14.17.1 Accrual of Negligence Claims.

JurisdictionArizona

14.17.1 Accrual of Negligence Claims. Arizona has followed the “discovery rule” in determining when a cause of action against an insurance producer accrues for statute of limitation purposes.229 Under that rule, the statute of limitations begins to run as soon as the insured has “discovered” who injured him and he has suffered some form of damage, such as incurring attorneys’ fees in litigating coverage with an insurer.230 Under this rule, a cause of action begins to accrue when “the plaintiff possesses a minimum knowledge sufficient to recognize that a ‘wrong occurred and caused injury.’”231

Two cases apply Arizona’s discovery rule to insurance producers. Gibbons v. Badger Mutual Insurance Co.,232 held that the insured’s action against his insurance producer for negligence and fraud in failing to transfer coverage from one business property to another accrued on the date of the insurer’s express denial of coverage for a first-party fire property loss. As of that date, the insured had suffered the damage of an uncovered loss.233

In the context of a coverage denial for a third-party liability claim, Manzanita Park, Inc. v. Insurance Company of North America234 held that the insured’s claim accrued as soon as the insurer denied coverage and the insured was required to defend itself against the liability claim, thus incurring attorneys’ fees. The court reasoned that once the insured incurred attorneys’ fees, this satisfied the requirement that the insured suffer “any appreciable and actual harm.”235 The statute of limitations accordingly then began to run because the insured also had knowledge that the insurance producer was potentially at fault in causing the harm.236

In contrast, in Premium Cigars, the court suggested in dicta that the final judgment rule applies. It provides that “when the plaintiff knows or, through the exercise of reasonable diligence, should have known of the defendant’s wrongful conduct, the statute begins to run.”237 But the accrual of the cause of action is delayed because under Arizona’s bad faith law “the injury results when the excess verdict is rendered.”238 Thus, a claim against an insurance producer – at least one arising out of a denial of casualty coverage – would not be ripe until there is a final judgment or adjudication on the coverage issue adverse to the insured. Accordingly, the insured’s cause of action does not accrue until he has exhausted his appeals and is legally obligated to pay a judgment or excess verdict.239

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