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Continuing Breach Theory Does Not Apply to Disability Insurance Policy and Plaintiff’s Entire Claim Is Time-Barred

Curry v. Trustmark Insurance Company
No. 13-1995 (United States Court of Appeals for the Fourth Circuit)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.ca4.uscourts.gov/Opinions/Unpublished/131995.U.pdf

In Curry v. Trustmark Insurance Company, No. 13-1995 (U.S. Court of Appeals for the Fourth Circuit, Feb. 6, 2015), the Court considered the statute of limitations to a disability insurance policy and specifically rejected the continuing breach theory, which in this case meant that Plaintiff’s entire suit was time-barred. Plaintiff had filed a lawsuit contending that Trustmark (the “Insurer”) breached the parties’ contract by refusing to pay benefits to Plaintiff under a disability insurance policy. The district court granted summary judgment on procedural grounds, i.e., disposing of Plaintiff’s claim based on Maryland’s statute of limitations. With respect to the portion of Plaintiff’s action that fell within the limitations period, the district court ruled against Plaintiff on the merits. The appellate court affirmed the district court’s judgment, but based on the conclusion that Plaintiff’s lawsuit was time-barred in its entirety.

Factually, the Plaintiff was a chiropractor who operated his own practice. Pursuant to his disability insurance policy, the Insurer would pay monthly benefits to Plaintiff if a physical disability prevented him from working as a chiropractor. In order to determine Plaintiff’s eligibility for benefits, the Policy also required him to submit written and continuing proof of loss and, if necessary, to submit to an independent medical examination (“IME”). In 2003, Plaintiff injured his back while performing an adjustment on a patient. He underwent spinal surgery and applied for disability benefits in early 2004. The Insurer began paying benefits to Plaintiff, subject to his providing information regarding the extent of his injury, condition, and expected recovery. For the next three (3) years, the Insurer paid Plaintiff monthly benefits under his insurance policy, all while attempting to establish his continued disability. The information provided by Plaintiff was inconsistent and incomplete. Consequently, in July 2007, the Insurer notified Plaintiff that it had discontinued his benefits, effective June 26, 2007, until it received the information it requested under the Policy. For the next year, the Insurer and Plaintiff exchanged correspondence regarding the discontinuation of benefits and the scope of the information requested by the Insurer. During that period, the Insurer extended three (3) additional months of benefits to Plaintiff. Finally, in the spring of 2008, the Insurer requested that Plaintiff undergo an IME to determine his continued eligibility for benefits, but the Plaintiff refused to submit to the IME unless the Insurer paid him additional benefits that he argued were owed to him from the Insurer. When Plaintiff failed to attend the IME, the Insurer denied any additional benefits, effective June 30, 2008, and closed Curry’s claim on September 29, 2008.

On July 27, 2011, Curry filed suit against the Insurer, alleging breach of contract. In ruling on the Insurer’s motion for summary judgment, the district court determined that Plaintiff’s cause of action for breach of contract accrued anew each month benefits were not paid. Consequently, although the court concluded that Plaintiff’s action for breach between September 25, 2007, and July 27, 2008, was untimely under Maryland’s three (3) year statute of limitations, it addressed on the merits all alleged monthly breaches occurring after July 27, 2008. Because it found no breach of contract in the Insurer’s requirement that Plaintiff submit to an IME and provide continuing proof of loss as a prerequisite for payment of his benefits, the district court granted summary judgment to the Insurer.

On appeal, the Fourth Circuit observed that the Maryland three (3) year statute of limitations typically begins to run from the date of the alleged breach. Actions arising from alleged breaches of a continuing contractual obligation, however, are not wholly barred by the statute of limitations merely because one or more of those alleged breaches occurred earlier in time. Rather, where a contract provides for continuing performance over a period of time, each successive breach of that obligation begins the running of the statute of limitations anew, with the result being that accrual occurs continuously and a plaintiff may assert claims for damages occurring within the statutory period of limitations. In this case, the district court determined that the Insurer breached the contract each time it failed to pay benefits for a period during which Plaintiff was disabled. Because it concluded that each failure to pay monthly benefits was a separate and independent breach, the district court found timely the claims for payment that were not due until after July 27, 2008.

The appellate court disagreed. Although it found no authoritative Maryland precedent applying the continuing breach theory to an insurance disability policy, the Maryland Court of Appeals had opined, in the context of a tort action that a similar theory does not apply to the continuing effects of a single earlier act. Maryland federal courts had also rejected a broad application of a continuing breach theory of accrual. In the insurance context, both the Tenth and Eleventh circuits rejected the idea that disability policies are installment contracts giving rise to continuing breaches for each monthly unpaid benefit. Further, in this situation, the issue was whether the disability benefits were owed in the first place. While Plaintiff contended that he was disabled under the insurance policy and owed benefits, the policy did not provide Plaintiff with an unconditional right to receive benefits in perpetuity—rather, his receipt of benefits was subject to his providing adequate continuing proof of loss, and the Insurer maintained that it did not owe Plaintiff additional benefits because he failed to provide continuing proof of loss. Because the alleged breach arose from the Insurer’s denial that it owed Plaintiff benefits at all, no installment contract existed, and the continuing breach theory was not applicable. The Court was not persuaded by Plaintiff’s argument that his claim accrued only after the Insurer formally closed his claim for benefits on September 29, 2008. The Court held that Plaintiff’s cause of action for breach of contract arose, and the statute of limitations began to run, when the Insurer terminated Plaintiff’s monthly benefit payments on June 30, 2008. Thus, the Fourth Circuit affirmed the decision of the district court granting summary judgment in favor of the Insurer, albeit on different grounds than the district court.