 29)
 Is the plaintiffs' claim for extra-contractual damages
under a theory of common law bad faith, arising from the
investigation and denial of their fire loss property insurance
claim, also barred by the one year limitation of action provision
contained in their State Farm mobile home policy where
plaintiffs failed to institute an action on the policy within one
year after both plaintiffs and their attorneys received written
notification of denial of coverage by State Farm General
 Alternatively, is the plaintiffs' claim for extra- contractual damages under a theory of common law bad faith, arising from State Farm's investigation and denial of their fire loss property insurance claim, barred by the one year statutory limitation of action provision [W. Va. Code § 55-2-12(c)], where plaintiffs failed to institute an action on the policy within one year after both plaintiffs and their attorneys received written notification of denial of coverage by State Farm General Insurance Company?
Sizemore, 202 W. Va. at 592-93, 505 S.E.2d at 655-56. We answered the first question in the affirmative because a statute existed which permitted the insurer to limit the time in which to bring an action. As a result of our resolution of the first question, we found it unnecessary to determine whether the plaintiffs' claim for extra-contractual damages under a theory of common law bad faith is barred by the one year statutory limitation of action provision in W. Va. Code § 55-2-12(c). Sizemore, 202 W. Va. at 599, 505 S.E.2d at 662. The question left unresolved in Sizemore must be resolved in this case.
The prior decisions of this Court have clearly indicated that a common law bad faith claim sounds in tort. See Syl. pt. 2, Hawkins v. Ford Motor Co., 211 W. Va. 487, 566 S.E.2d 624 (2002) (The Unfair Trade Practices Act, W. Va.Code §§ 33-11-1 to 10, and the tort of bad faith apply only to those persons or entities and their agents who are engaged in the business of insurance. (emphasis added)). (See footnote 30) The statute of limitations that governs a tort action is contained in W. Va. Code § 55-2-12 (1959) (Repl. Vol. 2008). See Wilt v. State Auto. Mut. Ins. Co., 203 W. Va. 165, 167, 506 S.E.2d 608, 610 (1998) (Both parties agree that West Virginia Code § 55-2-12 is the statute that governs tort actions.). This statute provides:
Every personal action for which no limitation is otherwise prescribed shall be brought: (a) Within two years next after the right to bring the same shall have accrued; if it be for damage to property; (b) within two years next after the right to bring the same shall have accrued if it be for damages for personal injuries; and (c) within one year next after the right to bring the same shall have accrued if it be for any other matter of such nature that, in case a party die, it could not have been brought at common law by or against his personal representative.
We previously have examined W. Va. Code § 55-2-12 and held that, unless a tort expressly
falls within the classification of property damage, personal injury, or fraud or deceit, a one-
year statute of limitations governs rather than a two-year period. Wilt v. State Auto. Mut.
Ins. Co., 203 W. Va. 165, 170, 506 S.E.2d 608, 613 (1998).
In Wilt, we determined that a statutory bad faith action did not involve property damage, personal injury, or fraud or deceit; therefore, the one year statute of limitations under W. Va. Code § 55-2-12(c) applied to such a cause of action. (See footnote 31) We reached this conclusion as follows:
Plaintiffs argue that an unfair settlement claim is
analogous to a claim for fraud, which is subject to a two-year
statute of limitations. Viewing claims under the Act as
necessarily fraudulent in nature is problematic, however,
because the type of conduct that constitutes an unfair settlement
claim may include a variety of factual scenarios which lack the
requisite elements of a fraud claim.
In considering whether an unfair settlement practices claim can be viewed as a personal injury and thereby fall within the two-year statute of limitations provided by West Virginia Code § 55-2-12(b), we first recognize that the term personal injury historically has referred to physical injuries to the person such as an automobile accident, slip and fall, etc. . . . [E]very claim which qualifies as a tort cannot necessarily be classified as a personal injury.
Numerous torts such as libel, defamation, false arrest, false imprisonment, and malicious prosecution take the one-year statute of limitations set forth in West Virginia Code § 55-2- 12(c). These torts, which do not fall within the realm of personal injury, are controlled by subsection (c) because they do not survive the death of a party. . . .
Only through express statutory designation do fraud and deceit survive the death of the victim and thereby take a two- year statute of limitations. All other torts, those that did not survive at common law and those that are not extended survivability by statute, take a one-year limitations period under the language of West Virginia Code § 55-2-12(c).
. . . .
Accordingly, we determine that claims involving unfair settlement practices that arise under the Unfair Trade Practices Act are governed by the one-year statute of limitations set forth in West Virginia Code § 55-2-12(c).
Wilt, 203 W. Va. at 167-71, 506 S.E.2d at 610-14 (citations omitted).
Based upon the reasoning employed in Wilt, we find that a common law bad faith action does not involve property damage, personal injury, or fraud or deceit. Therefore, we expressly hold that 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.
2. Date upon which the statute of limitations begins to run in first-party bad faith claims. Mr. Noland contends that the statutory and common law bad faith claims were timely brought pursuant to this Court's decision in Klettner v. State Farm Mutual Automobile Insurance Co., 205 W. Va. 587, 519 S.E.2d 870 (1999). In Syllabus point 7 of Klettner, this Court held: [t]he one-year statute of limitations which applies to claims of unfair settlement practices . . . does not begin to run until the appeal period has expired on the underlying cause of action upon which the . . . claim is predicated. Mr. Noland contends that, under Klettner, his statutory and common law bad faith actions were timely filed against Mr. Stocks, Ms. Hyman, COA and KHA as the underlying action, BARH's third-party complaint against him, was pending when he filed the amended complaint. (See footnote 32) The circuit court ruled that Klettner was applicable only to third-party bad faith claims. (See footnote 33) Consequently, insofar as Mr. Noland was prosecuting first-party bad faith claims, the circuit court held that the statute of limitations began to run from the date VIR denied coverage.
Although Klettner was a third-party bad faith action, the Court did not
expressly limit its ruling on the issue of the running of the statute of limitations to third-party
bad faith actions. (See footnote 34) However, the rationale relied upon in Klettner in addressing the issue of
the running of the statute of limitations was based upon four of our cases that involved third-
party bad faith actions.
Klettner came to this Court as a certified question from the United States District Court for the Northern District of West Virginia. The question certified to the Court was as follows:
Whether the one-year statute of limitations for alleged unfair claim settlement practices under W. Va. Code § 33-11-4(9) is tolled until the appeals period has run and/or all appeals in the underlying tort litigation have been exhausted?
Klettner, 205 W. Va. at 590, 519 S.E.2d at 873. In answering the certified question, this Court initially examined the decision in Jenkins v. J.C. Penney Casualty Insurance Co., 167 W. Va. 597, 280 S.E.2d 252 (1981), overruled in part by State ex rel. State Farm Fire & Casualty Co. v. Madden, 192 W. Va. 155, 451 S.E.2d 721 (1994). Klettner stated,
[i]n syllabus point two of [Jenkins], we held that [a]n implied
private cause of action may exist for a violation by an insurance
company of the unfair settlement practice provisions of W. Va.
Code, 33-11-4(9); but such implied private cause of action
cannot be maintained until the underlying suit is resolved.
Klettner, 205 W. Va. at 590, 519 S.E.2d at 873.
The second decision examined by Klettner was Robinson v. Continental Casualty Co., 185 W. Va. 244, 406 S.E.2d 470 (1991), overruled in part by State ex rel. State Farm Fire & Casualty Co. v. Madden, 192 W. Va. 155, 451 S.E.2d 721 (1994). Klettner stated as follows: [w]e held in syllabus point two of Robinson that '[a]n action for bad faith failure to settle a claim under W. Va. Code, 33-11-1 , et seq., and the commencement of formal discovery in that action, are premature when the appellate process has not yet been completed in the underlying action.' Klettner, 205 W. Va. at 591, 519 S.E.2d at 874. The third case Klettner reviewed was Poling v. Motorists Mutual Insurance Co., 192 W. Va. 46, 450 S.E.2d 635 (1994). Klettner observed that [w]e held in syllabus point one [of Poling] that '[a] settlement of an underlying claim in a bad faith practices case against an insurance carrier is an ultimate resolution of a cause of action within the meaning of Jenkins v. J.C. Penney Cas. Ins. Co., 167 W. Va. 597, 280 S.E.2d 252 (1981).' Klettner, 205 W. Va. at 592, 519 S.E.2d at 875.
The fourth and final decision Klettner examined was our opinion in State ex rel. State Farm Fire & Casualty Co. v. Madden, 192 W. Va. 155, 451 S.E.2d 721 (1994). Klettner acknowledged that this Court held in Syllabus point two of Madden that,
[u]nder rule 18(b), WVRCP , as long as the claims against the insurer are bifurcated from those against the insured, and any discovery or proceedings against the insurer are stayed pending resolution of the underlying claim between the plaintiff and the insured, there is no undue prejudicial impact on a jury of joining in an original pleading or amending a pleading to assert bad faith or unfair insurance practices counts against an insurer in an original action against [the] insured.
Klettner, 205 W. Va. at 592, 519 S.E.2d at 875. After thoroughly reviewing its four prior decisions, this Court reached the following conclusion in Klettner:
After exhaustively reviewing the law in this area, we conclude that the one-year statute of limitations which applies to claims of unfair settlement practices brought pursuant to West Virginia Code § 33-11-4(9) does not begin to run until the appeal period has expired on the underlying cause of action upon which the statutory claim is predicated.
Klettner, 205 W. Va. at 593, 519 S.E.2d at 876. Accord Syl. pt. 7, Klettner, id.
The most instructive language in Klettner as to the limitations to be placed on its holding on the issue of the statute of limitations is contained in footnote 11 of the opinion, where we observed:
In Light v. Allstate Insurance Co., 203 W. Va. 27, 506 S.E.2d 64 (1998), we recently discussed the clear distinction between a first-party and a third-party bad faith claim. Id. at 34, 506 S.E.2d at 71. Given the fact that an insurer is the named defendant in the bad faith claim as well as underlying tort action in a first-party action, we stated that the insurance mentioning concern that has historically been part of the basis for delaying third-party bad faith claims until the underlying claim is resolved does not come into play in a first-party claim. Because the instant case is a third-party claim, our discussion in Light concerning this distinction is of no relevance to the decision in this case.
Klettner, 205 W. Va. at 593 n.11, 519 S.E.2d at 876 n.11. It is clear to this Court that
footnote 11 in Klettner was an implicit recognition that our holding in that case was limited
to third-party bad faith cases. Consequently, we must now decide whether Klettner should
be extended to first-party bad faith actions.
We note that there is a clear split of authority on the issue of when the statute of limitations begins to run on a first-party bad faith claim predicated on a refusal to defend. A few courts find that the statute of limitations begins to run when an insurer denies coverage. See Daugherty v. Allstate Ins. Co., 55 P.3d 224 (Colo. Ct. App. 2002), superseded by statute on other grounds as recognized in by Brodeur v. American Home Assurance Co., 169 P.3d 139 (Colo. 2007); Adamski v. Allstate Ins. Co., 738 A.2d 1033 (Pa. Super. Ct. 1999). Other courts have held that the statute of limitations begins to run when a final judgment is rendered in the underlying case, or is tolled pending the outcome of the underlying action. See Tibbs v. Great Amn. Ins. Co., 755 F.2d 1370, 1375 (9th Cir. 1985); Brannon v. Continental Cas. Co., 137 P.3d 280 (Alaska 2006); Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457 (Iowa 1984); Castle & Cooke, Inc. v. Great Amn. Ins. Co., 711 P.2d 1108 (Wash. Ct. App. 1986). We will examine separately some of the cases that
address the issue.
In Daugherty v. Allstate Insurance Co., 55 P.3d 224 (Colo. Ct. App. 2002), the insured notified his insurer that he injured two people in an automobile accident. The insurer informed the insured that the accident was not covered because the insured intentionally ran a red light which lead to the accident. Shortly thereafter, the injured parties filed an action against the insured. Default judgment was entered against the insured. Subsequently, the insured assigned to the injured parties his rights against the insurer for refusal to defend and indemnify. The injured parties then filed an action, in the name of the insured, against the insurer for breach of contract and bad faith. The trial court dismissed the action as barred by the running of the statute of limitations. The insured appealed.
The court of appeals in Daugherty addressed the statute of limitations issue for a cause of action for bad faith in two contexts: bad faith in refusing to defend and bad faith in refusing to indemnify. Those issues were addressed as follows:
The duty at issue in a bad faith breach of insurance
contract claim is the insurance company's duty to act in good
faith and deal fairly with its insured. . . . However, the
insurance company is not called upon to perform this duty until
some contractual duty imposed by the insurance policy has
arisen. While the contractual duty and the duty to act in good
faith are separate and distinct duties, they are related, and both
must exist simultaneously to create a bad faith claim. . . .
Here, plaintiff alleged that Allstate acted in bad faith by failing to perform two separate contractual promises: (1)
unreasonably refusing to defend him and (2) unreasonably refusing to indemnify him. Because the contractual duty and the unreasonable conduct must exist simultaneously, we must examine the two allegations separately.
As noted above, Allstate's duty to defend plaintiff arose at the latest when he was named in the action filed by the Sauters. At that time, plaintiff knew the nature and extent of whatever injury he suffered as a result of the alleged bad faith conduct of Allstate in refusing to defend him. He also knew the cause of that injury, namely, Allstate's allegedly unreasonable refusal to defend him. Therefore, plaintiff's bad faith claim based on Allstate's duty to defend had to be filed within two years after the Sauters' case was filed in December 1996. (See footnote 35) The claim was not filed until July 7, 2000, and therefore, the trial court correctly determined that this part of plaintiff's bad faith claim was barred by the statute of limitations.
Allstate's duty to indemnify arose, as explained above, when the Sauters obtained a judgment against plaintiff on July 9, 1998. At that time plaintiff knew the nature and extent of whatever injuries he suffered as a result of Allstate's alleged bad faith conduct in refusing to indemnify him. He also knew that Allstate's allegedly unreasonable refusal to indemnify him was the cause of those injuries.
Plaintiff could not have asserted a bad faith claim based on failure to indemnify prior to the entry of the Sauters' judgment because before that time Allstate had no duty to indemnify him, and therefore, it could not have acted unreasonably in refusing to indemnify him. Thus, this part of plaintiff's bad faith claim had to be filed within two years following the entry of judgment against him on July 9, 1998. The claim was filed on July 7, 2000, and thus was timely.
Accordingly, plaintiff's claim for bad faith breach of insurance contract based on the duty to indemnify must be reinstated.Daugherty, 55 P.3d at 228 (internal citations omitted) (footnote added).
In Adamski v. Allstate Insurance Co., 738 A.2d 1033 (Pa. Super. Ct. 1999), the insured assigned his cause of action against his insurer, for failure to defend and indemnify, to the plaintiff in the underlying suit. The plaintiff filed an action against the insurer alleging common law and statutory bad faith by the insurer for refusing to defend and indemnify the insured. The trial court dismissed the action on the grounds that the statute of limitations had run on the claims. The plaintiff appealed and argued that the claims were timely because the statute of limitations did not begin until the date on which the verdict was entered against the insured in the underlying action and because the insurer's continuous refusal to defend and indemnify amounted to a continuing tort. The appellate court disagreed: (See footnote 36)
[W]e reject appellants' claim that they were required to file suit
only when the full extent of litigation damages was known and
the need for indemnification arose. To the contrary, our Court
has repeatedly held that, for purposes of the statute of
limitations, a claim accrues when a plaintiff is harmed and not
when the precise amount or extent of damages is determined.
Instantly, the alleged harm to [the insured] occurred when
appellee's position was made clear by the 1986 letter and
appellee maintained that position by subsequently refusing to
defend or indemnify [the insured]. As the aforementioned cases
indicate, [the plaintiff] may not separate initial and continuing
refusals to provide coverage into distinct acts of bad faith.
. . . .
It is hornbook law that a statute of limitations begins to run as soon as the right to institute suit arises. This is true regardless of whether the full extent of harm is known when the action arises. Here, appellee's 1986 letter clearly put [the insured] on notice that he would not be covered, defended or indemnified in existing or future actions under the policy issued by appellee. . . . [The plaintiff] cannot now avoid . . . an applicable statute of limitations by asserting that the continuing refusal to cover [the insured] was a separate act of bad faith.
Adamski, 738 A.2d at 1041-43 (internal quotations and citations omitted).
In Sandbulte v. Farm Bureau Mutual Insurance Co., 343 N.W.2d 457 (Iowa 1984), the insureds brought an action against the insurer alleging breach of an implied duty of good faith to defend the insureds in an action filed against the insureds as a result of an automobile accident. The trial court granted summary judgment to the insurer on the grounds that a two year statute of limitations had run on the claim. The insureds appealed. The appellate court found that a five year statute of limitations was applicable to the cause of action. The opinion in Sandbulte then went on to discuss, as follows, the issue of when the statute of limitations began to run:
The general rule is that a cause of action accrues when
the aggrieved party has a right to institute and maintain a suit.
Such a right exists when events have developed to a point where
the injured party is entitled to a legal remedy. . . .
Plaintiffs' action is founded on [the insurer's] alleged breach of its good faith duty to properly defend the [plaintiffs] in the [underlying] personal injury lawsuit. The final disposition of that case, the settlement and judgment effective May 25, 1979, terminated [the insurer's] duty to defend the [the plaintiffs]. Because the insurer cannot breach a duty that no longer exists, the alleged breach complained of occurred as of the date of settlement and judgment. . . . Therefore, we conclude [the plaintiffs'] right to institute and maintain a suit for an insurer's breach of its good faith duty to defend matured on May 25, 1979, and such date serves as the claim accrual date for purposes of measuring the applicable five year statute of limitations.
We reverse the entry of summary judgment for [the insurer] on Count I of plaintiffs' petition based on our finding that the appropriate period for bringing this action is five years to be measured from May 25, 1979. Plaintiffs' petition filed on October 22, 1981, is clearly within this five year period.
Sandbulte, 343 N.W.2d at 462-63 (internal quotations and citations omitted).
In Brannon v. Continental Casualty Co., 137 P.3d 280 (Alaska 2006), the plaintiffs were assigned the rights of an insured against its insurer for refusing to defend the insured in the plaintiffs' prior action against the insured. The plaintiffs, as assignees, sued the insurer for breach of contract, negligence, and breach of the covenant of good faith and fair dealing. The trial court dismissed the action, in part, on the grounds that the bad faith refusal to defend the claim was barred by the statute of limitations. The plaintiffs appealed. The appellate court reversed, observing as follows:
When an action for breach of the duty to defend accrues
is an issue of first impression for this court. The [plaintiffs]
argue that we should hold that the duty to defend does not
accrue until the underlying litigation is resolved _ here, on
August 28, 2003, when [the insured's] confession of judgment
was entered. . . .
The California Supreme Court has taken a slightly different approach. In Lambert v. Commonwealth Land Title
Insurance Co.,[282 Cal. Rptr. 445 (1991),] (See footnote 37) it held that the cause of action for refusal to defend accrues upon discovery of loss or harm, i.e., when the insurer refuses to defend. But the court noted a problem with this accrual date: The underlying litigation may take over two years . . . and would allow expiration of the statute of limitations on a lawsuit to vindicate the duty to defend even before the duty itself expires. This grim result is untenable. It therefore held that although the statutory period [for breach of the duty to defend] commences upon the refusal to defend, it is equitably tolled until the underlying action is terminated by final judgment.
We adopt the Lambert rule. . . .
. . . .
We therefore hold that although a cause of action for breach of the duty to defend accrues when the insured is notified of the insurance company's refusal to defend, the statute of limitations is equitably tolled until entry of final judgment in the underlying lawsuit.
Brannon, 137 P.3d at 284-87 (internal quotations, citations, and footnotes omitted) (footnote added).
We believe the rule followed in Daugherty, with respect to a duty to defend claim, (See footnote 38) and Adamski reflects the best approach. That is, when an insurer refuses to defend its insured in an underlying case, any bad faith involved in that refusal to defend terminates when the refusal to defend is conveyed to the insured. Moreover, we do not believe our ruling in Klettner should extend to a first-party bad faith claim because the justification for the rule in Klettner simply does not apply in the context of a first-party bad faith claim. (See footnote 39) Therefore, we now hold that, 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. Let us be clear. This holding applies only to a bad faith claim predicated on a refusal to defend. We make no ruling as to when the statute of limitations begins to run on a bad faith claim that is predicated on a different theory, e.g., refusal to indemnify.
In the instant proceeding, the trial court found that the one year statute of limitations applicable to statutory and common law bad faith causes of action was triggered on October 23, 2000, the date VIR notified Mr. Noland that it would not provide coverage to him in the action against him by BARH. (See footnote 40) The circuit court also found that Mr. Noland did not seek to amend his complaint against VIR to assert statutory and common law bad faith claims against Mr. Stocks, Ms. Hyman, COA and KHA until July 15, 2004. Under
these specific facts, the circuit court concluded that the statutory and common law bad faith claims against Mr. Stocks, Ms. Hyman, COA and KHA were barred by the statute of limitations. We agree. We therefore affirm the dismissals of Mr. Noland's claims against these parties. (See footnote 41)
We affirm the circuit court's Rule 12(b)(6) orders dismissing the bad faith claims against Mr. Stocks, Ms. Hyman, COA and KHA. However, we reverse that part of the circuit court's partial summary judgment order which found that VIR did not owe Mr. Noland a duty to defend him after August 1, 2000. We further direct the circuit court to enter an order finding that VIR owed a duty to defend Mr. Noland from the date of the third- party complaint filed against him by BARH until final termination of that third-party litigation.