The answer to this question depends on 1) Which laws are applicable to your policy, 2) Where you are, and 3) What your policy says.
1) Which Laws Apply?
First, you need to know if your policy is subject to state laws or federal laws. Many policies are subject to ERISA – a federal law that trumps all state laws. To get a good idea of whether or not your policy is subject to ERISA, ask three basic questions, in this order: (a) Did I buy my policy from my employer? (or your employer paid for it) If yes, it is probably subject to ERISA, (b) Is my employer a government agency or government contractor? If yes, you may fall under an ERISA exception and not be subject to ERISA, (c) Is my employer a religious institution? If yes, you fall under an ERISA exception and are not subject to ERISA. Please note that these questions only provide a basic guide, but there are many exceptions and you should consult an attorney who specializes in insurance law and/or ERISA to fully explore if your policy is subject to the federal law ERISA. If you suspect that ERISA applies, you need to contact an attorney right away. The statute of limitations varies depending on which type of claim you would like to bring, and in some cases, once your claim has been denied (the first denial, even before you file an appeal) you have very little time.
If ERISA does not apply, proceed to question number 2.
2) Where Are You?
If your claim is not subject to ERISA, it will be subject to your state’s laws. Each and every state has different statutes of limitation, meaning the amount of time you have to file a lawsuit will vary depending on which state you reside in. For example, in California, you should file your claim within two years after the date your claim was denied. If you file within two years, you can seek redress for “bad faith” and receive damages for emotional distress and possibly a punitive award (the court “punishes” your insurer for acting in bad faith). If you miss the two year deadline, you can still sue for breach of contract, which has a statute of limitations of four years. If you live in New York, you have six years in which to file your suit, for either breach of contract or bad faith. However, be careful, because your answer to question number three can change these state-provided statutes.
3) What Does Your Policy Say?
Most states also allow the court to look to your insurance policy to see if there is another limitation on when you can file suit. For example, if your policy has a clause that requires you to file suit within two years, the court has the discretion to apply the clause instead of your state’s statute of limitations. Whether or not a court follows this practice depends on (a) if the court thinks the clause is reasonable and not a hindrance to justice and (b) whether or not the courts in your state have a history of applying these clauses. Again, you need to contact an insurance attorney to be certain.
The moral of the story is this: Contact an attorney as soon as you realize you have a claim against your insurer, and ask about the statute of limitations. You do not want to lose your right to file suit!