The general statute of limitations for breach of contract actions in New Jersey is six years. That statute generally applies to claims seeking recovery under an insurance policy. Most first-party property insurance policies, however, contain an express contractual provision, known as a suit-limitation provision, that limits the time period within which an action seeking recovery under the policy may be commenced. Most suit-limitation provisions provide that any action must be commenced within twelve months of the date of the loss, thereby shortening the statute of limitations that ordinarily would apply by five years.
Under New Jersey law, the running of a suit-limitation provision is tolled from the time the insured gives notice of a loss to its insurer until the claim is denied by the insurance company. An issue that has arisen on a number of occasions has to do with what constitutes a denial, thereby starting the limitation period to run again. Resolution of that issue is not as simple as it may seem.
The issue of what constitutes a denial sufficient to start the running of a suit-limitation provision recently was addressed by Judge Kugler of the United States District Court for the District of New Jersey in Inacio v. State Farm Fire and Casualty Company, Civil No. 14-4953 (RBK/AMD), 2015 WL 457049 (D.N.J. Feb. 3, 2015). There, the insured, Richard Inacio (“Inacio”), sustained damage to his residence located in Monmouth Beach, New Jersey, as a result of Sandy. He subsequently filed an insurance claim with his insurer, State Farm Fire and Casualty Company (“State Farm”), for wind and rain damage; he did not have flood coverage under his policy.
State Farm paid Inacio $901.29 for wind and rain damage. In a December 7, 2012 letter, State Farm indicated that it determined that the remaining damage was caused by flood and, therefore, was not covered. In that letter, State Farm further noted:
Suit Against Us. No action shall be brought unless there has been compliance with the policy provisions. The action must be started within one year after the date of loss or damage.
This Company does not intend by this letter to waive any policy defenses in addition to those stated above and reserves its right to assert such additional policy defenses at any time.
If you have any additional information regarding your claim which has not been previously considered or if you desire any additional explanation regarding this matter please contact me . . . .
(Id. at *1-2.) While State Farm clearly indicated that an action would have to be commenced in accordance with the suit-limitation provision, it never stated that it was denying the claim. In addition, it invited the insured to supply additional information if it “desire[d] any additional explanation regarding” the claim.
After receiving the letter, Inacio retained a public adjuster to assist him in dealing with State Farm. The public adjuster inspected the premises and prepared a revised estimate of wind and rain damage, which was submitted to State Farm. On July 29, 2013, State Farm conducted another inspection of the premises. By letter dated August 18, 2013, State Farm sent Inacio a check in the amount of $15,005.37. Inacio believed that the amount offered by State Farm was not sufficient to repair the premises and requested that State Farm submit the claim to appraisal in accordance with the terms of the insurance policy. State Farm refused to submit the claim to appraisal and on June 13, 2014, Inacio sued State Farm in state court. State Farm later removed the case to federal court.
State Farm subsequently filed a motion to dismiss the complaint on the basis that the action was not timely filed. State Farm argued that its December 7, 2012 letter constituted a denial of the claim and, therefore, any action had to be commenced by December 7, 2013 at the latest. Inacio, on the other hand, argued that:
because the December 7 letter (1) lacked any “denial language;” (2) requested additional information from the Plaintiff; and (3) failed to reference the prior covered damage and special circumstances, that the letter was ambiguous and not a clear and unequivocal denial of Plaintiff’s claim.
(Id. at *4.)
The court noted that the issue before it was “whether the December 7 letter was, on its face, an unambiguous formal denial so as to continue the running of the statute of limitations.” (Id. at *4.) The court concluded that it was not. The court noted that claim “involve[d] ‘special circumstances,’ which suggest Defendant’s December 7 letter was an ambiguous denial at most.” The “special circumstances” consisted of the fact that the December 7 letter referred only to possible flood damage, made no reference to the prior payment for wind and rain damage, and State Farm conducted a second inspection of the premises and paid an additional sum to the insured after it send out the December 7 letter. In addition, the December 7 letter failed to contain “unequivocal ‘denial language’.” (Id. at *6.) The August 13 letter, in contrast, which accompanied the additional payment, made specific reference to “denial” of the claim. The court summarized its reasoning as follows:
Based on the language in the December 7 letter referring only to flood damage, the lack of a clear denial, and an open-ended request for further information, the Court finds that the December 7 letter was not an unambiguous denial of Plaintiff’s insurance claim. Therefore, the Court cannot conclude that Plaintiff’s claims are clearly barred by the statute of limitations. Defendant’s Motion to Dismiss will be denied.
(Id. at *7.)
It should be noted that merely including an open-ended request for additional information, in and of itself, is not sufficient to make a denial ambiguous. As noted by the court, other New Jersey “cases have held denial letters to be unambiguous even where a similar paragraph is included in the denial letter.” (Id. at *6.) There must be other “special circumstances” that, when viewed in total, make the denial ambiguous.
Thus, for purposes of enforcement of the suit-limitation provision, after receiving notice of a claim, and conducting an investigation, an insurer must issue a clear and unequivocal denial if it wants to re-start the running of the suit-limitation period. By giving an insured an opportunity to supply additional information, continuing to adjust the loss, or by offering or making reference to alternative dispute resolution options, an insurer runs the risk that the suit-limitation period will not start to run again.
© William D. Wilson and NJInsuranceBlog.com, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.