                 IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                                     June 6, 2002 Session

 CERTAIN UNDERWRITER’S AT LLOYD’S OF LONDON Subscribing to
  Policy of Insurance No. LTC982015 v. TRANSCARRIERS INC., ET AL.

                      Appeal from the Circuit Court for Shelby County
                       No. 305691-7 T.D.    Robert A. Lanier, Judge



                 No. W2001-02556-COA-R9-CV - Filed September 16, 2002


This is an interlocutory appeal to determine when a cause of action accrued so as to trigger a
contractual limitations period contained in a legal liability insurance policy issued to a motor
carrier, where the contract contained a settlement of loss provision and the insurer never denied
liability. We hold the contractual statute of limitations began to run upon the expiration of the
settlement of loss provision, when the insurer was no longer immune from suit.

  Tenn. R. App. P. 9 Interlocutory Appeal by Permission; Judgment of the Circuit Court
                                Reversed; and Remanded

DAVID R. FARMER , J., delivered the opinion of the court, in which ALAN E. HIGHERS and HOLLY K.
LILLARD, J.J., joined.

Alisa W. Terry, Decatur, Georgia, for the appellant, Certain Underwriter’s at Lloyd’s of London.

Joseph W. Barnwell, Jr., Memphis, Tennessee, for the appellee, Transcarriers, Inc.

Tim W. Hellen, Memphis, Tennessee, for the appellee, Mitsui Marine & Fire Insurance Company
of America.

                                            OPINION

       Certain Underwriters at Lloyd’s of London (“Certain Underwriters”) issued a policy of
insurance to Transcarriers, Inc., effective February 15, 1998, through February 15, 1999. The policy
containing the following provisions:




                                   INSURING AGREEMENT:
       1. This Policy covers the legal liability of the Insured as a motor carrier, as such
       liability is defined, limited and set forth in the Uniform Bill of Lading, for direct
       physical loss or damage to shipments of lawful goods or wares, and only while in the
       48 Contiguous States of the United States, the District of Columbia, Puerto Rico and
       Canada.

       ....


                                         CONDITIONS:

       ....


       3. NOTICE OF LOSS. The Insured shall as soon as practicable report in writing to
       the Company or its agent every loss, damage or occurrence which may give rise to
       a claim under this Certificate and shall also file with the Company or its agent within
       ninety (90) days from date of discovery of such loss, damage or occurrence, a
       detailed sworn proof of loss.

       ....


       7. SUIT. No suit, action or proceeding for the recovery of any claim under this
       Certificate shall be sustainable in any court of law or equity unless the same be
       commenced within twelve (12) months next after discovery by the insured of the
       occurrence which gives rise to the claim provided, however, that if by the laws of the
       State within which this Certificate is issued such limitation is invalid, then any such
       claims shall be void unless action, suit or proceeding be commenced within the
       shortest limit of time permitted by the laws of such State.

       ....

       17. SETTLEMENT OF LOSS. All adjusted claims shall be paid or made good to
       the Insured within sixty (60) days after presentation and acceptance of satisfactory
       proof of interest and loss at the office of the Company. No loss shall be paid or made
       good if the Insured has collected the same from others.



       On March 3, 1998, and June 1, 1998, Transcarriers reported two losses of cargo, which
allegedly were stolen in transit, to Certain Underwriters. These claims were neither paid nor denied
by Certain Underwriters. Certain Underwriters contends in its brief to this Court that it forwarded


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a reservation of rights letter to Transcarriers on or about June 26, 1998, indicating that it might limit
or deny coverage, but cites nothing in the record to support this contention. Transcarriers denies that
such a letter was forwarded and states that there is no such letter in the record. Transcarriers further
asserts that Certain Underwriters never indicated that Transcarriers’ claims were questionable or that
they would not be paid, and that Certain Underwriters indicated that it was still investigating the
matter as of October 14, 1999. In November of 1999, Certain Underwriters brought a declaratory
judgment action seeking to determine whether it was required to provide insurance coverage for the
claims. In June of 2000, Transcarriers filed a counter-complaint alleging, inter alia, breach of
contract and breach of implied covenant of good faith and fair dealing. In its counter-complaint,
Transcarriers alleged damages resulting from suit brought against it by the shipper. Transcarriers
further alleged that had Certain Underwriters denied the claim in a timely manner, it would have
made a claim for losses due to employee dishonesty pursuant to its policy with United States Fidelity
& Guaranty Company. The counter-complaint was dismissed insofar as Transcarriers sought
consequential damages resulting from a suit brought against it by the shipper.

        On December 28, Certain Underwriters filed a motion for summary judgment asserting that,
pursuant to condition number 7 of the insurance contract, supra, Transcarriers’ suit was time-barred
by the contractual 12-month limitations period. In March of 2001, the trial court granted Certain
Underwriters’ motion for summary judgment based on the 12-month limitation period. Transcarriers
filed a motion to amend the judgment and the trial court reversed itself and denied Certain
Underwriters’ motion on May 25, 2001. The trial court based its decision on a conclusion that, as
a matter of law, the limitations period contained in the policy began to run upon denial of the claim
by Certain Underwriters. Since the claim had not been denied, the court found that the 12-month
limitations period had not been triggered.

        Certain Underwriters moved for permission to appeal the trial court’s order by interlocutory
appeal. The trial court granted this motion on October 10, 2001. Permission to appeal was granted
by this Court on December 13, 2001.

                                                 Issues

       The issue now before this Court is whether the 12-month limitations period provision
contained in the insurance policy bars Transcarriers’ counter-claim against Certain Underwriters.
Certain Underwriters contends that the limitations period began to run upon expiration of the 60 day
“Settlement of Loss” provision, and that Transcarriers’ action accordingly is barred. Transcarriers
submits that the limitations period could only have been triggered by denial of its claim, and that its
cause of action has therefore not expired.



                                         Standard of Review




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       The issue before this Court is an issue of law. Our standard of review on issues of law is de
novo, with no presumption of correctness afforded to the conclusions of the court below. Bowden
v. Ward, 27 S.W.3d 913, 916 (Tenn. 2000); Tenn. R. App. P. 13(d).

                                              Discussion

          We begin by noting that a policy for insurance is generally reviewed under contract
principles. As long as its terms are unambiguous, it will be enforced as written. Ambiguous terms
generally will be construed against the drafter. See Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 886
(Tenn. 1991). However, the courts will not rewrite an unambiguous term simply to avoid harsh
results. Shamrock Homebuilders, Inc. v. Cherokee Ins. Co., 466 S.W.2d 204, 206 (Tenn. 1971).
It is undisputed that a contractually agreed limitations period in an insurance policy is valid and
enforceable in Tennessee. See, e.g., Guthrie v. Connecticut Indem. Ass’n, 49 S.W. 829, 830 (Tenn.
1898); Hill v. Home Ins. Co., 125 S.W.2d 189, 192 (Tenn. Ct. App. 1938).

         The courts of this state generally have held that a contractual limitations period begins to run
upon accrual of the cause of action. Phoenix Ins. Co. v. Fidelity & Deposit Co., 37 S.W.2d 119
(Tenn. 1931); Federal Sav. & Loan Ins. Corp. v. Aetna Cas. & Sur. Co., 701 F.Supp. 1357, 1362
(E.D. Tenn. 1988). We have interpreted insurance policies containing language requiring a claim
to be brought within so many days after a property loss, but which protect the insurer from suit until
after a settlement period, as meaning that suit must be brought within so many days after the cause
of action accrues. Boston Marine Ins. Co. v. Scales, 49 S.W. 743, 747 (Tenn. 1898). Since the
settlement period provides a period of immunity during which the insured may not bring suit, the
cause of action has been construed as accruing once the immunity period has expired, rather than on
the date of the actual loss. Id. Denial of the claim by the insurer before expiration of the settlement
of loss period, however, effectively is a waiver of the immunity period. Home Ins. Co. v.
Hancock, 62 S.W. 145, (Tenn. 1900). An insurer thus cannot raise the immunity period as a
defense to a suit brought within that period once it has denied the claim. Hill, 125 S.W.2d at 192.
Thus an insured’s cause of action accrues upon denial of liability by the insurance company when
that denial comes within the immunity period. Id. It follows that if the insured’s claim is not denied
within the settlement of loss period, during which the insurer is immune from suit, his cause of
action accrues upon expiration of the settlement of loss period, when the insurer is no longer immune
from suit.

         In holding that a cause of action accrues upon denial, the courts did not alter the contractual
limitations period or rewrite the contract so that denial is required before an insured may bring an
action against the insurer. To require denial of a claim before a cause action could accrue would
permit the insurer to merely sit on a claim and do nothing. Rather, such cases have recognized that
it is inequitable for the insurer to effectively shorten the period in which a cause of action could be
maintained by granting itself a period in which it is immune from suit while the limitations period
is slipping away. Boston Marine, 49 S.W. at 747. The immunity period therefore postpones the
accrual of the insured’s action. Hill, 125 S.W.2d at 192. Once the action has accrued, the
limitations period begins to run. If an insurer neither pays nor denies a claim brought by its insured,


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a suit against the insurer may be sustained upon expiration of the settlement of loss/immunity period.
Id. Accordingly, the contractual statute of limitations begins to run upon denial of liability or upon
expiration of the immunity period, whichever comes first.

         Transcarriers alleges that in addition to not denying its claim, Certain Underwriters stated
that it was continuing its investigation of the claim and that it never indicated that the claim might
be denied. Even if we consider these allegations to be true, they do not alter when Transcarriers’
action accrued. However, like other contract provisions, the term limiting the time within which an
action may be brought can be waived by the insurer. Das v. State Farm Fire & Cas. Co., 713
S.W.2d 318, 323 (Tenn. Ct. App. 1986). The insurer may also be estopped from asserting the
limitations period as a defense where it has mislead the insured into believing its claim will be paid,
thereby lulling the insured into inaction, or where the insurer intentionally delayed adjustment of the
claim until after the limitations period had expired. Id. Whether Certain Underwriters should be
estopped from asserting the limitations period in this case requires findings of fact by the trial court
and is not an issue now before this Court.

        Transcarriers further contends that since the insurance contract at issue here is a legal liability
policy, its cause of action against Certain Underwriters could not accrue until an adverse judgment
had been rendered against it. In general,

         a cargo policy covering the legal liability of the insured as a carrier for the direct loss or
         damage on a shipment of goods and providing that no suit or action on the policy shall be
         sustainable unless commenced within 12 months next after the happening of the loss is an
         agreement to indemnify in case of legal liability against the insured, and a suit brought within
         12 months after the rendering of a judgment against the insured is not barred by the
         provision. To hold that the happening of the loss relates to the physical damage to the cargo
         would inject into the policy a new meaning and change from one of indemnity for liability
         to insurance for any physical damage to the cargo.

17 Lee R. Russ & Thomas F. Segalla, COUCH ON INSURANCE § 236:17 (3d ed. 2000). Transcarriers
argues that it had not been damaged, and therefore could not maintain an action against Certain
Underwriters, until the shipper had obtained a judgment against it for losses to the shipper of its
property. Certain Underwriters maintains that since liability of the carrier is presumed when goods
are lost by a carrier, a judgment is not a necessary prerequisite to the determination of legal liability. 1


         1
             49 U .S.C.S. § 14 706 provide s:

(a) Gen eral liability. (1) Motor carriers and freight forwarders. A carrier providing transportation or service subject
to jurisdiction under subchapter I or III of chapter 135 [49 U.S.C.S. §§ 13 501 et seq. or § 135 31] shall issue a receipt
or bill of lading for property it receives for transportation under this part [49 U.S.C.S. §§ 13101 et seq.]. That carrier
and any other carrier that delivers the property and is providing transportation or service subject to jurisdiction under
subchapter I or III of chapter 135 or chapter 105 [49 U.S.C.S. §§ 13501 et seq. or § 13531 or §§ 10501 et seq.] a re liable
to the person entitled to recover under the receipt or bill of lad ing. The liability imposed under this paragraph is for the
                                                                                                              (continued...)

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Additionally, we note that the policy itself refers to adjusted rather than adjudicated losses.
Therefore, an adverse judgment against Transcarriers was not required before payment could be
made on the policy. Unlike most legal liability issues, the amount of Transcarriers’ liability for lost
cargo is easily determined notwithstanding the absence of a judgment against it.

        In Waugh v. American Casualty Co., 378 P.2d 170 (Kan. 1963), the Supreme Court of
Kansas addressed whether a cause of action accrued upon the denial of a claim brought pursuant to
a similar policy, where no judgment had yet been rendered against the carrier. The court held that
although no judgment had been rendered against the carrier, it could maintain a cause of action
against the insurer where the insurer had denied its claim. The Waugh court analyzed the
particularities of a similar policy insuring a motor carrier against liability for the loss of goods, and
distinguished a policy which covers adjusted claims as opposed to adjudicated claims. While not
binding on this Court, we believe the reasoning in Waugh to be applicable here.

         The issue addressed by the court in Waugh was not whether denial of liability by the insurer
was necessary to trigger the limitations period. Rather, the Waugh court addressed whether the
insured motor carrier could bring an action against the insurer which had denied its claim on a
liability insurance policy, where the motor carrier’s liability had not been adjudicated. The court
noted that, as here, the policy provided for payment of adjusted rather than adjudicated claims.
Waugh, 378 P.2d at 175. Such a policy, the court reasoned, “anticipates that claims for loss or
damage would be adjusted without the legal liability being reduced to judgment.” Id. The court
noted that the term “‘legal liability’ must be construed to encompass the contractual liability which
[the carrier] assumed on receipt of the cargo from the owner.” Id. (citing Brooklyn Clothing Corp.
v. Fidelity-Phenix F. Ins. Co., 205 N.Y. App. Div. 743, 200 N.Y.S. 208). When a policy is one
against liability, coverage under it attaches when liability attaches. Id. As noted above, the motor
carrier’s liability for losses of a shipper’s goods in the possession of the carrier attaches at the time
of loss. To hold that the insured’s cause of action on a liability policy covering a motor carrier could
accrue only upon the entry of an adverse judgment against it would result in unnecessary, costly, and
time consuming litigation. To require such litigation where the amount of the carrier’s liability is
determinable without resort to the courts for intensive fact finding, and where the carrier’s liability
is not disputed, would result in a waste of judicial and economic resources. Further, it defeats the
intent of the parties to this insurance contract, which was to settle adjusted claims quickly without
resort to the courts to adjudicate the amount of liability. This is the coverage for which the insured
paid, and which the insurer promised to provide.


         1
           (...continued)
actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier
over who se line or route the property is transported in the United States or from a place in the United States to a place
in an adjacent foreign country when transported under a through bill of lading and, except in the case of a freight
forwarder, applies to property reconsigned or diverted under a tariff under section 13702. Failure to issue a receipt or
bill of lading does not affect the liability of a carrier. A delivering carrier is deemed to be the carrier performing the
line-haul transpo rtation nearest the destination b ut does not include a carrier providing only a switching service at the
destina tion.



                                                            -6-
        In short, had Certain Underwriters denied Transcarriers’ claim, Transcarriers would have had
a cause of action against it notwithstanding the absence of a law suit brought against it by the
shipper. The insurance policy clearly contemplates coverage for adjusted claims; it does not require
that claims be adjudicated. Coverage under Transcarriers’ liability policy attached when
Transcarriers’ liability attached. Transcarriers’ liability attached when the shipper’s property was
lost. The insurance policy, however, anticipates a period during which proof of loss must be made
and provides the insurer with a 60-day settlement of loss period. Thus the accrual of Transcarriers’
action against Certain Underwriters was postponed until the expiration of the settlement of loss
period, when its claim became payable. The 12-month limitations period for an action by
Transcarriers against Certain Underwriters began to run upon accrual, i.e., at the end of settlement
of loss period.

                                             Conclusion

         Although the insurance policy in this case was one for legal liability, it clearly anticipated
coverage of adjusted rather than adjudicated claims. The intent of the parties reflected by this policy
is that claims would be paid without resort to an adverse judgment against Transcarriers in a suit
brought by the shipper. This intent may be inferred from the language of the policy itself. Moreover,
the policy is one for coverage of Transcarriers’ liability for loss. Coverage under the policy therefore
attached when Transcarriers’ liability attached. Transcarriers’ liability attached at the time of the
loss. The amount of loss for which Transcarriers is insured is to be adjusted by the parties without
a prerequisite adjudication in an action by the shipper against Transcarriers. This reflects the
practical and economic realities of the motor carrier industry, which presumes liability of the carrier,
and where the amount of loss is easily determinable without intensive fact finding by the courts.

        The contractual limitations period in a contract of insurance begins to run when the insured’s
cause of action accrues. Notwithstanding language in the policy that the cause of action must be
brought within so many months of occurrence of the loss, a settlement of loss period which gives
the insurance carrier so many days in which to settle the claim, thereby rendering the insurer immune
from suit, postpones accrual of the insured’s action until the expiration of the settlement of loss
period. Denial of the claim by the insurer results in a waiver of the settlement of loss period, and
thus the insured’s cause of action accrues upon denial. When the insurer neither pays nor denies a
claim within the settlement of loss period, it is no longer immune from suit and the insured’s cause
of action accrues. Thus the limitations period is triggered either by denial of the claim by the insurer
or by expiration of the settlement of loss period, whichever comes first.

        Judgment of the trial court holding that denial of Transcarriers’ claim by Certain
Underwriters was necessary to trigger the limitations period is reversed. This case is remanded for
further proceedings consistent with this opinion. Costs of this appeal are taxed to the Appellee,
Transcarriers, Inc.




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      __________________________________
      DAVID R. FARMER, JUDGE




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