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First-party property insurance policies always include a prompt reporting requirement and a private limitations of action provision. Even if the claim is reported promptly once it is denied the insured should never sit on his/her/its rights before filing suit ignoring the private limitation of action provision in the policy.
In Northpointe Commerce Park, LLC v. Cincinnati Ins. Co., Slip Copy, 2014 U.S. Dist. LEXIS 177139 (W.D.N.Y., 12/24/2014), [enhanced version available to lexis.com subscribers], Cincinnati asked that the court dismiss the Northpointe complaint for one or more of several layered reasons:
1) The policy in question requires legal actions to be filed within two years of direct physical loss, and Northpointe did not file its complaint within two years of its loss on May 1, 2011;
2) Even if a second loss occurred on May 3, 2012, as Northpointe claims, the damage duplicated the damage from the first loss and thus falls under the deadline for the first loss; and
3) Northpointe never filed a formal loss notice for the alleged second loss of May 3, 2012, as required by the policy.
This case concerns two windstorms that damaged one of Northpointe’s commercial buildings and Northpointe’s attempt to claim insurance coverage for the damage. Northpointe is a New York corporation that manages a commercial property (the “Property”) at 60 Northpointe Parkway in Amherst, New York. The Property features exterior walls fitted, at least in part, with a skin of Thermolite™ aluminum composite wall panels.
On May 1, 2011, a windstorm blew through the area where the Property sits. On March 3, 2012, a second windstorm blew through the area with wind gusts as high as 63 mph. These two windstorms prompted Northpointe to invoke an insurance policy that it bought from Cincinnati, an Ohio corporation, on June 8, 2009.
The policy in question contains several provisions that potentially affect the pending motion and the case in general. The policy does not appear to require any particular method of notice or deadline to so. Northpointe must cooperate with Cincinnati during the ensuing investigation, which includes furnishing information to Cincinnati as requested. Finally, the policy contains a limitations provision concerning litigation: “No one may bring a legal action against us under this Coverage Part unless: ¶ 1. There has been full compliance with all of the terms of this Coverage Part; and ¶ 2. The action is brought within 2 years after the date on which the direct physical ‘loss’ occurred.”
The parties do not dispute the basic chronology of events concerning the first windstorm. As noted above, the first windstorm occurred on May 1, 2011. The record contains no information about any action that Northpointe took, including providing notice, for approximately the next nine months. On February 8, 2012, a commercial roofing contractor named CentiMark gave Northpointe a proposal for assessing and repairing the Property. Among other information, the proposal includes photographs of the damaged portions of the Property along with a conclusion that the Property has suffered high wind damage on all 4 sides of building.
Based on the CentiMark proposal, Northpointe gave its insurance agent a formal loss notice on February 22, 2012. The loss notice listed May 1, 2011 as the date of loss. The insurance agent forwarded the loss notice to Cincinnati, and Cincinnati acknowledged receipt of the loss notice through a letter dated February 29, 2012. On May 25, 2012, Cincinnati sent Northpointe a letter denying coverage for the loss date of May 1, 2011. Cincinnati invoked the exclusion for defects, claiming that “the reported damages were not caused by an isolated wind event but, rather, the system-wide failure of perimeter sealant joints which has caused extensive delamination. This failure was caused by numerous design defects and improper installation of sealant joints.”
While events concerning the first windstorm were running their course, a second windstorm hit the Property on March 3, 2012. Northpointe never filed a formal loss notice as it did with the first windstorm. In contrast to the first windstorm, however, Northpointe appears to have provided informal notice to Cincinnati almost immediately.
On March 5, 2012, Northpointe retained National Fire Adjustment Co., Inc. (“NFA”), a Licensed Public Adjuster, to facilitate communications with Cincinnati and to estimate damage from the second windstorm. On March 6, 2012, representatives from Northpointe, Cincinnati, and NFA met at the Property to inspect the extent of damages. The denial letter concerning the first windstorm contains no information suggesting that the denial covered the second windstorm.
Northpointe filed a complaint on February 28, 2014, in New York State Supreme Court, Erie County. The complaint mentions the second windstorm of March 3, 2012 and then the denial of coverage on May 25, 2012, implying that the denial of coverage pertained to the second windstorm.
The First Windstorm
The parties do not dispute that, meteorologically, a windstorm occurred both on May 1, 2011 and March 3, 2012. For policy purposes, though, does this case present one “loss” or “occurrence,” or two?
Under these circumstances, “the parties here must have intended to provide coverage for property damage each time it occurred unexpectedly and without design, unless the damage occurring at one point in time was merely part of a single, continuous event that already had caused other damage. Another case that gives the Court some guidance is World Trade Ctr. Properties, L.L.C. v. Hartford Fire Ins. Co., 345 F.3d 154 (2d Cir.2003), [enhanced version available to lexis.com subscribers]. In World Trade, the Second Circuit grappled with an unfortunately necessary and practical question stemming from the September 11, 2001 terrorist attacks: Was there a question of fact regarding whether those attacks constituted one insurance occurrence or two? The Court understood that the number of insurance events or “occurrences” will be ambiguous when either 1) one generating event spawns multiple, potentially independent damage events; or 2) the generating event is “multi-layered,” that is, it can be assessed at multiple levels of planning, coordination, and execution (the World Trade case).
No such ambiguity presents itself here. Here, two windstorms hit the Property about 10 months apart. The time between the two windstorms renders any causal relationship between them meteorologically impossible. These circumstances warrant treating the two windstorms as independent causes of direct physical loss and applying Cincinnati’s motion to each windstorm separately.
Having resolved the independence of each windstorm, the Court addressed Cincinnati’s core argument against the first windstorm—that the complaint is untimely relative to that storm. “The parties to a contract of insurance may provide for a shorter limitation of actions than that provided in the general Statute of Limitations.” Brandyce v. Globe & Rutgers Fire Ins. Co., 168 N .E. 832, 833 (N.Y.1929), [enhanced version available to lexis.com subscribers]. Additionally, when parties use the phrase “direct physical loss,” the shorter limitations period will run from the date of the physical event that causes property damage. Under New York law, the loss date is the date of the occurrence of the casualty or event insured against.
Here, the language in the policy setting a two-year limit for litigation is identical to the language that courts have affirmed as sufficiently specific. As noted above, Cincinnati’s policy requires that any litigation related to coverage, or denial of coverage, occur “within 2 years after the date on which the direct physical ‘loss’ occurred.” The specificity of that language avoids the ambiguities that courts have found from the use of the term “loss” or “date of loss” by itself.
Under these circumstances, the parties contractually agreed to cut off any litigation about coverage of the first windstorm two years after the date of the windstorm. The first windstorm occurred May 1, 2011, and Northpointe did not file its complaint until February 28, 2014. Any causes of action concerning the first windstorm are untimely.
The Second Windstorm
Compared to the relatively straightforward situation concerning the first windstorm, the situation concerning the second windstorm raises many factual questions that should await further discovery. The parties do not dispute that the second windstorm occurred on March 3, 2012. The parties also do not dispute that they inspected the Property on March 6, 2012 and that Northpointe, through its public adjuster, submitted some kind of loss estimate on May 24, 2012.
Further, although it is not disputed that the windstorm was the direct cause of the initial damage to the plaintiff’s property, since the plaintiff allowed the roof to remain in disrepair for several months, there exists a question of fact as to the extent of the damages which were directly caused by the windstorm.
Northpointe and its advisors sat on their rights and, at least partially, lost the right to sue for the first storm and serious questions arose concerning the viability of the claim for the second loss because of the failure to protect the property from further loss after the first windstorm damaged the property. New York applies the clear and unambiguous language as written and since suit was filed more than two years after the first windstorm the suit was to be dismissed as untimely. Had the loss been in California, the limitation period would have been tolled between the report of loss and the denial in accordance with the California Supreme Court decision, Prudential–LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230, [enhanced version available to lexis.com subscribers], Northpoint’s suit would have been timely. Neither rule is perfect. It is essential that claims professionals know which rule applies in their jurisdiction.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2015, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or email@example.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
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