Kimberly Gallahan v. Philadelphia Indemnity Insurance Company

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
KIMBERLY GALLAHAN,
Plaintiff-Appellant,
v.
PHILADELPHIA INDEMNITY
INSURANCE COMPANY,
Defendant-Appellee.
No. 18-35057
D.C. No. 2:17-cv-00131-RSM
MEMORANDUM*
Appeal from the United States District Court
for the Western District of Washington
Ricardo S. Martinez, District Judge, Presiding
Argued and Submitted May 13, 2019
Seattle, Washington
Before: HAWKINS, W. FLETCHER, and BENNETT, Circuit Judges.
Kimberly Gallahan appeals the adverse grant of summary judgment in favor
of Philadelphia Indemnity Insurance Company (“Philadelphia”). The district court
held, as a matter of law, that Gallahan’s suit was barred by the limitations period in
her insurance policy with Philadelphia, which provided that a suit for breach of
contract had to be filed within one year “after the date on which the cause of action
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
FILED
JUN 25 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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accrues.” We reverse and remand for trial. By remanding for trial, we do not
preclude dispositive motions unrelated to limitations periods.
Gallahan argues that the policy violates Washington law by improperly
shortening the limitations period to one year. Even assuming, without deciding,
that the limitations period was properly shortened to one year, Gallahan’s suit was
timely filed.
In Washington, “the contract statute of limitations begins to run against an
insured on the date the insurer breaches the contract of insurance.” Schwindt v.
Commonwealth Ins. Co., 997 P.2d 353, 356 (Wash. 2000). Here, Philadelphia
neither denied coverage, made a final offer, nor took any other action indicating
that it had taken a final position on Gallahan’s claim. Thus, the contractual
limitations period was never triggered. Cf. id. (holding that the limitations period
was triggered by the denial of coverage). Philadelphia has not pointed us to any
case (from Washington or elsewhere) where a limitations period was triggered
without a definitive act by the insurer, like a denial letter or a final offer.
The district court found, however, that a failed November 2015 mediation
started the limitations period. Gallahan argues that the district court erroneously
relied on privileged mediation communications in making this finding. See Wash.
Rev. Code § 7.07.030 (mediation privilege). Even if the mediation evidence
proffered by Philadelphia was admissible, the evidence proves too little.

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Mediations can fail for many reasons, and a failed mediation alone does not equal a
breach of contract nor even the end of negotiations. Here, one month after the
mediation, Philadelphia sought additional medical records from Gallahan, belying
any notion that it had taken a final position on Gallahan’s claim.
In December 2015, a paralegal employed by Gallahan’s counsel wrote an
email to Philadelphia stating that they were “about to file with the courts.”
Philadelphia argues that even if the failed mediation did not trigger the limitations
period, this email demonstrated that the clock was already running in December
2015. The email, however, does not change the fact that Philadelphia did nothing
to put a reasonable insured on notice of a breach.
As the Washington Supreme Court stated in a related context: “Bearing in
mind that we are construing a limitations statute and not just a definition of a cause
of action, the word ‘accrued’ should be construed in a manner consistent with a
prima facie purpose to compel the exercise of a right within a reasonable time
without doing an avoidable injustice.” Gazija v. Nicholas Jerns Co., 543 P.2d 338,
342 (Wash. 1975). A rule that leaves insureds guessing as to the start of a
shortened limitations period would create just such an avoidable injustice because
requiring insurers to take a final position (for example, by denying coverage or
making a final offer) would impose a minimal burden on them.
The evidence demonstrates that the insured’s lawsuit was timely filed.

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REVERSED AND REMANDED.

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