Sometimes the black letter law passed by the legislature is unclear. The legislature can’t anticipate every possible fact scenario when they pass a law, so it lay to the courts to interpret the law and give guidance to what it means. This interpretation is called case law. When the court decides a certain meeting to the law it essentially answers a legal question. Lawyers and other courts then can rely on that ruling when they have a similar issue in their case. The following case answers the question above.

Spalding v. Stewart Title Guaranty Co., 463 S.W.3d 770 (Mo. 2015).

This case addresses the following issue:

When must a bad-faith claim be brought?

This case arose from a title defect. Id. at 772. The court was required to determine what the statute of limitations, or time limit to file a claim, was for a bad-faith claim. Id. Because bad-faith claims are, at their heart, breach of contract claims, the court determined a five-year statute of limitations applied and began to run upon the breach. Id. at 775-76. In bad-faith claims, the breach will normally be the refusal to defend, refusal to pay, or refusal to settle. Id. at 776.

The Plaintiff in this case purchased land, which included a title insurance policy. Id. at 772. Plaintiff began large plans to develop the property, which included demolition and reconstruction of a dam, and other large-scale modifications to the water-front property. Id. at 773-74. After several of these modifications had been permitted and otherwise approved, it came to light that one acre of the property actually belonged to an adjoining lot. Id. at 773. To resolve Plaintiff’s title defect, Defendant wrote a check for $10,000, which it determined to be the reasonable value of the property. Id. Plaintiff refused the payment and instead sought the difference in the value of his property without the intended and improved upgrades. Id. at 774-75. Plaintiff filed suit and was ultimately award a verdict well in excess of $1 million. Id. at 775.

The main argument of the insurance company was that the statute of limitations had run on Plaintiff’s claims. Id. at 775-76. The court first determined that bad-faith claims are truly, at their core, breach of contract claims. Id. at 775. Thus, Missouri’s five-year statute of limitations applies to such claims. Id. The next part of this inquiry is when does this time-limit start running. Id.

The general rule for claims based on breach of a contract is that the statute of limitations begins to run when the breach occurs. Id. at 775-76. The insurance company argued that the “breach” here occurred when all parties were on notice that the title might be defective—over five years before the filing date. Id. at 776. This date was chosen because it was the point at which Plaintiff and Defendant knew that Plaintiff had a claim under the policy. Id. The court disagreed, however, and noted that the insurance company had “acted consistently with its contractual obligations” up until it “failed or refused to adequately compensate” the Plaintiff for his loss covered by the contract. Id. This was the breach, and Plaintiff had filed within five years of the event, making the lawsuit timely. Id. at 777.