Rejecting a "heads we win, tails you lose" insurance company argument, the New York Court of Appeals has found that an insurance company cannot enforce a two-year suit limitation period on a property claim for “replacement cost” while simultaneously urging that the policyholder cannot bring suit until all work to repair a damaged building is completed -- and then invoke the limitation period to get the policyholder's suit dismissed if repairs take longer than two years to complete.
The New York Court of Appeals was responding to a question certified to it from the United States Court of Appeals for the Second Circuit. The case is Executive Plaza, LLC v. Peerless Insurance Company (February 13, 2014) [enhanced version available to lexis.com subscribers]. Anderson Kill filed an amicus brief in support of Executive Plaza on behalf of United Policyholders, a nonprofit devoted to helping policyholders recover value from their insurance policies.
The plaintiff owned an office building that was severely damaged by a fire on February 23, 2007. The $1 million policy had a replacement cost option, but stipulated that replacement cost would not be paid until the property was actually repaired or replaced, and unless the repairs were made as soon as possible. The policy also included a two-year suit limitation.
Peerless paid the actual cash value of the damaged building but withheld payment of the replacement value until such time as repairs completed. Executive Plaza could not complete the repairs in two years, and so filed suit on February 23, 2009 seeking a declaratory judgment. Peerless sought to dismiss the claim for full replacement cost because the claim was, in effect, “too early”. The United States District court agreed and dismissed that suit on grounds that the claim was premature because repairs were not finished.
Upon completion of repairs, in October 2010, Executive Plaza demanded payment of the unpaid portion of the policy limits to cover the promised replacement costs. This suit too was dismissed in the U.S. District Court, then appealed to the Second Circuit, which certified this question to the New York Court of Appeals, as follows:
"If a fire insurance policy contains
" (1) a provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced 'as soon as reasonably possible after the loss'; and
" (2) a provision requiring an insured to bring suit within two years after the loss;
"is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years?"
In its amicus brief United Policyholders argued that a negative answer would render the coverage illusory:
Peerless' position would improperly create illusory coverage by denying payment of replacement costs unless the policyholder can meet Peerless' implicit but invisible requirement of completely rebuilding with two years of the date of the loss. Insurance coverage is illusory "where part of [an insurance] premium is specifically allocated to a particular type or period of coverage and that coverage turns out to be functionally nonexistent" [citations omitted]. Amicus at 19.
Similarly, Judge Smith wrote for a unanimous New York Court of Appeals;
The problem with the limitation period in this case is not its duration, but its accrual date. 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. A "limitation period" that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim. It is true that nothing required defendant to insure plaintiff for replacement cost in excess of actual cash value, but having chosen to do so defendant may not insist on a "limitation period" that renders the coverage valueless when the repairs are time-consuming. Decision at 3.
William G. Passannante of Anderson Kill, counsel to amicus United Policyholders, commented, "Insurance companies display endless ingenuity in finding ways to use suit limitation clauses, as well as other policy provisions, to attempt to deny coverage for claims clearly within the coverage grant. The New York Court of Appeals has rightly rejected a wrongful attempt at 'nullification' of a covered claim."
Executive Plaza was represented by David Jaroslawicz, and Peerless by John N. Love.
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