In a decision handed down last week, a federal judge in New York applied New York’s statute of limitations, which allows a policyholder to file a lawsuit more than seven years after her apartment suffered water damage.1 Here are the relevant facts recited by the court:
In early 2014, the plaintiff learned that her apartment in New York City had sustained severe water damage. She immediately reported the damage to Pacific Indemnity, in accordance with the terms of her property insurance policy (“Policy”). But prompt notification to the insurer was only a condition. In order to recover her claim, the plaintiff was also required to take reasonable means to protect her property from further damage; prepare an inventory of damaged property; be tried under oath, if so requested; and provide, within sixty days of the request, a signed, sworn proof of loss.
The plaintiff met all these requirements. But Pacific Indemnity spent years delaying the claims process, with costly consequences for claimants. In particular, the policy provides that the insured “may not surrender any property to us unless we agree to accept it, or to a third party unless we consent.”; In effect, this required the plaintiff to retain all of her damaged property until Pacific Indemnity agreed to dispose of it. By delaying the inspection of plaintiff’s damaged property for several years, Pacific Indemnity forced plaintiff to incur years of unnecessary storage costs.
In 2021, Pacific Indemnity ultimately denied coverage for plaintiff’s property damage, citing plaintiff’s failure to comply with the required terms and conditions as a reason for nonpayment. In so doing, Pacific Indemnity invoked the term of the policy which provides that the insured “agrees[s] not to bring legal action against us unless you have first complied with all the terms of this policy.’ The police also state that the insured “consents”.[s] to bring an action against us within two years after a loss occurs.’ The policy does not define the term “loss”.
The plaintiff commenced this action in February 2022…
Based on these facts and the specific policy language, the judge ruled that the policyholder timely filed suit under New York law:
New York law generally allows parties to a contract six years to bring an action for an alleged breach of contract.3 CPLR § 213(2). “However, the parties to a contract may agree to shorter statutes of limitations, which are normally enforceable when reasonable and in writing.” Vitrano v. State Farm Ins. Co.No. 08-cv-103, 2008 WL 2696156, at *2 (SDNY July 8, 2008) (citing John J. Kassner & Co. against the City of New York46 NY2d 544, 551 (1979)). “Dismissal is appropriate when the action is commenced after the contractual statute of limitations.” Polcom USA, LLC v. Affiliated FM Ins. Co., 551 F.Supp. 3d 290, 294 (S.D.N.Y. 2021).
The policy at issue here contains a contractual statute of limitations that provides that the insured must “consent to bring an action against [Pacific Indemnity] within two years after a loss occurs.’ The term “loss” is not defined in the policy. However, Pacific Indemnity argues that it is clear from a reading of the entire policy and the use of the word “loss” throughout that suit must be brought within two years after the underlying injury occurred. Pacific Indemnity argues that the action is therefore premature because it was brought about eight years after the water damage occurred. This argument is precluded by precedent.
IN Fabozzi v. Lexington Insurance Company., 601 F.3d 88 (2d Cir. 2010), the Second Circuit addressed language in an insurance contract that required plaintiffs to bring suit “within two years after the date of loss.” Similar to what is the case here, the insurance company argued that when looking at the policy as a whole, and using the word “loss” throughout, the limitation provision clearly runs from the date the loss occurred. Rejecting this argument, the Second Circuit explained that the term “loss” was not defined in the policy and that “[a]For the most part, the other uses of “loss” in the contract make this expression ambiguous. This ambiguity necessarily defeated the insurer’s interpretation, the Second Circuit continued, because “it is well-settled law that where an insurer has drafted the policy.” . . any ambiguity in the policy should be resolved in favor of the insured.” As a result, the court concluded that the statute of limitations ran from the date the insured’s claim arose—which, under New York law, usually occurs at the time of the breach.
The policyholder in this case was lucky to have that policy language. We have cautioned that New York policies often have a 12-month deadline to file suit, as noted in New York’s statute of limitations can be contractually shortened to as little as one year from the date of lossand New York’s statute of limitations and the impact of the covid-19 closures.
Dreams have no deadlines. I’m thinking about doing bigger and better things and having more fun doing it.
—LL Cool J
1 Hochfelder v. Pacific Indemnity Co.No. 1:22-cv-2012 (SD NY March 9, 2023).