Timeliness Of Insured’s Suit Against Insurer Is Measured From The Date The Insured’s Claim Accrued, Not The Date On Which Damage Was Incurred
The United States Court of Appeals for the Second Circuit recently found that a contractual suit limitations clause in a homeowner’s insurance policy began to run when the insured’s claim against the insurer accrued, not the date on which damage was incurred. In Fabozzi v. Lexington Insurance Company, 601 F.3d 88 (2d Cir. 2010), the Second Circuit analyzed the long-standing history of contractual suit limitations clauses under New York law and found that specific language is necessary to tie a suit limitations period to the date the loss or damage occurred.
Paul and Annette Fabozzi owned an Oceanside home on Staten Island, New York that began to collapse as the result of structural damage. The Fabozzis first became aware of the structural deterioration during the course of a renovation project that began in 2001. By April, 2002, the deterioration progressed to the point that the house had to be propped up to prevent it from fully collapsing. On May 13, 2002, the Fabozzis submitted a claim under their homeowner’s policy for the damage sustained to the home.
The insurer conducted a detailed investigation into the Fabozzis' claim that culminated with an examination under oath of the Fabozzis in January, 2004. On July 29, 2004, the insurer denied coverage based on the homeowner’s policy exclusions for wear and tear, deterioration, inherent vice, latent defect, wet and/or dry rot, as well as earth movement. On October 29, 2004, the Fabozzis sued the insurer, alleging breach of contract and breach of the covenant of good faith and fair dealing. The Fabozzis’ homeowner’s policy contained a contractual suit limitations clause, which read: “Suit Against Us. No action can be brought unless the policy provisions have been complied with and the action is started within two years after the date of loss.”
The insurer argued that by the time the Fabozzis brought their lawsuit in October, 2004, the two-year contractual suit limitations period expired. The District Court agreed with the insurer and dismissed the Fabozzis’ lawsuit. The District Court also rejected the Fabozzis’ argument that the conduct and statements of the insurer and its agent tolled the limitations period.
The Fabozzis appealed the District Court’s decision to the United States Court of Appeals for the Second Circuit, arguing that the District Court incorrectly applied New York’s law on contractual suit limitations periods and, alternatively, that there were questions of fact that precluded summary judgment on the Fabozzis’ equitable estoppel argument. The Second Circuit reversed the District Court and held that the suit limitations period in the Fabozzis’ homeowner’s policy did not begin to run at the time of the accident.
In reaching its decision, the Second Circuit analyzed case law from 1882 holding that “generic language setting a contractual limitations period should be interpreted to start the clock not at the time of the accident itself but only once ‘the right to bring an action exists’ – that is, once all conditions precedent have been met.” Fabozzi at 91, quoting, Steen v. Niagara Fire Ins. Co., 89 N.Y. 315, 322 (1882).
The Fabozzi Court observed that in 1887 and again in 1918, the New York State Legislature adopted a standard fire insurance policy which provided that an action had to be commenced “within twelve months next after the fire.” Fabozzi at 91, quoting, Proc v. Home Ins. Co., 17 N.Y.2d 239 (1966). In 1943, the legislature modified the standard fire insurance policy to provide that the suit limitations period would expire twelve months “after inception of the loss” insured against. Id.
Based on this history, the Second Circuit found the phrase “after the inception of the loss” to be a term of art in New York which fixes the suit limitations period to the date of the accident or peril insured against. Id. at 91. Courts in New York have also held that time bar provisions requiring that an action be brought “within two years after the date on which the direct physical loss or damage occurred,” or referring to the “event from which the loss or damage arises,” are sufficient to fix the suit limitations period to the date of the accident or peril insured against. Fabozzi at 92, quoting, Myers, Smith & Granady, Inc. v. N.Y. Prop. Ins. Underwriting Ass’n, 85 N.Y.2d 832 (1995); Myers v. Cigna Prop. & Cas. Ins. Co., 953 F.Supp. 551, 555-56 (S.D.N.Y. 1997).
However, if a contractual suit limitations clause uses generic language, such as “after the happening of the loss” or “within two years after the date of loss,” New York courts will tie the suit limitations period to the moment when a claim accrues. Fabozzi at 92, 93. For suit limitations purposes, a claim generally accrues once the conditions precedent to filing a suit have been satisfied. Id. at 93. Those conditions can be met when payment on a claim becomes due and enforceable, or at the time the insurance contract is allegedly breached (for example, when the claim is denied). Id.
Since the District Court in Fabozzi did not determine the conditions precedent to filing suit and did not determine at what point a breach occurred, the Second Circuit remanded the case to the District Court so that it could consider when the claim accrued and whether the lawsuit was timely.
In order to tie a suit limitation period to the date of the accident or peril insured against in New York, the contractual suit limitation clause must utilize the language “after the inception of the loss” or language of equal precision. If the contractual suit limitations clause uses generic language such as “within two years after the date of loss,” the limitations period will begin to run on the date the claim accrues, not the date on which the damage was incurred.