Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Last year, many insureds found their homes and communities were unprepared for the damage that the rains would cause. Trees were downed by the heavy rains and soft soil. The winds caused roof damage in many communities, and insureds found leaks in their ceilings and walls for the first time. Some homes were even flooded by the heavy downpours.

Over the last five months, I’ve received numerous calls and consulted with home and condominium owners asking if their water damage claims arising from the December 2010 storms were viable. Many insureds’ water damage claims were denied outright by their insurance company.

Water damage claims can be difficult, depending on the circumstances. Each instance and insured may have a unique situation. However, the one thing that may not be unique for each potential claim is that in California, the insurance company may have put a provision in their policies requiring all lawsuits to be filed within one year from the date of incident or date of loss discovery.

In Prudential-LMI Com. Insurance v. Superior Court (Lundberg) (1990) 51 Cal. 3d 674 [274 Cal. Rptr. 387, 798 P.2d 1230], the California Courts have upheld that "the one-year suit provision begins to run on the date of inception of the loss." Specifically, the Court defined the date of loss "as that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered." Further, the Court defined tolling, indicating that the "limitation period should be equitably tolled from the time the insured files a timely notice, pursuant to policy notice provisions, to the time the insurer formally denies the claim in writing."

As we approach December 2011, many Southern Californian insureds will find that their rights will be forfeited if they do not settle their claims or file suit before the one year anniversary of the date of loss. Although California law allows for tolling of the statute during the time a claims is adjusted, it is safest to preserve a claim by filing suit before the one year expiration.

Californians are plagued not only with earthquakes, but also windstorms, rainstorms, wildfires and landslides. Homeownership and the cost of homeowner’s insurance in California come at a high price. In October 2007, California was engulfed in epic wildfires that ravaged whole communities and destroyed the lives of many. In the years following the wildfires, the same communities suffered catastrophic rainstorms and landslides.

Years after the 2007 catastrophic wildfires, rainstorms and landslides, many homeowners are still struggling to rebuild. It is a difficult road to rebuild and put a life back together when everything a person owns is destroyed. Unfortunately, many homeowner victims did not have experience in filing claims, and, although some insurance companies paid expediently and fairly, many Californians are still fighting an uphill battle on denied, delayed or partially paid claims. These homeowners may have bad faith claims against their insurance companies. Depending on a homeowner’s written insurance policy or the statutes, homeowners must file their lawsuits in a timely manner or their rights will expire.

Homeowners cannot control how an insurer adjusts a claim, but a homeowner should seek legal advice when:

1. their claim is denied outright after a catastrophe;
2. there is significant delay in adjusting the loss;
3. an appraisal is denied;
4. the adjusting does not conform with the written policy between the homeowner and the insurer.

As the four (4) year anniversary of the October 2007 California wildfires approaches, homeowners should evaluate whether they received the maximum benefit of their policies or if a new claim or a reopen claim on the policy should be considered.

- Compensation for a reopened or supplemental claim may not exceed 20 percent of the reopened or supplemental claim payment. (pg. 9)

- Current law provides that a public adjuster may not charge more than 10% of the amount of insurance claim payments made for claims based on an event that is the subject of a declaration of emergency by the Governor. The 10% limitation applies to claims made up to 1 year after the declaration. This law is amended to provide that after the 1 year period, the public adjuster fee limitation is 20% of the amount of insurance claim payments. (pg. 10)

- Senate Bill 408 outlines the definition of “misleading and deceptive” adjuster practices in 626.9541. The following statements are prohibited:

1.      A statement or representation that invites an insured policyholder to submit a claim when the policyholder does not have covered damage to insured property.

2.   A statement or representation that invites an insured policyholder to submit a claim by offering monetary or other valuable inducement.

3.   A statement or representation that invites an insured policyholder to submit a claim by stating that there is “no risk” to the policyholder by submitting such claim.

4.   A statement or representation, or use of a logo or shield, that implies or could mistakenly be construed to imply that the solicitation was issued or distributed by a governmental agency or is sanctioned or endorsed by a governmental agency. (pg. 12)

- The following must be printed on any written advertisement (defined as newspapers, magazines, flyers, and bulk mailers) distributed by a Adjuster: “

THIS IS A SOLICITATION FOR BUSINESS. IF YOU HAVE HAD A CLAIM FOR AN INSURED PROPERTY LOSS OR DAMAGE AND YOU ARE SATISFIED WITH THE PAYMENT BY YOUR INSURER, YOU MAY DISREGARD THIS ADVERTISEMENT. (pg. 12)

- A company employee adjuster, independent adjuster, attorney, investigator, or other persons acting on behalf of an insurer that needs access to an insured or claimant or to the insured property that is the subject of a claim must provide at least 48 hours’ notice to the insured or claimant, public adjuster, or legal representative before scheduling a meeting with the claimant or an onsite inspection of the insured property. The insured or claimant may deny access to the property if the notice has not been provided. The insured or claimant may waive the 48-hour notice. (pg. 13)

- A public adjuster must ensure prompt notice of property loss claims submitted to an insurer by or through a public adjuster or on which a public adjuster represents the insured at the time the claim or notice of loss is submitted to the insurer. The public adjuster must ensure that notice is given to the insurer, the public adjuster’s contract is provided to the insurer, the property is available for inspection of the loss or damage by the insurer, and the insurer is given an opportunity to interview the insured directly about the loss and claim. The insurer must be allowed to obtain necessary information to investigate and respond to the claim. (pgs. 13-14)

-The insurer may not exclude the public adjuster from its in-person meetings with the insured. The insurer shall meet or communicate with the public adjuster in an effort to reach agreement as to the scope of the covered loss under the insurance policy. (pg. 14)

- A public adjuster must not impede “reasonable access” to the insured or the insured’s property. (pg. 14) 

- A public adjuster may not act or fail to reasonably act in any manner that obstructs or prevents an insurer or insurer’s adjuster from timely conducting an inspection of any part of the insured property for which there is a claim for loss or damage. The public adjuster representing the insured may be present for the insurer’s inspection, but if the unavailability of the public adjuster otherwise delays the insurer’s timely inspection of the property, the public adjuster or the insured must allow the insurer to have access to the property without the participation or presence of the public adjuster or insured in order to facilitate the insurer’s prompt inspection of the loss or damage. (pg. 14)

- A licensed contractor under part I of chapter 489, or a subcontractor, may not adjust a claim on behalf of an insured unless licensed and compliant as a public adjuster under this chapter. However, the contractor may discuss or explain a bid for construction or repair of covered property with the residential property owner who has suffered loss or damage covered by a property insurance policy, or the insurer of such property, if the contractor is doing so for the usual and customary fees applicable to the work to be performed as stated in the contract between the contractor and the insured. (pg. 14)

**Note: The paragraphs above apply only to residential or condominium unit owner policies. The previous statutory language was changed to specify unit owners rather than condominium associations.

- A public adjuster contract relating to a property andcasualty claim must contain the full name, permanent business address, and license number of the public adjuster; the full name of the public adjusting firm; and the insured’s full name and street address, together with a brief description of the loss. The contract must state the percentage of compensation for the public adjuster’s services; the type of claim, including an emergency claim, nonemergency claim, or supplemental claim; the signatures of the public adjuster and all named insureds; and the signature date. If all of the named insureds signatures are not available, the public adjuster must submit an affidavit signed by the available named insureds attesting that they have authority to enter into the contract and settle all claim issues on behalf of the named insureds. An unaltered copy of the executed contract must be remitted to the insurer within 30 days after execution. (pg. 15)

- For any claim filed under any policy of Citizens, a public adjuster may not charge, agree to, or accept any compensation, payment, commission, fee, or other thing of value greater than 10% of the additional amount actually paid over the amount that was originally offered by the corporation for any one claim. (pg. 30)

Statute of Limitations 

s. 95.11(2) has been amended specifically as to property insurance contracts. In an action for breach of a property insurance contract, the 5 year limitations period now begins to run from the date of loss. Previously, the period began running from the date of denial of the claim. It is extremely important to recalculate each case to be sure the limitations period does not run before a suit can be filed. (pg. 4)

Claims Handling

- A claim, supplemental claim, or reopened claim under an insurance policy that provides property insurance, as defined in s. 624.604, for loss or damage caused by the peril of windstorm or hurricane is barred unless notice of the claim, supplemental claim, or reopened claim was given to the insurer in accordance with the terms of the policy within 3 years after the hurricane first made landfall or the windstorm caused the covered damage. For purposes of this section, the term - supplemental claim or ―reopened claim means any additional claim for recovery from the insurer for losses from the same hurricane or windstorm which the insurer has previously adjusted pursuant to the initial claim. This section has an effective date of June 1, 2011. (pg. 15)

- In the event of a loss for which a dwelling is insured for replacement costs: the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. The insurer shall pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred. If a total loss of a dwelling occurs, the insurer shall pay the replacement cost coverage without reservation or holdback of any depreciation in value, pursuant to s. 627.702. (pg. 55)

- In the event of a loss for which personal property is insured for replacement costs: the insurer must offer coverage under which the insurer is obligated to pay the replacement cost without reservation or holdback for any depreciation in value, whether or not the insured replaces the property. (pg. 56)

- The insurer may also offer coverage under which the insurer may limit the initial payment to the actual cash value of the personal property to be replaced, require the insured to provide receipts for the purchase of the property financed by the initial payment, use such receipts to make the next payment requested by the insured for the replacement of insured property, and continue this process until the insured remits all receipts up to the policy limits for replacement costs. The insurer must provide clear notice of this process before the policy is bound. A policyholder must be provided an actuarially reasonable premium credit or discount for this coverage. The insurer may not require the policyholder to advance payment for the replaced property. (pg. 56)

Sinkhole Laws

- CPIC must provide that new or renewal policies issued by the corporation on or after January 1, 2012, which cover sinkhole loss do not include coverage for any loss to appurtenant structures, driveways, sidewalks, decks, or patios that are directly or indirectly caused by sinkhole activity. The corporation shall exclude such coverage using a notice of coverage change, which may be included with the policy renewal, and not by issuance of a notice of nonrenewal of the excluded coverage upon renewal of the current policy. (pg. 45)

- The insurer may require an inspection of the property before issuance of sinkhole loss coverage. (pg. 58)

- The insurer may restrict catastrophic ground cover collapse and sinkhole loss coverage to the principal building, as defined in the applicable policy. (pg. 58)

Changes to Definitions:

- Neutral evaluator is defined as a professional engineer or a professional geologist who has completed a course of study in alternative dispute resolution designed or approved by the department for use in the neutral evaluation proves and who is determined by the department to be fair and impartial. (pg. 59)

- Sinkhole activity means settlement or systematic weakening of the earth supporting the covered building only if the settlement or systematic weakening results from contemporaneous movement or raveling of soils, sediments, or rock materials into subterranean voids created by the effect of water on a limestone or similar rock formation. (pg. 59)

- Professional engineer means a person, as defined in s. 471.005, who has a bachelor’s degree or higher in engineering. A professional engineer must also have experience and expertise in the identification of sinkhole activity as well as other potential causes of structural damage. (pgs. 59-60)

- Professional geologist means a person, as defined in s. 492.102, who has a bachelor’s degree or higher in geology or related earth science and expertise in the identification of 3093 sinkhole activity as well as other potential geologic causes of structural damage. (pg. 60)

- Structural damage means that a building has experienced the following:

1.      Interior floor displacement or deflection in excess of acceptable variances as defined in ACI 117-90 or the Florida Building Code, which results in settlement related damage to the interior such that the interior building structure or members become unfit for service or represents a safety hazard as defined within the Florida Building Code;

2.      Foundation displacement or deflection in excess of acceptable variances as defined in ACI 318-95 or the Florida Building Code, which results in settlement related damage to the primary structural members or primary structural systems that prevents those members or systems from supporting the loads and forces they were designed to support to the extent that stresses in those primary structural members or primary structural systems exceeds one and one-third the nominal strength allowed under the Florida Building Code for new buildings of similar structure, purpose, or location;

3.       Damage that results in listing, leaning, or buckling of the exterior load bearing walls or other vertical primary structural members to such an extent that a plumb line passing through the center of gravity does not fall inside the middle one-third of the base as defined within the Florida Building Code;

4.      Damage that results in the building, or any portion of the building containing primary structural members or primary structural systems, being significantly likely to imminently collapse because of the movement or instability of the ground within the influence zone of the supporting ground within the sheer plane necessary for the purpose of supporting such building as defined within the Florida Building Code; or

5.      Damage occurring on or after October 15, 2005, that qualifies as ―substantial structural damage as defined in the Florida Building Code.

(d) Primary structural member means a structural element designed to provide support and stability for the vertical or lateral loads of the overall structure.

(e) Primary structural system means an assemblage of primary structural members.  (pg. 60)

- Any claim, including, but not limited to, initial, supplemental, and reopened claims under an insurance policy that provides sinkhole coverage is barred unless notice of the claim was given to the insurer in accordance with the terms of the policy within 2 years after the policyholder knew or reasonably should have known about the sinkhole loss. (pg. 61).

Policyholder demand for testing:

- The policyholder’s demand for testing must be communicated to the insurer in writing within 60 days after the policyholder’s receipt of the insurer’s denial of the claim.

- The policyholder shall pay 50 percent of the actual costs of the analyses and services provided under ss. 627.7072 and 627.7073 or $2,500, whichever is less.

- The insurer shall reimburse the policyholder for the costs if the insurer’s engineer or geologist provides written certification pursuant to s. 627.7073 that there is sinkhole loss. (pg. 63)

Repairs

- If a covered building suffers a sinkhole loss or a catastrophic ground cover collapse, the insured must repair such damage or loss in accordance with the insurer’s professional engineer’s recommended repairs. However, if the insurer’s professional engineer determines that the repair cannot be completed within policy limits, the insurer must pay to complete the repairs recommended by the insurer’s professional engineer or tender the policy limits to the policyholder. (pg. 63)

- In order to prevent additional damage to the building or structure, the policyholder must enter into a contract for the performance of building stabilization and foundation repairs within 90 days after the insurance company confirms coverage for the sinkhole loss and notifies the policyholder of such confirmation. This time period is tolled if either party invokes the neutral evaluation process, and begins again 10 days after the conclusion of the neutral evaluation process. (pg. 63)

- The stabilization and all other repairs to the structure and contents must be completed within 12 months after entering into the contract for repairs described in paragraph (b) unless:

1. There is a mutual agreement between the insurer and the policyholder;

2. The claim is involved with the neutral evaluation process;

3. The claim is in litigation; or

4. The claim is under appraisal or mediation.

Upon the insurer’s obtaining the written approval any lienholder, the insurer may make payment directly to the persons selected by the policyholder to perform the land and building stabilization and foundation repairs. The decision by the insurer to make payment to such persons does not hold the insurer liable for the work performed. The policyholder may not accept a rebate from any person performing the repairs specified in this section. If a policyholder does receive a rebate, coverage is void and the policyholder must refund the amount of the rebate to the insurer. Any person making the repairs specified in this section who offers a rebate commits insurance fraud punishable as a third degree felony as provided in s. 775.082, s. 775.083, or s. 775.084. (pg. 64)

As a precondition to accepting payment for a sinkhole loss, the policyholder must file a copy of any sinkhole report regarding the insured property which was prepared on behalf or at the request of the policyholder. The policyholder shall bear the cost of filing and recording the sinkhole report. The recording of the report does not:

1.      Constitute a lien, encumbrance, or restriction on the title to the real property or constitute a defect in the title to the real property;

2.      Create any cause of action or liability against any grantor of the real property for breach of any warranty of good title or warranty against encumbrances; or

3.      Create any cause of action or liability against a title insurer that insures the title to the real property (pgs. 66-67)

Neutral Evaluation:

- Neutral evaluation is available to either party if a sinkhole report has been issued pursuant to s. 627.7073. At a minimum, neutral evaluation must determine:

(a) Causation;

(b) All methods of stabilization and repair both above and below ground;

(c) The costs for stabilization and all repairs; and

(d) Information necessary to carry out subsection (12). (pg. 68)

- Neutral evaluation supersedes the alternative dispute resolution process under s. 627.7015, but does not invalidate the appraisal clause of the insurance policy. (pg. 68)

- The neutral evaluator must be allowed reasonable access to the interior and exterior of insured structures to be evaluated or for which a claim has been made. Any reports initiated by the policyholder, or an agent of the policyholder, confirming a sinkhole loss or disputing another sinkhole report regarding insured structures must be provided to the neutral evaluator before the evaluator’s physical inspection of the insured property. (pg. 68)

- The department shall allow the parties to submit requests to disqualify evaluators on the list for cause. The department shall disqualify neutral evaluators for cause based only on any of the following grounds:

1. A familial relationship exists between the neutral evaluator and either party or a representative of either party within the third degree.

2. The proposed neutral evaluator has, in a professional capacity, previously represented either party or a representative of either party, in the same or a substantially related matter.

3. The proposed neutral evaluator has, in a professional capacity, represented another person in the same or a substantially related matter and that person’s interests are materially adverse to the interests of the parties. The term “substantially related matter” means participation by the neutral evaluator on the same claim, property, or adjacent property.

4. The proposed neutral evaluator has, within the preceding 5 years, worked as an employer or employee of any party to the case.

- The parties shall appoint a neutral evaluator from the department list and promptly inform the department. If the parties cannot agree to a neutral evaluator within 14 business days, the department shall appoint a neutral evaluator from the list of certified neutral evaluators. The department shall allow each party to disqualify two neutral evaluators without cause. Upon selection or appointment, the department shall promptly refer the request to the neutral evaluator. (pg. 69)

-Within 14 business days after the referral, the neutral evaluator shall notify the policyholder and the insurer of the date, time, and place of the neutral evaluation conference. The conference may be held by telephone, if feasible and desirable. The neutral evaluator shall make reasonable efforts to hold the conference within 90 days after the receipt of the request by the department. Failure of the neutral evaluator to hold the conference within 90 days does not invalidate either party’s right to neutral evaluation or to a neutral evaluation conference held outside this timeframe. (pg. 69)

- If, based upon his or her professional training and credentials, a neutral evaluator is qualified to determine only disputes relating to causation or method of repair, the department shall allow the neutral evaluator to enlist the assistance of another professional from the neutral evaluators list not previously stricken, who, based upon his or her professional training and credentials, is able to provide an opinion as to other disputed issues. A professional who would be disqualified for any reason listed in subsection (7) must be disqualified. The neutral evaluator may also use the services of professional engineers and professional geologists who are not certified as neutral evaluators, as well as licensed building contractors, in order to ensure that all items in dispute are addressed and the neutral evaluation can be completed. Any professional engineer, professional geologist, or licensed building contractor retained may be disqualified for any of the reasons listed in subsection (7). The neutral evaluator may request the entity that performed the investigation pursuant to s. 627.7072 perform such additional and reasonable testing as deemed necessary in the professional opinion of the neutral evaluator. (pg. 70)

- The evaluator’s report shall be sent to all parties in attendance at the neutral evaluation and to the department, within 14 days after completing the neutral evaluation conference. (pg. 70)

- Neutral evaluator’s written recommendation, oral testimony, and full report shall be admitted in any action, litigation, or proceeding relating to the claim. (pg 70)

- Neutral evaluators are deemed to be agents of the department and have immunity from suit as provided in s. 44.107. (pg. 71)

- The department shall adopt rules of procedure for the neutral evaluation process. (pg. 71)

- FIGA may not pay for attorney’s fees or public adjuster’s fees in connection with a sinkhole loss. (pg. 72)

Legal Analysis\

The following legislative finding regarding sinkholes is contained in SB 408/Chapter Law 2011-39 (p. 57-59):

The Legislature finds and declares:

(1) There is a compelling state interest in maintaining a viable and orderly private-sector market for property insurance in this state. The lack of a viable and orderly property market reduces the availability of property insurance coverage to state residents, increases the cost of property insurance, and increases the state’s reliance on a residual property insurance market and its potential for imposing assessments on policyholders throughout the state.

(2) In 2005, the Legislature revised ss. 627.706–627.7074, 2992 Florida Statutes, to adopt certain geological or technical terms; to increase reliance on objective, scientific testing requirements; and generally to reduce the number of sinkhole claims and related disputes arising under prior law. The Legislature determined that since the enactment of these statutory revisions, both private-sector insurers and Citizens Property Insurance Corporation have, nevertheless, continued to experience high claims frequency and severity for sinkhole insurance claims. In addition, many properties remain unrepaired even after loss payments, which reduces the local property tax base and adversely affects the real estate market. Therefore, the Legislature finds that losses associated with sinkhole claims adversely affect the public health, safety, and welfare of this state and its citizens.

(3) Pursuant to sections 22 through 27 of this act, technical or scientific definitions adopted in the 2005 legislation are clarified to implement and advance the Legislature’s intended reduction of sinkhole claims and disputes. Certain other revisions to ss. 627.706–627.7074, Florida Statutes, are enacted to advance legislative intent to rely on scientific or technical determinations relating to sinkholes and sinkhole claims, reduce the number and cost of disputes relating to sinkhole claims, and ensure that repairs are made commensurate with the scientific and technical determinations and insurance claims payments.

The Legislature included these “clarifications” in an attempt to make certain changes retroactive. [I]t is generally accepted that the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.” Hassen v. State Farm Mut. Auto. Ins. Co., 674 So.2d 106, 108 (Fla. 1996) (citing Lumbermens Mut. Cas. Co. v. Ceballos, 440 So.2d 612, 613 (Fla. 3d DCA 1983)); see Esancy v. Hodges, 727 So.2d 308, 309 (Fla. 2d DCA 1999). Undoubtedly, insurers will claim that the sinkhole clarifications contained in SB 408 are merely procedural and can be applied retroactively.  In Menendez v. Progressive Express Insurance Co., 35 So.3d 873 (Fla. 2010), the supreme court outlined a two-part test to determine whether a statute that was enacted after the issuance of an insurance policy should have retroactive effect on claims arising out of that policy. First, a court must determine whether the legislature intended for the statute to apply retroactively. Second, if such an intent is clearly expressed, the court must determine whether the retroactive application would violate any constitutional principles. Id.at 877 (citing Metro. Dade Cnty. v. Chase Fed. Hous. Corp., 737 So.2d 494, 499 (Fla.1999)).  The Menendez court concluded that the Legislature intended for the statutory provision in that case to be applied retroactively but rejected the application:

In agreeing with the insureds that the statute cannot be applied retroactively, we conclude that the most problematic provisions of the statute are those which (1) impose a penalty, (2) implicate attorneys' fees, (3) grant an insurer additional time to pay benefits, and (4) delay the insured's right to institute a cause of action. We first note that this Court has generally held that statutes with provisions that impose additional penalties for noncompliance or limitations on the right to recover attorneys' fees do not apply retroactively. In Laforet, this Court held that section 627.727(10), Florida Statutes, which imposed a penalty on insurers who in bad faith failed to settle uninsured motorist claims, could not be applied retroactively “because it [was], in substance, a penalty.” Laforet, 658 So.2d at 61.

Menendez v. Progressive Exp. Ins. Co., Inc., 35 So.3d 873, 878 (Fla. 2010). A similar argument could be made regarding the sinkhole “clarifications” contained in SB 408.

In 2001, the Lewiarz’s house burned down. Their insurance company at the time paid their claim, but refused to insure their house beyond the then-current policy. Left to find new homeowner’s insurance, the Lewiarz’s called a broker who submitted applications and found an insurance company to provide coverage beginning in 2003. That insurance company denied coverage for a second fire loss that occurred in 2006. The insurer based the denial on the application’s failure to disclose that the house had been damaged by fire previously.

The homeowners filed suit alleging the broker was negligent in preparing the application for insurance. The broker filed a motion to dismiss, claiming the action was barred by the statute of limitations. The broker contended that the statute of limitations began to run on the date the insurance policy was issued. The court disagreed, explaining:

The [s]tatute of [l]imitations does not run until there is a legal right to relief. Stated another way, accrual occurs when the claim becomes enforceable, i.e., when all elements of the tort can be truthfully alleged in a complaint. Inasmuch as "[d]amages are a necessary element of a negligence claim which must be pleaded and proven," plaintiffs could not have established any harm until their claim was denied by [their insurance company]. Thus, where, as here, a claim against an insurance agent or broker relating to the failure of insurance coverage sounds in tort, the injury occurred and the plaintiffs were damaged when coverage was denied. [citations omitted]

Applying this rule, the court held that the suit was timely and shouldn’t be dismissed on those grounds.

The statute of limitations is a fairly easy concept: It limits the time you have to bring a claim. The tricky part, however, can be determining when the clock starts ticking on the limitations period. Calculating the dates accurately is critical, as an insured will likely be precluded from any recovery if the limitations period ends before an insured files suit.

Keep in mind that this case applied New York law and other states may apply different standards.

In Price, Theodore Price was a pedestrian in the course of his employment at the time that he was hit by a car. Mr. Price had an insurance policy with New Jersey Manufacturers (“NMJ”) that included uninsured motorist coverage. The policy had an arbitration provision. When Mr. Price learned that the carrier for the driver denied coverage for the accident, Mr. Price’s attorney advised NMJ that Mr. Price would be presenting an uninsured motorist claim with NJM and requested that NMJ set up a claim file. NJM acknowledged receipt of the foregoing letter and requested information on Mr. Price’s injuries and workers’ compensation liens and later requested additional information.

NJM was then advised that Mr. Price had filed an action against the driver to protect NJM’s subrogation rights. Mr. Price’s attorney provided NJM with various types of information, including the workers’ compensation lien and medical records. Based on the information provided by Mr. Price’s attorney, NJM evaluated the status of the matter and authorized Mr. Price’s attorney to dismiss the lawsuit against the driver. A few months later, another NJM representative asked for copies of medical bills and other insurance information in order to verify the tort threshold. NJM scheduled a medical examination and instructed Mr. Price’s attorney to put Mr. Price’s employer on notice of the claim and requested a copy of the employer’s workers’ compensation policy.

Nine days before the expiration of the statute of limitations, NJM requested Mr. Price’s complete workers’ compensation file, some original MRI films and Mr. Price’s employer’s policy language regarding their uninsured motorist limits and exposure to this loss. Mr. Price’s attorney forwarded most of the requested documentation and advised that the rest of the requested information would be forthcoming. Mr. Price’s attorney continued to provide the information requested by NJM, and, after multiple written requests that went unanswered, he demanded that NJM evaluate the file for settlement purposes and advised that the workers’ compensation lien exceeded $53,000.00. NJM again failed to reply.

Mr. Price then filed a Complaint and Order to Show Cause, seeking to compel NJM to participate in arbitration. NJM responded that Mr. Price failed to formally request coverage or demand arbitration before the expiration of the statute of limitations, and, as such, NJM was not obligated to participate in arbitration.

The trial court found that NJM’s course of conduct had lulled plaintiff’s attorney into a false sense of having timely made a UM [uninsured motorist] claim. The Appellate Court affirmed, holding that NJM was estopped from raising the statute of limitations defense and that it should have notified plaintiff of its intent to rely on the statute of limitations.

The Supreme Court of New Jersey began its analysis by noting that the six year statute of limitations for an uninsured motorist claim begins to run on the date of the accident. In Price, the accident at issue occurred on August 30, 1995 and the Complaint was filed on November 22, 2002. Thus, the statute would typically have barred Mr. Price’s Complaint.

The primary purpose of the statute of limitations is to provide defendants a fair opportunity to defend and to prevent plaintiffs from litigating stale claims. Consisted with that purpose, where defendants are on notice of he claims, and no significant prejudice results, the policy reasons for upholding a strict statute of limitations recede. In short, under varying circumstances we have recognized that tolling of the statute of limitations is the fair and responsible result, because the unswerving mechanist application of statutes of limitations would at times inflict obvious and unnecessary harm upon individual plaintiffs without advancing the legislative purposes.

The Supreme Court of New Jersey went on to explain that the facts in Price supported an equitable tolling of the statute of limitations. Early on in the claim, Mr. Price’s attorney put NJM on written notice that Mr. Price was pursuing an uninsured motorist claim. Over the course of a few years, Mr. Price’s attorney repeatedly followed up with NJM, providing as much relevant information as possible, complied with all of NJM’s requests, and NJM received the information necessary to evaluate plaintiff’s claim.

We have declared that every insurance contract contains an implied covenant of good faith and fair dealing. The insurance company, as the dominant party, however, has an even greater obligation than the insured to act in good faith. It must not put technical encumbrances or hidden pitfalls in the way of unsophisticated customers that would undermine their reasonable expectations. In dealing with plaintiff, NJM was required to act in a fair manner and inform plaintiff if there were any deficiencies in his claim or if he needed to file a request for arbitration by a certain date. It was not reasonable for NJM to sit back, request and receive various documents over a three and one-half year period, and then deny plaintiff’s claim because he failed to file a complaint in the Superior Court or request arbitration prior to the running of the six-year statute of limitations. We agree with the Appellate Division majority that NJM had a duty of good faith to notify plaintiff if it disagreed with his understanding that NJM was duly acting upon his filed claim. We conclude that NJM violated the duty of good faith and fair dealing.

In Price, the Court took into consideration the fact that even though Mr. Price complied with all of NJM’s requests, NJM never disclaimed or even questioned coverage until after the statute of limitations expired. The Supreme Court of New Jersey found that NJM’s conduct lulled Mr. Price and his attorney into believing that the uninsured motorist claim had been properly filed. The Court held that Mr. Price reasonably relied on NJM’s conduct in failing to file a complaint or to request arbitration within the statute of limitations period, stating that “the statute of limitations period should not become an instrument of injustice.” Furthermore, there was no evidence or allegation that NJM was prejudiced in any way. As such, the Supreme Court of New Jersey rejected NJM’s statute of limitations defense and ordered the parties to participate in arbitration. It is important to keep in mind that the law of another jurisdiction may be different.
 

Please tune in next week for another discussion of bad faith issues.

In Bazile v. Aetna Casualty Surety Co., 784 S.W.2d 73 (Tex.App.—Houston [14th Dist.] 1989, writ dism’d), the policyholder sued four insurance companies for denying her claim for a fire loss that occurred on April 17, 1981. Once she realized that she was not getting anywhere with her insurers, the policyholder hired a public adjusting firm and an attorney to assist her in filing her claim. The public adjuster filed proofs of loss with the various insurers on August 8, 1981. Three days later, an agent acting on behalf of all four companies rejected the proofs of loss as not timely filed under the policies. The policyholder then waited more than three years to file suit.

Of the three relevant insurance contracts, the Court found that they all provided the following language:

The amount of loss for which this Company may be liable shall be payable sixty days after proof of loss, as herein provided, is received by this Company and ascertainment of the loss is made either by agreement between the insured and this Company expressed in writing or by the filing with this Company of an award as herein provided. No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within two years and one day next after cause of action accrues. [emphasis added]

The appellate Court held that contractual provisions which limit the time in which to file suit are valid and enforceable, rejecting the policyholder’s contention that the limitation period did not begin to run because the proofs of loss were not received and accepted by the insurers. The Court further held that the cause of action accrued sixty days after the proofs of loss were rejected, so the limitation period began to run at that time, and the policyholder’s 1984 lawsuit was barred.

In Florida, the statute of limitations is codified in Chapter 95 of the Florida Statutes. The statute itself reads like this:

Title VIII – Limitations
Chapter 95 – Limitations of actions; adverse possession

95.11 – Limitations other than for the recovery of real property. — Actions other than for recovery of real property shall be commenced as follows:
…
(2) WITHIN FIVE YEARS. —
…
(b) A legal or equitable action on a contract, obligation, or liability founded on a written instrument, except for an action to enforce a claim against a payment bond, which shall be governed by the applicable provisions of ss. 255.05(10) and 713.23(1)(e).

This statute doesn’t say when the clock starts or stops, it just gives the duration the clock will run. Florida Statute § 95.031, “Computation of Time,” explains when the clock will start running, but doesn’t say anything about when it will stop. We can add the time prescribed in Fla. Stat. § 95.11 to the starting point, but that still won’t answer our question about what happens if a statute runs on a weekend or holiday.

The Florida Rules of Civil Procedure address the issue of computation of time, so we can look there for guidance.

RULE 1.090. TIME
(a) Computation. In computing any period of time prescribed or allowed by these rules, by order of court, or by any applicable statute, the day of the act, event, or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included unless it is a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday, or legal holiday. When the period of time prescribed or allowed is less than 7 days, intermediate Saturdays, Sundays, and legal holidays shall be excluded in the computation.

That rule sounds like it provides the answer, but will it hold up in court? In 1973, the Florida Third District Court of Appeal followed the rule saying, “We are in accord with the general view that, if the last day of a period of limitation for commencing an action falls on a Sunday or on a legal holiday, the period is extended and the action may be commenced on the following secular or business day.” Herrero v. Black & Decker Mfg. Co., 275 So. 2d 54 (Fla. 3d DCA 1973). The Florida Supreme Court agreed with the Third District’s ruling in Black and Decker Mfg. Co. v. Herrero, 281 So. 2d 18 (Fla. 1973). Since then, Florida courts have continued to hold that if a statute of limitations ends on a weekend or legal holiday, court filings will still be held to be timely if they are filed on the following business day. See Thorney v. Clough, 438 So. 2d 985 (Fla. 3d DCA 1983) (weekend and legal holiday); Moorey v. Eytchison & Hoppes, Inc., 338 So. 2d 558 (Fla. 2d DCA 1976) (weekend); Williams v. Albertson's Inc., 879 So. 2d 657 (Fla. 5th DCA 2004) (weekday); Rodriguez v. U.S., 279 Fed. Appx. 753 (11th Cir. 2008) (weekend and legal holiday).

This is the rule in Florida and is based on Florida statutes and rules. The outcome in other states may vary, depending on the statutes and rules of the jurisdiction.  Consult legal counsel regarding the rules in your area before making any decisions based on a statute of limitations.

A statute of limitations works like a legal deadline by which a lawsuit must be filed. Each state has its own statute, and deadlines vary by the cause of action (e.g. contracts, negligence, and medical malpractice). In actual practice, the statute of limitations must be raised as a defense to have any effect, but if it is raised, it can act as an absolute bar to any recovery the plaintiff may be seeking.

There are some exceptions to the statute of limitations that lawyers can work with to try to get around these hard and fast deadlines, but it is always better to be safe than sorry with these deadlines. One exception is the relation back doctrine. Under Rule 15(c) of the Federal Rules of Civil Procedure, an amendment made to a pleading in a lawsuit will “relate back” to the original date of filing if:

(A) the law that provides the applicable statute of limitations allows relation back;

(B) the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out — or attempted to be set out — in the original pleading; or

(C) the amendment changes the party or the naming of the party against whom a claim is asserted, if Rule 15(c)(1)(B) is satisfied and if, within the period provided by Rule 4(m) for serving the summons and complaint, the party to be brought in by amendment:

(i) received such notice of the action that it will not be prejudiced in defending on the merits; and

(ii) knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity.

In Tubre v. Western Diversified Cas. Ins. Co., No. 09-2482, 2009 WL 3447255 (E.D. La. Oct. 19, 2009), a Louisiana resident sued his insurance company for bad faith and damages resulting from Hurricane Katrina. The lawsuit was filed within the appropriate statute of limitations, but, unfortunately, the plaintiff named the wrong insurance company as the defendant. The plaintiff rectified the error, but not until after the statute of limitations had run in Louisiana. When the newly named defendant insurance company raised the statute of limitations as a defense, the plaintiff’s attorney asserted the relation back doctrine, claiming that the new lawsuit “arose out of the conduct, transaction, or occurrence” of the original lawsuit against the wrongly named insurance company. The plaintiff’s attorney satisfied part (c)(1)(B) of Rule 15, but could not satisfy parts (c)(1)(C)(i) and (ii),which require a newly named defendant be aware that it could or should have been named in the lawsuit before the statute of limitations ran out. The court held that the amended complaint did not relate back and dismissed the lawsuit against the insurance company.

This is just one example of what was probably a valid claim against an insurance company that was dismissed because it was filed after the statute of limitations passed, even though the delay was based on a simple error. The five-year anniversary of Hurricane Katrina passed last week for those in Florida. Other anniversaries are also coming up soon, such as September 13, for Hurricane Ike claims in Texas, and October 24, for Hurricane Wilma claims in Florida. If you have a potential claim based on one of these storms or know someone who does, please urge them to get competent legal help before it is too late.

The traditional statute of limitations in Texas for a contract dispute is four (4) years from the accrual of a cause of action (i.e., when you can file suit). However, Texas law allows for contracting parties to shorten their limitations period, but not for a period less than two (2) years. Under Texas law, a provision creating a limitations period of less than two years is automatically void. Insurance companies know this law well and most have provisions in their policies which shorten the limitations period to two years. Since Hurricane Ike passed through on September 13, 2008, if your insurer shortened the statute of limitations, the last day you could file a lawsuit for damages related to Hurricane Ike is September 13, 2010. That is less than two months away!

So where does the confusion lie? Perhaps some people are confused because of the Texas case that negated a contractually-shortened limitations period which reduced the limitations period to less than two years. On June 21, 2009, Chip Merlin discussed Spicewood Summit Office Condominiums Association, Inc. v. America First Lloyd’s Insurance Company. In Spicewood, the Texas Court of Appeals held that the two year and one day contractual limitations period contained within the policy was void because additional provisions within the policy, which were conditions precedent to filing suit, made it impossible for the policyholder to file suit immediately after the loss. This had the effect of making the limitations period less than two (2) years and void under Texas law. Because the limitations provision was void, the court determined that the traditional four (4) year statute of limitations applied instead.

The insurance company in Spicewood petitioned the Supreme Court of Texas to review this case, but the court declined. This does not necessarily mean that the Texas Supreme Court agrees with the Spicewood decision; it might have declined to hear the case for other reasons.

There will continue to be confusion over this issue until the Supreme Court of Texas delivers a definitive ruling. Although your statute of limitations period may be later than September 13, 2010, Merlin Law Group advises everyone to use the date of loss as the starting point for computing the two-year limitations period, just to be on the safe side. As an added bonus, filing by September 13, 2010, will prevent insurance companies from slowing down the resolution of your claim by litigating defenses based on the limitations period.

TWIA is in trouble. In recent discovery, it's 11.2% maximum damage exposure calculations on Slab claims have been shown to be both arbitrary and wrongly determined. At the Windstorm Symposium in Dallas two weeks ago, my presentation highlighted how TWIA's calculation was arbitrary. My post, Practical Points From Gulf Coast Case Law Update, noted a recent Mississippi case, Fonte v. Audubon Ins. Co., 8 So. 3d 161 (Miss. 2009), which described how such a pre-determined outcome, despite evidence to the contrary, could give rise to a finding of bad faith. Property Insurers Have An Obligation To Investigate All Facts Supporting Coverage, and the refusal to do so because of some arbitrary statistical analysis is bad faith conduct.

I made fun of TWIA's 11.2% logic in The Parable of Hurricane Ike Insurance Claims. The frustration to TWIA customers caused by such illogic and failure to act in a transparent nature and explain the basis for the calculation resulted in protest, as noted in Texas Windstorm "Slabbers" and Policyholders March on Austin. TWIA's attorneys, if they are honest, have to acknowledge that the calculation was wrongly determined. Even assuming the methodology is sound, the data is wrong and the calculation is far too low. TWIA should be voluntarily paying more benefits, interest and attorneys fees---assuming the current TWIA executives understand their obligation of good faith, which requires such immediate action. Most have a hard time admitting failure and accepting full accountability for wrong decisions. We'll see what spin those crafty and able insurance defense attorneys are able to place on this situation.

Texas insurance coverage disputes also have more causation issues than most states. Much of this comes from case language and logic pre-dating the development of the all-risk insurance policy. At dinner with three different law firms last night, we discussed the burden of proof in an all-risk scenario, as I did in Can an Insured Recover Under a Flood Policy and an All Risk Homeowners Policy for the Same Damage? Texas case precedent needs to reflect what the rest of the country has long noted regarding the burden of proving damage under an all-risk policy. Virtually all the insurance companies selling all-risk policies in Texas have claims manuals which indicate that the policyholder merely needs to prove that damage occurred during the policy period. Those manuals then indicate that the insurer has to prove the amount of the excluded damage or happily pay its customer. Amen.

Given the popularity of Texas Hold'em, the raging litigation battles we are fighting, and the change of heart needed by many Texas insurers for settlement, this movie and song clip seems fitting:
 

It is within the board of directors’ power to determine whether to proceed with a claim for insurance proceeds, and the board members should collectively ensure that they avoid any potential allegations that they failed to act once the statute passes. Homeowners’ and condominium associations exist primarily to protect the owners’ fiduciary interests in the common areas of the community. Simply put, the association bears the duty to protect, maintain and repair the property commonly shared by the owners. Generally speaking, the condominium/homeowners association’s declaration documents speak to these duties. A breach of this fiduciary duty could likely result in property damage to the common areas or even the unit owners’ specific property. Particularly once the limitations period passes, associations could potentially face actions brought against them by unit owners for failure to effectuate repairs or failure to appropriately investigate and pursue avenues of recovery with the associations’ property insurance carriers. The unit owners could potentially do so under a breach of fiduciary duty theory of recovery.

So, the simple question from the board members’ perspective becomes, “what can I do to ensure that I can demonstrate that I have done a reasonable investigation of the association’s insurance claim (or potential insurance claim) before the statutes of limitation pass?” The short answer to that question is to make sure the boards have conducted a reasonable investigation into their insurance claim (or potential insurance claim) and have some reliable opinion from an experienced professional on the matter. This can involve counsel and experienced public adjusting professionals with requisite experience in evaluating insurance claim damage, particularly as that damage concerns condominium and homeowners’ associations.

The situation may present itself with an all too familiar initial scenario: A unit owner writes the board on numerous occasions to express his or her concern for a leaky roof or other problem with a common element. That unit owner feels like his or her concerns are ignored. Then the situation takes a turn toward an unfamiliar problem as it relates to condominium/homeowner association and first-party property insurance law when the statute of limitations to file or proceed with a claim passes. That unit owner may then file a lawsuit against the association and its board of directors for breach of fiduciary duty. See Allstate Insurance Co. v. Cambron, 936 So.2d 1210 (Fla. 5th DCA 2006).

This is why it behooves the condominium and homeowner associations’ boards of directors to ensure that they have taken adequate steps to investigate their claim (or potential claim) with the right team of experienced professionals with sufficient time before the limitations period approaches. The board of directors should have a good faith, independent and reasonable basis for a business judgment of whether to proceed with potential recovery under the association’s insurance policy well before the statutes of limitation pass.

Once the statute of limitations passes, any cause of action by unit owners for breach of fiduciary duty may be defended under an errors and omissions policy for at least some portion of the recovery that would have been available under the association’s property insurance policy. Owners’ associations often times maintain insurance against such breaches of fiduciary duty so the property value will not diminish because of the association’s or board’s wrongdoings. This is referred to as errors and omissions coverage.

In Lumbermens Mutual Casualty Co. v. Dadeland Cove Section One Homeowners’ Association, Inc., 2007 WL 2979828 (S.D. Fla. 2007), the homeowners sued the association for breach of fiduciary duty. . To defend, the association looked to Lumbermens Mutual Casualty Company, the insurer for the association’s directors and officers policy, which provided errors and omissions coverage. Lumbermens provided a defense to the association for several years, but then refused coverage and asked for its money back based on an exclusion for “loss arising from any claim for … loss of use, destruction of or damage to any tangible property, except for claims which involve construction defects…” Id. The association was forced to litigate the issue and argue that the errors and omissions policy covers the breach of fiduciary duty lawsuit at hand.

The Southern District Court held that:

Lumbermens misses the mark in relying upon exclusion N [listed above] because it is irrelevant to the situation at hand. The provision only excludes coverage for ‘loss arising from any claim which is for loss of use, destruction of or damage to any tangible property’—in other words, for the damage that should be covered by general liability insurance, such as damage by a fire. Lumbermens’ interpretation puts the cart before the horse because the origin of the claim here is the breach of fiduciary duty, not the property damage. This is not a case where the ‘loss arises from a claim for tangible property damage.’ Rather, the loss here is the property damage that arises from a claim for breach of fiduciary duty—the exact scenario the Policy covers… Any other result would render coverage so limited that it could not reasonably have been intended by the parties. Id.

The Southern District Court of Florida granted the association’s summary judgment motion as to coverage under the errors and omissions policy. Lumbermens appealed that decision to the United States Court of Appeals for the Eleventh Circuit, which ultimately affirmed the District Court’s finding of coverage. Lumbermens Mutual Casualty Co. v. Dadeland Cove Section One Homeowners’ Association, Inc., 2008 WL 4483419 (11th Cir. 2008).

There are two points of concern then for those involved in advising, working with, or serving on boards of directors of condominium and homeowners’ associations as the statutes of limitation for Hurricanes Katrina and Wilma approach. First, to meet the fiduciary duty to repair the property commonly shared by the owners, ensure that appropriate action is taken to reach a business judgment regarding whether to proceed with a claim (or potential claim) for damages to common property. This must be done with sufficient time before the limitations period pass. Hiring the right team of experienced professionals can establish the board’s good faith, independent and reasonable basis for a business judgment of whether to proceed with potential recovery under the association’s insurance policy. Second, while the association may have an errors and omissions policy that potentially provides coverage for any property damage resulting from any lack of action by the board of directors, as the Dadeland Cove case above reveals, such litigation involving the errors and omissions carrier may be a long and drawn out battle. This is often a concern for board members faced with a decision whether to proceed with a claim within the statute of limitations period. Better to face it head on initially, rather than under an errors and omissions theory later.
 

The state trial court granted summary judgment in favor of America First, holding that the two year and one day contractual limitations period provided for in the policy had run before Spicewood filed suit. The Texas Court of Appeal reversed the summary judgment.

In Texas, the general rule is the statute of limitations for a breach of contract action is four years from the day the cause of action accrues. Section 16.070(a) of the Texas Civil Practice and Remedies Code allows parties to shorten the limitations period by contract, but it cannot be less than two years. A contract, or agreement that establishes a limitations period shorter than two years is void. Simply stated, a contractual limitations period cannot end until two years after the day the cause of action accrues.

The accrual of a cause of action means the right to institute and maintain a suit. Thus, if a contractual limitations period is two years, the contract cannot establish a trigger for that period that occurs prior to the accrual of the cause of action because it would, in effect, shorten the contractual limitation to less than two years.

Unfortunately for America First, that was the effect of its policy provisions. The insurance contract contained the following provision:

No one may bring a legal action against [America First] under this policy unless:

a. There has been full compliance with all the terms of this insurance, and

b. The action is brought within 2 years and one day after the date on which the direct physical loss or damage occurred.

According to subsection (b), the two-year contractual limitations period started on the date of loss. Subsection (a) required “full compliance with all the terms” of the insurance policy before Spicewood could bring a “legal action.” The terms of the contract required several conditions precedent which would consume weeks, if not months. Therefore, Spicewood could not have filed suit on the day after the loss, so the effect of subsection (a) was to shorten the contractual limitation to less than two years.

Accordingly, the Court of Appeals held the two year contractual limitation was void, and the four year statute of limitations governed Spicewood’s claims for breach of contract, violation of the prompt-payment statute, and related attorneys’ fees.

You can read the full opinion here.