No Limit: Court Of Appeals Finds
Policy Limitation Period Unenforceable
As part of our continuing commitment to provide outstanding representation and to serve as an information resource, we wish to inform you of a recent Court of Appeals case interpreting policy provisions often found in property damage claims. When dealing with property damage claims, many insurance policies contain a contractual limitation which requires that a suit be brought within two years after the date of loss. The Court of Appeals recently had occasion to decide an interesting question concerning the effect of that contractual limitation period when it conflicts with another policy provision.
In Executive Plaza, LLC v. Peerless Insurance Company, the Court of Appeals interpreted these policy provisions upon a certified question from the federal Court of Appeals for the Second Circuit. In Executive Plaza, the plaintiff owned an office building that was severely damaged by fire in February 2007. The Peerless policy provided that it would not pay any replacement costs for any loss until the lost or damage property was repaired or replaced. The insurance policy also had a provision which required that any legal action under the policy was required to be brought within two years after the date on which the direct physical loss or damage occurred. Plaintiff commenced an action in New York Supreme Court seeking a declaration that Peerless was liable for the replacement costs up to the policy limit. After Peerless removed the action to federal court, Peerless successfully moved to dismiss the action on the grounds that since the plaintiff had not finished replacing the building, the action was premature.
When the replacement building was completed in October 2010, the plaintiff demanded payment of the unpaid portion of the policy limits. Peerless denied liability on the grounds that the two year period had expired. After a second declaratory judgment action was removed to federal court, the District Court granted Peerless's motion and dismissed the action finding that the policy unambiguously barred any and all suits commenced more than two years after the date of damage or loss. After the plaintiff appealed to the Second Circuit Court of Appeals, the Court of Appeals requested clarification from the New York State Court of Appeals as to the interpretation of the seemingly conflicting policy provisions.
The New York Court of Appeals first concluded that contractual limitation periods are enforceable if they are reasonable. The Court of Appeals found that the problem with the limitation period was not its duration, but its accrual date. The Court wrote "it is neither fair nor reasonable to require a suit within two years from the date of the loss, while imposing a condition precedent to the suit - in this case completion of replacement of the property - that cannot be met within that two year period". The Court of Appeals noted that the limitation period that expires before a suit can be brought is not really a limitation period, but rather a nullification of the claim. The Court of Appeals noted that this was especially true here, where the repairs were time consuming, as in replacing a heavily damaged building from fire.
To be sure, the Court of Appeals interpretation could be the only common sense interpretation. Courts are often unsympathetic to insurance companies where they collect premiums but find overly technical interpretations that would produce absurd results as here.
Should you have any questions, please call.
Thomas M. Bona
