The Clock is Ticking Set an Alarm for Your Insureds

Allegany Co-op Insurance sent its insured, Michael Stoppani, a letter demanding a proof of loss in connection with fire damage he had reported. The letter was sent by both regular and certified mail. Michael received the certified mail letter on March 9th, 2009. He submitted the proof of loss on May 8th, 2009, which is 60 days from March 9th. However, the insurance company’s claims manager testified that Michael called her on March 6th to discuss the regular mail letter that he’d received that day. The insurance company argued that the 60-day period started on March 6th and that Michael was three days late in responding to its demand for a proof of loss.1

In the ensuing lawsuit, Michael’s attorney argued that the 60 days should be counted starting with the date that the certified- mail letter was received or, in the alternative, that the three-day difference was between the date the proof was due, based on the receipt of the regular mail letter, and the date it was submitted to the insurance company was “de minimis” (legal-speak for so small a difference that it does not matter). Overturning the prior court ruling in the insured’s favor, the appellate court stated that the period started with the receipt of the first letter and that the 60-day time limit was to be strictly enforced. It quoted another decision holding that the moment from which the timeliness of a notice is measured is the date on which the information is first received.2 The court felt that to rule otherwise would enable the insured to indefinitely delay the process by simply refusing the accept delivery of the certified-mail letter. Despite New York’s reputation as a liberal state, its courts are frequently sticklers in applying contractual terms, often much stricter than other states. Another example is the ruling that late notice voids coverage without the requirement, common in most other states, that the insurance company must demonstrate it was prejudiced by the delay. This was changed in New York only by legislative action in 2009.

Merrye Schindler also ran into timelimit trouble. Travelers disputed her theft claim (among other issues, they felt they had evidence that she had given the property to a consignment house for resale). Merrye reported that the claim occurred on January 5, 2007; she commenced legal action to collect her claim on March 26, 2010. Travelers argued that the claim was barred by failure to commence the suit within the policy’s one-year time limit. The insured countered that the insured was a New York resident and the policy was placed through a New York broker so that even though the property was located in Louisiana, New York’s six-year statute of limitations applied. The court ruled that insureds and insurers are free to agree to shorter limitation periods. It felt that Louisiana law applied, but noted that Merrye’s lawsuit would still be time-barred even if the policy were subject to New York law because New York’s 24-month limita tion for suits on an insurance policy would apply. Her claim was dismissed without any discussion of its merits.3

Note that New York’s 24-month requirement applies to fire coverage. Therefore a policy that does not cover fire insurance may contain a one-year limit. And policies written by non-admitted insurers or covering in states other than New York can have 1-year deadlines. I just received my own homeowners policy written by one of the major national insurers. The basic form calls for a one-year time limit to commence suit, an endorsement increases it to 24- months. You want to be sure that you’re aware what the time-limit is in a given policy and that someone is tracking the status of pending claims.

If it appears that the claim settlement process may extend beyond the time-limit, ask for an extension of the time in writing. One of our clients just had a loss that dragged on for over two-a-half years. Much of the damage was caused by a contractor who was working on the building. Because it involved pollution, the insurance company did not feel that its coverage applied to the entire loss. As it approached the twoyear limit, we asked for and received an extension of the deadline to commence suit. In the end, the claim settled satisfactorily with the contractor’s insurer and our client’s insurer contributing to the settlement. I’ve never had a problem obtaining an extension when I’ve requested it before the expiration of the time limit. After all, if the insurance company won’t extend the limit, the insured will most likely commence suit which will complicate the settlement of the claim and force the insurance company to retain its own counsel.

Replacement cost coverage is another area where we find time-limit provisions. The insured can accept an actual cash basis settlement and retain the right to submit a replacement cost claim after the work has been completed. The form calls for the insured to give the insurer notice of its intent to submit a replacement cost claim within 180 days of the loss. Most insurance people feel that submitting the claim on a replacement cost basis serves as such notice, but some practitioners, taking the proverbial belt-and-suspenders approach, send a letter specifically notifying the insurer of the insured’s intent to make a replacement cost claim.

Time-limits can turn up in unexpected places. Despite its reputation for providing broad coverage, Affiliated FM policies require that repair or replacement of the property occur within two years from the date of loss, otherwise the loss valuation basis reverts to actual cash value. (ISO policies do not have such a requirement.) Avoid embarrassment—or even an E&O claim. Make sure that the insured is aware of the time-limits in its policies and of New York’s strict attitude towards enforcing time-limits.