Property insurance policies typically require that, once an insured suffers a loss, the insured report the loss to the insurance carrier promptly. The purpose of such a provision is to allow an insurer to investigate a claim close in time to the occurrence so as to protect itself from fraud, take early control of the direction of the claim to anticipate where that claim might lead, and to ensure that it has adequate reserve funds in place. Naturally, the question often becomes how much time may elapse after a loss to make a delay in reporting unreasonable, and whether an insured may be excused from compliance with such late notice provisions by pleading lack of prejudice to the insurer, lack of sophistication, or some other, similar, mitigating factor. In Minasian v. IDS Prop. Cas. Ins. Co., 2017 U.S. App. LEXIS 1079 (2d Cir. Jan. 19, 2017), the Second Circuit found that a reporting delay of three months ran afoul the policy’s reporting requirement, and resoundingly rejected the insureds’ arguments that certain extenuating circumstances should excuse their compliance with the policy’s post-loss notice requirements. Continue Reading
We have previously featured New Jersey District Court decisions addressing “unequivocal” denials in the context of policies’ suit limitation provisions. In the latest, Ryan v. Liberty Mut. Fire Ins. Co., No. 14-6308 (WHW)(CLW), 2017 U.S. Dist. LEXIS 6716, at *3 (D.N.J. Jan. 17, 2017), the Court found Liberty Mutual’s letter explaining both covered and excluded damages to constitute a “clear and unequivocal” denial.
In Ryan, the day after their home was damaged by Hurricane Sandy, the Ryans notified Liberty Mutual of a claim for the damage. Liberty Mutual sent an independent adjuster to the property and determined that it owed the Ryans $4,784.14 for covered damages. Liberty Mutual explained the payment of policy benefits in a November 30, 2012 letter, which the Ryans received on December 10, 2012. The letter explained that Liberty Mutual would not be issuing payment for damage to a living room wall because the Ryans had been paid for damage to the wall after a previous storm, and the inspection showed that they had not repaired the damage. The letter also stated that no coverage was available for flood-related damages. Continue Reading
The United States District Court for the District of Connecticut recently reaffirmed its ruling that the term “collapse,” as defined by a homeowners insurance policy, is unambiguous and that the policy in question did not provide coverage for the alleged “cracking” and/or “bulging” of the insureds’ foundation walls. In Alexander v. Gen. Ins. Co. of Am., 2017 U.S. Dist. LEXIS 5963 (D. Conn. Jan. 17, 2017), the court denied the plaintiffs’ motion for reconsideration, rejecting their argument that the policy’s definition of collapse is ambiguous. The court had previously granted the insurer’s motion to dismiss on the grounds that the policy’s definition of “collapse” is unambiguous and the policy’s language expressly excludes coverage for cracking or bulging.
The plaintiffs owned a home insured by the defendant. They claimed that, in May of 2015, they discovered a series of horizontal and vertical cracks in their basement walls. They eventually learned that this condition was caused by pyrrhotite, a mineral contained in certain concrete aggregate during the late 1980s and early 1990s. The plaintiffs made a claim for coverage under their insurance policy, and the defendant denied their claim on the basis that the condition of the plaintiffs’ foundation walls did not constitute a “collapse” as defined by the policy. Continue Reading
We have discussed on a number of occasions the issue of causation when there are multiple causes of loss, some covered and some not covered. Most jurisdictions apply what is known as the efficient proximate cause analysis with a minority of jurisdictions applying the concurrent causation analysis, both of which are explained on our blog here. The Florida Supreme Court issued a decision last week applying the concurrent causation theory in a case where the court concluded it was not clear which of the causes of loss was the predominant cause. Sebo v. American Home Assurance Co., Docket SC14-897 (Dec. 1, 2016).
In Sebo, the insured’s residence suffered water damage during rainstorms shortly after he bought the home. Water intrusion (a covered loss) occurred following defective construction (excluded loss). AHAC denied coverage for all but mold damages, which was subject to a $50,000 limit. Sebo filed suit against, among others, the architect who designed the home and the contractor who built the home claiming negligent design and construction. A jury found in favor of the insured, and the trial court entered judgment against AHAC for more than $8 million.
As we have written about before on this blog, the water damage caused by Hurricane Sandy in October 2012 gave rise to important questions concerning the applicability of so-called “anti-concurrent causation” clauses. Such was the case in the recently-decided matter of Carevel, LLC v. Aspen American Ins. Co., 2016 U.S. Dist. LEXIS 157919 (D.N.J. Nov. 15, 2016).
In Carevel, the insured’s building in Jersey City, New Jersey suffered interior water damage during Hurricane Sandy. The relevant insurance policy excluded damage caused by flood. The flood exclusion included an anti-concurrent causation preamble with the familiar language excluding flood damage “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Importantly for the legal issues raised in this case, the policy did cover, via endorsement, damage caused by water that backed up through sewers or drains. Following an investigation into the loss, Aspen obtained a report indicating that the interior water damage was caused by street-level flooding that had infiltrated the building during the storm. Aspen denied the claim based on the flood exclusion. The insured filed suit, claiming that the damage was caused by water that had entered the building through the basement’s sewers or drains. Continue Reading
In Johnson v. Omega Ins. Co., 2016 Fla. LEXIS 2148 (Sept. 29, 2016), the Florida Supreme Court determined that the 5th DCA misapplied and misinterpreted two statutes, the first providing a presumption of correctness to the initial report of an engineer retained by an insurer to investigate a sinkhole claim, and the second providing for the award of attorney’s fees to the insured upon prevailing in litigation.
In Omega, Kathy Johnson’s homeowner’s policy included statutorily mandated sinkhole coverage. In 2010, she filed a claim with Omega to recover for damages she believed were due to sinkhole activity. In accordance with the statutory framework commonly known as the “sinkhole statutes,” Omega selected an engineer to provide an initial sinkhole investigation. That investigation revealed no sinkhole activity, and Omega denied Johnson’s claim. Under Fla. Stat. § 627.7073(1)(c), the engineer’s findings and recommendations are afforded a statutory presumption of correctness. Continue Reading
In National Railroad Passenger Corp. v. Aspen Specialty Ins. Co., 2016 U.S. App. LEXIS 16074 (2d. Cir. Aug. 31, 2016), Amtrak sought the entire $675 million of available coverage from a number of its insurers for damages incurred as a result of Superstorm Sandy. Most of Amtrak’s damages resulted from flooding of tunnels under the East and Hudson Rivers. The trial court granted summary judgment for the insurers finding that the damages caused by seawater entering the tunnels was subject to the policies’ $125 million flood sublimit, that corrosion of equipment that occurred after the water was pumped out was not an “ensuing loss,” and that Amtrak failed to establish that it was entitled to coverage under the Demolition and Increased Cost of Construction (“DICC”) provision. National Railroad Passenger Corp. v. Arch Specialty Ins. Co., 124 F. Supp. 3d 264 (S.D.N.Y. 2015). Amtrak appealed.
The Second Circuit held that even though there were three definitions of flood in the applicable policies, the inundation of seawater in the tunnels was a “flood” within the meaning of all three definitions. In reaching this conclusion, the court noted that the fact that there were three different definitions of the term “flood” in the policies “did not render the term ambiguous.”
The National Association of Insurance Commissioners’ (NAIC) Cybersecurity Task Force released a revised draft of the Insurance Data Security Model Law (Model Law) last week. The Model Law’s goal is to “establish exclusive standards… for data security and investigation and notification of a data breach” for “any person or entity licensed, authorized to operate, or registered” pursuant to state insurance laws. The first draft Model Law was released in April of this year and received over 40 comments from trade associations, market participants and regulators.
The first draft was started as a compilation of four previously released guidelines, with implementation of specific practices and penalties. The first draft incorporated elements of the Insurance Information and Privacy Protection Model Act and the Privacy of Consumer Financial and Health Information Regulation, and the Principles for Effective Cybersecurity: Insurance Regulatory Guidance and the NAIC Roadmap for Cybersecurity Consumer Protections. With the release of the first draft Model Law came many criticisms. NAIC members expressed concerns about: (1) certain prescriptive security measures that insurance companies were expected to incorporate into their information security programs; (2) the requirement that insurance companies compel third-party service providers to agree by contract to certain data security provisions; (3) the timing, substance, and procedure for notifying consumers of a data breach; and (4) consumer remedies following a data breach, such as regulatory remedies and a private right of action.
Now, after reviewing the comments received in response to the first draft Model Law, the NAIC has released a revised draft after its NAIC National Summer Meeting, where the Task Force met with interested parties to discuss comments on this revised draft. Written comments to the revised Model Law may be submitted by September 16, 2016.
A recent New Jersey Federal District Court decision provides a good example of how an insurance policy’s Suit Limitation period may be “stopped” and “re-started” by equitable tolling during the adjustment of a property insurance claim
As we explained in an earlier post, New Jersey permits parties to an insurance contract to shorten (or presumably lengthen) the state’s six year statute of limitations for a party to commence an action for breach of contract. This is commonly done through a clause in the insurance policy that provides any action must be brought within X years of either (i) the date of loss, or (ii) the carrier’s denial of the claim (the “Suit Limitation” provision). The Suit Limitation provision is typically styled as a “condition” in the policy – in other words it is an action the policyholder must take before they are entitled to recover benefits under the policy. An insured’s failure to comply with the Suit Limitation condition (or any condition) may preclude them recovering damages in a lawsuit for a loss that might otherwise be covered.
New Jersey parts company with the majority of other states by “tolling” the limitations period from “from the time an insured gives notice until liability is formally declined.” Peloso v. Hartford Fire Ins. Co., 56 N.J. 514, 521, 267 A.2d 498 (1970). As such, one effect of tolling is that the time between the insured’s notice of the claim, on one hand, and the insurer’s denial of coverage, on the other, is not taken in account in determining whether the insured has complied with the Suit Limitation condition. Importantly, some New Jersey courts have stated that there must be an “unequivocal” denial in order to end the tolling period and restart the Suit Limitation clock.
In Boisvert v. State Farm Fire & Cas. Co., 2016 U.S. Dist. LEXIS 87031(DNJ July 6, 2016), the insureds suffered damage to their home as a result of Superstorm Sandy. The insureds immediately gave notice of visible damage and, after learning that their home had sustained structural damage, provided notice of the structural damage on December 27, 2012.
On April 29, 2013, State Farm informed that insureds that the structural damage was caused by settlement and was not covered under the Policy. The insureds communicated their disagreement to State Farm who sent another adjuster to evaluate structural damage. On July 26, 2013, State Farm again informed the insureds that the structural damage was not covered, but invited the insureds to submit any additional information for consideration.
The insureds requested mediation with State Farm on September 3, 2013. The parties mediated on October 3, 2013. During the mediation State Farm invited the insureds to submit additional documentation in support of their request for re-consideration. The mediation was unsuccessful.
Less than a year later, on September 16, 2014, the insureds filed a complaint alleging, inter alia, breach of contract. State Farm moved to dismiss the complaint based on the Policy’s one-year Suit Limitation condition because the alleged property damage occurred on October 29, 2012 and Plaintiffs did not file suit until September 16, 2014 – more than one year after the “date of loss or damage” as set forth in the policy.
The Plaintiffs argued that the Suit Limitation condition should be tolled. The two primary reasons (and the only ones this post will discuss) articulated were: (1) the July 26, 2013, letter was not an “unequivocal denial” that ended the tolling period, and (2) Plaintiffs relied on State Farm’s actions in seeking mediation before filing suit.
The Court analyzed the July 26th letter and concluded that it was a clear and unequivocal denial, despite the invitation to the insured that they could submit additional information for consideration. As a result, the 365-day limitations period – which had been tolled since the insureds’ October 29, 2012 notice – began to run again on July 26, 2013. Therefore, the insureds had 365 days from July 26, 2013 to file suit, unless the Suit Limitation period was tolled again.
The Court determined that even if State Farm’s alleged statements to the Plaintiff that “they must participate in mediation, and that they did not have any other option” caused Plaintiffs to delay filing suit, Plaintiffs still did not timely file:
“Defendant denied Plaintiffs claims on July 26, 2013, thus the statute of limitations began to run. On September 3, 2013, Plaintiffs requested mediation as a result of Defendant’s alleged actions. Accordingly, between July 26, 2013 and September 3, 2013, the statute of limitations ran for 39 days and was tolled on September 3, 2013 when Plaintiffs requested mediation. The statute of limitations then began to run again on October 3, 2013, once mediation was complete. Thus, Plaintiffs had 326 days (365 days minus 39 days) from October 3, 2013 to file suit–by August 25, 2014. Plaintiffs did not file suit until September 16, 2014. Accordingly, Plaintiffs’ Complaint was untimely.”
The decision in Boisvert v. State Farm is the result of a relatively straightforward application of New Jersey’s tolling doctrine, and provides useful insight as to how tolling is affected by interactions between the insurer and insured.
Courts across the country (and particularly since Super Storm Sandy in 2012) have consistently held that, in litigation involving a dispute concerning the investigation, adjustment, or payment of a flood claim under the Standard Flood Insurance Policy, policy holders are limited to breach of contract causes of action against their Write-Your-Own insurance carriers. Those courts have reasoned that, because payments made under the SFIP are made out of the federal treasury, and because the statutory framework enacting the National Flood Insurance Program has a preemptive effect on state law claims, policy holders may not allege tort-based causes of action or seek extra-contractual categories of damage. Despite that prohibition, policy holders frequently attempt to argue around those restrictions and recover more than just their breach of contract damages.
Such was the recent case of Psychiatric Solutions, Inc. v. Fidelity National Prop. & Cas. Co., 2016 U.S. App. LEXIS 10894 (3d Cir. June 16, 2016). In that case, involving disputed payments arising from damage caused by Hurricane Irene and Tropical Storm Lee, the insured alleged: (1) breach of contract; and (2) what the court described as a count “sounding…somewhat vaguely in fraud and misrepresentation.” Following the district court’s granting of the insurer’s motion for summary judgment on both counts, the policy holder appealed. As to the fraud and misrepresentation count, the insured argued that, although the National Flood Insurance Program preempted state law claims for fraud and misrepresentation, the claims that it asserted in this case were brought under the federal common law only, and should therefore be permitted to proceed. The Third Circuit disagreed. The Court noted that none of its precedents “authorizes a party to refashion state claims as claims under federal common law.” In fact, to permit such a dressing-up of impermissible state law claims “would frustrate the intent of Congress” by allowing “preempted state law claims to proceed under the guise of federal common law.” As such, the Third Circuit affirmed the district court’s grant of summary judgment on the fraud and misrepresentation cause of action.
Although the Court simply reinforced its prior precedent, and the precedent of other circuits, Psychiatric Solutions is a useful reminder as to the appropriate scope of litigation arising from a dispute about the payment of a claim made under the National Flood Insurance Program.