Unequivocal Denial: District of New Jersey Court Outlines What is Not Necessary

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

District of Connecticut Reaffirms That Definition Of “Collapse” Is Unambiguous

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

Competing Causes of Loss: Florida Supreme Court Issues Decision Applying The Concurrent Causation Doctrine

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.

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Hurricane Sandy, Flood, and Sewer Backup: New Jersey Federal Court Confirms Anti-Concurrent Causation Bars Insured’s Claim

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

Florida Sinkhole Statute and Recovery of Attorneys’ Fees Without Bad Faith: Florida Supreme Court Reverses the 5th DCA and Reiterates Prior Holdings

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

Ambiguity And Ensuing Loss: The Second Circuit Affirms The Southern District Of New York’s Holdings In a $675 Million Superstorm Sandy Insurance Coverage Dispute

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.”

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NAIC Releases Draft of Revised Insurance Data Security Model Law for Review

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.

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The Nuts and Bolts of Tolling an Insurance Policy’s Suit Limitation Provision in New Jersey

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.

A State Law Wolf in Federal Common Law Clothing: The Third Circuit Rejects Insured’s Attempt to Expand Causes of Action Under the Standard Flood Insurance Policy

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.

Missing Millions, An Armored Car Conspiracy, And A Fraudulent Connecticut Insurance Application

In determining whether or not to provide insurance to a particular applicant, one thing that insurance companies typically rely on is the insurance application submitted by the prospective insured. The application is designed to provide the insurance company with, among other things, a comprehensive overview of the risk to be insured. Given the importance of the application, and the reliance that insurance companies place on the information therein, insurance companies are generally permitted to rescind insurance policies if it is later discovered that the relevant application contained an intentional misrepresentation of an important piece of information. Specifically, Connecticut courts have held that an insurance policy may be voided if: 1) there was a misrepresentation or untrue statement by the insured in the application; 2) that the misrepresentation or untrue statement was knowingly made; and 3) that the misrepresentation or untrue statement was material to the insurer’s decision to insurer the applicant.

The issue of misrepresentation in insurance applications in Connecticut was recently highlighted in the federal court case of Known Litigation Holdings, LLC v. Navigators Ins. Co., et al., 2016 U.S. Dist. LEXIS 82675 (D. Conn. June 24, 2016). In that case, the bank, who later assigned its rights to the plaintiff, entered into a Courier Agreement with New England Cash Dispensing Systems (“NECD”) – an armored car/cash management company – to provide for the transport of the bank’s money. As part of the Courier Agreement, NECD was required to maintain insurance for the money being transported, and to include the bank as a loss payee on the policy.

From 2007 to 2010, NECD applied for and received four successive years of Armored Car Operators’ insurance (which is exactly what it sounds like) from the defendant insurer. In 2010, however, it came to light that a “great deal” of the bank’s money – $4,805,540 to be precise – that NECD was responsible for transporting was missing. The money had, in fact, been stolen by a number of NECD employees who were subsequently criminally convicted for a bank fraud scheme that had stretched back into at least 2006.

As a loss payee under NECD’s Armored Car Operators’ policy, the plaintiff bank submitted a claim for the missing money. The insurer denied the claim for a number of reasons, including the fact that NECD had lied on its multiple insurance applications. Specifically, NECD responded “No” in response to the question “In the last 6 years have you or any predecessor company suffered a loss or losses, whether covered by insurance or not and if insured whether a claim was paid or not?” Importantly, the person who signed the insurance application for NECD was a member of the conspiracy and was, at the time the applications were submitted, actively stealing money for which NECD was responsible.

The bank brought suit against the insurer. On cross-motions for summary judgment, the Court found that the insurer properly voided the policy and refused to pay the claim. The Court held that “no reasonable jury” could find that there were not material misrepresentations on the insurance applications submitted to the insurer because the evidence was clear that, when the applications were submitted, NECD knew that it had suffered significant losses due to employee theft.

Two final issues merit brief comment. First, as discussed above, the case was decided on summary judgment. Questions of fraud and/or misrepresentation are frequently fact-intensive, credibility-based determinations that may not be susceptible to resolution on summary judgment. The Court’s decision in this case, however, demonstrates that, at least in some cases, misrepresentations may be so clear-cut that summary judgment is appropriate. Second, the bank argued that it would be “unconscionable” for the Court to not permit it to recover its money given the malfeasance of a trusted third-party. The Court rejected that argument, noting that, as a loss payee, the bank had no greater rights than the insured under the policy, and that all defenses that could be asserted against the insured could be asserted with equal force against the loss payee.