Guess where you need to look? You got it: The policy.
In Fabozzi v. Lexington Insurance Company,1 plaintiffs Paul and Annette Fabozzi’s beach-front home in Staten Island, New York, began to exhibit structural problems in 2001 and nearly collapsed in 2002. The Fabozzi’s reported the claim to their insurance carrier Lexington Insurance Company (“Lexington”) about a month after the home needed to be propped up to prevent a full collapse. Lexington undertook an investigation and subsequently denied the Faborzzi’s claim in January 2004, approximately 26 months after the initial claim was filed. The denial was based on “wear and tear, deterioration, inherent vice, latent defect, wet and/or dry rot and earth movement,” all of which Lexington claimed where excluded causes under the policy. The Fabozzi’s filed suit soon after on the basis of breach of contract and breach of the implied covenant of good faith and fair dealing. The district court found against the Fabrozzi’s on the basis of a contractual limitation clause in the contract which limited the time to file suit to two years from the date of loss, however the decision was vacated and remanded on appeal.
The clause at issue is standard for property insurance policies and read as follows: “Suit Against Us. No action can be brought unless the policy provisions have been complied with and the action is started within two years after the date of loss“ (emphasis mine).
The Second Circuit looked to New York law to decide the matter and applied the standard promulgated by the New York Court of Appeals beginning in the late 1800’s with Steen v. Niagara Fire Insurance Company.2 Steen held that generic (emphasis mine) language setting a contractual limitations period does not start the clock at the time of the actual loss rather the limitations period should begin at the point when liability accrues, i.e., all conditions precedent have been met and as a result there is a right to bring an action.
In order for the limitations period to begin at the time of the actual loss or occurrence, precise language must be used. Specifically, language dating back to the original Standard Fire Policy, which required actions be commenced within a given period following “the inception of loss,” was required to trigger the limitations period from the actual date of loss. Therefore the use of the specific term of art “inception of loss” or terminology of equivalent specificity needs to be included in the limitations clause for the period to begin from date of the actual physical loss.
Based on the foregoing the court vacated the lower courts decision and found in favor of the plaintiff/policyholders. The court ruled that the suit was timely filed and the case was remanded in order to ascertain the point at which all conditions precedents where met.
This decision helps policyholders in the event of an insurer asserting a defense that a lawsuit is time barred on the basis of a limitations clause in the policy. If generic language along the lines of suit must be filed within “X years after the date of loss” is used, the limitations period will not begin until all conditions precedent are met, and not on the actual date the physical loss occurred. This can significantly extend the period within which to file suit. If, however, the words “inception of loss” or similarly precise language is included in the limitations clause, the courts are very likely to interpret the limitation as starting from the date of the actual physical loss.
As this case illustrates, it is always important to carefully review your policy and in the event that you are uncertain, seek additional help from a qualified professional.
1 Fabozzi v. Lexington Ins. Co., 601 F. 3d 88 (2d Cir. Apr. 6, 2010).
2 Steen v. Niagara Fire Ins. Co., 89 N.Y. 315, 322-23 (1882).