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. Suit-limitation provisions typically 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.
Back in February 2015, I discussed Inacio v. State Farm Fire and Casualty Company, 2015 WL 457049 (D.N.J. Feb. 3, 2015), a case that addressed the issue of what constitutes a denial sufficient to start the running of a suit-limitation provision. That decision was issued by Judge Kugler of the United States District Court for the District of New Jersey. Judge Kugler has now issued a second decision on that issue, Liguori v. Certain Underwriters at Lloyds, 2015 WL 4402851 (D.N.J. July 17, 2015).
Liguori involved a Hurricane Sandy claim. The plaintiffs, Joseph and Lisa Liguori, owned a residence in Seaside Heights, New Jersey, that was severely damaged by Hurricane Sandy on or about October 29, 2012. The policy at issue provided coverage for wind damage, but specifically excluded coverage for flood damage. Shortly after the claim was reported, the insurance company retained an independent adjuster to handle the claim. The adjuster, in turn, retained an engineer to inspect the premises. The engineer determined that “water surge/flooding demolished the house.” He also noted, however, that “wind may have caused cosmetic damage that was insignificant relative to the demolition of the house by the flooding.”
Based on the engineer’s finding, in February 2013 the insurance company sent a letter to the insured, stating:
We are pleased to inform you damages resulting from wind are covered under your Property Insurance Policy. Our inspection revealed damages to your property. We enclose our estimate of repair which totals $. After the recoverable depreciation in the amount of $ and your wind deductible of $ has been applied this renders a net claim of $. Under separate cover a check of $ will be forwarded to the policy address. If you have any questions in this matter, please feel free to contact the undersigned.
The letter appeared to be a standard form letter and the dollar figures were not filled in. Thus, it was not clear what amount the insurance company was willing to pay.
The letter went on to state:
[T]he claim submitted for flooding, which caused water damage to the risk premises is expressly excluded in this policy. We regret to inform you this policy, in this instance, will not respond to indemnify you for your damages.
The final paragraph of the letter contained fairly standard reservations of rights language, noting that the insurance company was reserving its rights “to amend, alter or supplement this letter should information become known in the future that would affect the content of this letter.”
Nearly nineteen months later, the plaintiffs sued their insurer, seeking recovery under the policy and asserting a bad faith claim. The insurer moved for summary judgment, arguing that the action was not timely. The court denied the motion, finding that the February 2013 letter was not an “unambiguous formal denial” of the claim:
Based on the lack of a clear denial of Plaintiffs’ claim with respect to wind damage, the language in the letter that Defendant was “pleased” to inform Plaintiff that wind damage would be covered, and Defendant’s open-ended statement that the letter could be amended should new information become available, the Court finds that the February 25 letter was not an unambiguous denial of Plaintiffs’ insurance claim. Therefore, the Court cannot conclude that Plaintiffs’ claims are clearly barred by the statute of limitations, and Defendant’s Motion for Summary Judgment must be denied.
The court rejected an argument by the insurer that the insureds were required to prove that they were misled by the letter or detrimentally relied on it.
Thus, for purposes of enforcement of the suit-limitation provision, after receiving notice of a claim, and conducting an investigation, an insurer must issue an “unambiguous formal denial” if it wants to re-start the running of the suit-limitation period.
Whether a denial is unambiguous often depends on the particular facts at issue. In Liguori, the insureds made a claim for “storm damages” caused by Hurricane Sandy. The claim was not limited to flood or wind damage. While the insurer expressly denied coverage for flood damage, it also informed the insured that any wind damage would be covered. Consequently, at least a portion of the claim was left open, thereby resulting in the continued tolling of the limitation period. The insurer could have avoided this by setting forth a particular dollar amount for the wind damage and indicating that it would not pay anything in excess of that amount.
In addition, the insurer stated in the letter that it was reserving its right to amend or supplement its position “should information become known in the future that would affect” that position. According to the Liguori court, “[w]hile such a statement on its own is not enough to render the letter ambiguous, it lends further support to Plaintiffs’ position that the letter was ambiguous.”
Liguori, and the court’s prior decision in Inacio, make it clear that by failing to clearly set forth its position, 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. In addition, although not addressed by the court, it is never a good idea for an insurer to send out a “form” denial letter that is not tailored to the particular loss in question and which is missing critical information.
© 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.