I was flipping through the channels this weekend and stumbled on the Clint Eastwood classic spaghetti western, The Good, the Bad, and the Ugly. Life imitates art and it occurred to me that most situations feature an element of good, bad, and downright ugly. I have a number of "First Party Insurance" claims sitting on my desk (e.g. an Association pursuing its own carrier for discovered property damage). Many of these involve the "discovery rule." Having dealt with this rule on a number of occasions, I've discovered the good, the bad, and the ugly of this rule.

The Good

In Holden Manor Homeowners Association v. Safeco Insurance Company, the Western District of Washington recently held that the "discovery rule" is not limited to coverages that explicitly rely on "hidden" damage. Instead, the discovery rule delays the running of the policy "suit limitation" provision (i.e. the time an insured has to sue the insurer) until a loss is "exposed" or has "concluded." Generally speaking, Oregon courts follow a similar rule. The good news is that the discovery rule may expand the available claims for an Association.

The Bad

It is not always easy to determine when a loss was "exposed." Courts may ask whether an insured acted "reasonably" or whether they should have inquired further based on a certain set of facts. Without a certain date from which the limitations period will run, it may be difficult for an Association to know whether the clock has started ticking or whether it is about to expire. Many suit limitations periods are one year, meaning that an Association may need to act quickly upon discovery of property damage.

The Ugly

I have encountered several claims where the insurer has outright denied the claim because the insured allegedly "knew" of the loss for too long before bringing a claim. Associations that had an otherwise strong claim and likely recovery, may not recover at all or will have to take a substantial discount. The ugly news is that Associations that sleep on their claims may lose a potentially substantial recovery. In most first party claims, the statute of limitations for construction defect litigation has already passed. Once the first party deadline also runs, the only avenue left involves payment by owners (through assessments or repayment of association loans).

Associations can take advantage of the "good," as long as they act diligently when property damage is discovered. They should contact an attorney familiar with insurance claims to assess whether recovery is a possibility. Failing to do so could be bad, and perhaps downright ugly.