I wrote a blog earlier this week, Kentucky allows real estate insurance companies to shorten the limitation period – even if you do not know that a loss occurred. I received an email from an outstanding lawyer and colleague, Brandon McWherter. He sent me a case that was settled last month by a separate federal court in Kentucky that ruled in favor of a statute of limitations in Kentucky.1
In the case statement, the loss and denial of facts were cited as follows:
From February 26, 2017 to February 26, 2018, the plaintiff’s premises were insured by Ohio Security. From 26 February 2019 to 26 February 2020, the premises were insured by State Auto. On June 17, 2019, a hailstorm hit the premises and caused significant damage. The plaintiff immediately reported the damage to State Auto. State Auto engaged EES Group, Inc. to investigate the plaintiff’s claims. On 19 June 2020, the EEA issued a report confirming that the premises had been hit by hail damage, but claimed that the damage occurred before the state’s car insurance period. The plaintiff disputes this finding. State Auto disputed the plaintiff’s claims based on this report.
Based on this denial, the plaintiff made a claim to Ohio Security for damage to the premises that occurred in a hailstorm on April 5, 2017. Ohio Security hired The Hague Engineering to investigate the plaintiff’s claims. On 21 December 2020, “The Hague issued a report confirming that the insured premises had been damaged by hail but claimed that the damage was not caused by hail and / or that the hailstones were not large enough to tear down the roof membrane.” The complaint alleges that Ohio Security on January 11, 2021, acknowledged the hail damage, but denied the plaintiff’s claim because the damage was not caused by hail, the hailstones that fell were not large enough to tear the roof membrane, exceptions were applied, internal damage was not a covered cause of the loss and the plaintiff failed to report the loss in time.
This is now a common injury scenario for those involved in hailstorm losses representing policyholders. The insurance company called out for the latest hailstorm saying another storm caused the loss. The former insurance company that insured during the previous hailstorm hired an expert. The expert says that the damage can not be due to the previous hailstorm, and there is not enough damage to make a claim that is greater than the deductible. This scenario is so common that anyone who adjusts hailstorm losses should expect to encounter “must be some other hailstorm loss”.
An action was brought against both insurance companies and Ohio Security raised the statute of limitations. The district court quoted the subject clause:
No one may bring a legal action against us under this coverage unless all the terms of this coverage have been fully complied with and the action is brought within 2 years after the date on which the direct physical loss or damage occurred.
The Court summarized the arguments of both parties:
Ohio Security claims that the hail damage complained of occurred on April 5, 2017 and that the action was not filed until May 3, 2021. As a result, Ohio Security claims that the plaintiff’s contract claim is statute-barred because it has not filed a claim within two years of the damage in in accordance with the insurance’s delay limitation terms. The plaintiff claims that the two-year contract limitation in the insurance is contrary to a charter, Ky. Reef. State. § 304.10-370, and that it is otherwise unreasonable.
Following the policyholder’s arguments, the court noted:
A restriction provision “may nevertheless be impossible to enforce if it did not permit [plaintiff] a reasonable time to bring an action. ”… The plaintiff claims that the provision did not allow the plaintiff a reasonable time to bring an action because“ the estate did not have time to bring an action ”when the claim had been rejected. The defendant replies that “[p]the plaintiff’s alleged failure to detect the “catastrophic” hail damage to the plaintiff’s buildings for over two years after a “severe storm event” does not make the lawsuit limitation clause unreasonable.
The court’s analysis of whether the plaintiff had a reasonable time to bring an action is strongly dependent on facts in this particular case …
According to the plaintiff’s complaint, the plaintiff immediately reported the security loss in Ohio to Ohio Security when the damage was discovered. ‘ The court must accept this fact as true at this stage of the proceedings … This case can be distinguished from Smith in that, unlike in Smith, the insurance requirement applies to hail damage, which is not as obvious as the fire damage in Smith. Federal courts enforcing Kentucky law have recognized that contractual restrictions that leave no time for litigation because the plaintiff is not wrong are unreasonable.
The court rejected the claim for denial. This does not mean that the policyholder will beat the limitation period because the court will have more facts as the case progresses. Still, it’s a “win” and a good argument by Brandon McWhirter.
Fishermen know that the sea is dangerous and the storm terrible, but they have never found these dangers sufficient reasons to stay ashore.
-Vincent van Gogh
1 Estate of Flora Mattingly v. State Auto Prop. & Cas. Ins. Co.No. 3: 21-cv-00274 (WD Ky. March 11, 2022).