On the surface, issues regarding limitations on the time to bring insurance coverage suits appear to be, and often are, easily resolved. Insurance policies are contracts governed by state law. State law normally contains statutes of limitations specifically covering written contracts, and such statutes typically contain language stating a time-frame of a certain number of years after the cause of action has "accrued."
Unfortunately, the surface simplicity of suit limitation issues is often "deceptive."1 For example, despite the existence of the policy contract, courts may apply other limitations periods, such as those applicable to underlying actions against policyholders or those set out in the policy contract itself. Additional questions may concern whether the limitations period pertains to all of the carriers' duties at issue,2 when the cause of application has "accrued," and how the period may be tolled. The case law is studded with odd and inconsistent results.
Limitations Periods Provided By Policy Provisions
Standard fire and other first-party policies directly insuring damage to property values typically contain policy provisions limiting the time to bring suit after the date of an "occurrence," "loss," or "inception" of a "loss." Largely on the ground that the law enforces contracts and "will not make a better contract for the parties than they themselves have seen fit to enter into," courts generally regard unambiguous insurance policy provisions which bar suit after a specific time period as enforceable.3
However, enforceability does not mean that the carrier will prevail in specific matters. As the carrier provides the wording of such provisions, policy-based limitations periods which are less favorable to a policyholder than the applicable state statute of limitations must be clear and unambiguous in their application to the facts at hand.4 Additionally, in appropriate cases the commencement of a limitations period may be postponed, such as on the ground that the policyholder did not "discover, [n]or by exercise of reasonable diligence and intelligence should have discovered, facts which form the basis of [the] claim."5 Statutes and case law may effectively lengthen the policy-based limitations period by providing for tolling of the period on account of certain events, such as "from the time the insured gives notice until liability is formally declined,"6 or by requiring the carrier to show that it has incurred prejudice to its position as a result of the late filing of suit.7
Despite the general rule that limitations periods contained in contracts are enforceable, parties need also to be aware of any state statutory restrictions on their ability to substitute a suit limitation period differing from the state's statute of limitations. Notably, agreements seeking to toll statutes of limitations for indefinite periods may be barred by statute or case law. In T&N plc v. Fred S. James & Co.,8 the Second Circuit considered an agreement to toll the applicable statute of limitations from the date of the agreement "until 30 days after receipt of notice of termination of th[e] agreement by either party." Relying on a specific New York statutory provision restricting the content of such tolling agreements, the Second Circuit dismissed the action.9
Limitations Periods Provided By Statute
Where the insurance policies themselves do not provide a suit limitation period, as is the case with most liability insurance policies, courts look to state statutes of limitations. Recognizing that the source of the carrier's obligation at issue is contractual in nature, courts overwhelmingly apply statutes of limitations pertaining to contracts rather than the typically shorter statutes of limitations applicable to the subject matter of other types of actions or to underlying claims.10 Nonetheless, courts have not always applied this general rule.11
Perhaps the most commonly litigated issues involve when the cause of action "accrued" and therefore triggered the start of the limitations period. Insurance claim histories normally include several specific events which litigants may regard as an accrual date. Carriers argue that causes of action have accrued on an early event, such as a date of an underlying physical accident or occurrence, a physical injury, or an early letter from the carrier disclaiming coverage. Conversely, policyholders argue that a cause of action accrued at a time of a later event, such as the termination of an underlying action generating a carrier's indemnification liability or a disclaimer of coverage letter received after termination of an underlying action.
Courts occasionally accept a carrier's argument that an early event caused the action to accrue and began the running of the statute of limitations. To illustrate, in 1996 the New Jersey Supreme Court held that the statute of limitations for a claim based on an automobile accident with an underinsured motorist began to run on the date of the accident rather than on later dates related to the carrier's performance under the policy.12 The court relied upon factors involved in the administration of insurance claims, reasoning that "the processing of the tort action [against the underinsured motorist] and insurance claims should generally start at the same time."13
Fortunately for policyholders asserting claims under liability policies, courts often accept their position that the accrual of the cause of action has occurred on a later event.14 In Moffat v. Metropolitan Casualty Insurance Co., a Pennsylvania federal district court rejected a carrier's argument that a cause of action for breach of duty to defend an action accrued on the date of an early disclaimer of coverage.15 Moffat regarded the carrier's breach of duty to defend as "continuous" and held that the cause of action against the carrier did not completely accrue until exhaustion of the appellate process in the underlying action.16 The court reasoned that the result sought by the carrier was "absurd," because "an insured could find that the statute had run long before he had incurred his trial and appellate expenses" and the result "would lead to the multiplicity of suits," with "a suit for costs and expenses and then, after a judgment against the insured, a suit for indemnity."17 The court noted that the insurance policy contained a "no-action" condition which provided that the suit for indemnity could not begin until such final judgment was entered.18
Liability policies normally contain "no-action" and other conditions which protect carriers, but as in Moffat tend to delay suits against them. Consistent with the reasoning and result of Moffat, courts now regularly rely upon such clauses to rule that the delays contemplated by such conditions also delay cause of action accrual dates for statutes of limitations purposes. 19
In favoring policyholders on statute of limitations issues, courts have relied upon additional grounds, such as the Eleventh Circuit's characterization of a disclaimer of coverage as an anticipatory breach.20 Under the general contract law of Georgia, this characterization provided the policyholder with the option of awaiting the time for performance or suing immediately.21 So that the exercise of the option to await the time of performance would not penalize the policyholder, the court treated the cause of action for indemnity as having accrued on an entry of judgment in the underlying action and not on the earlier date of the disclaimer of coverage.22
Despite the clear tendency of courts to rule in favor of policyholders on "accrual" issues, decisions do occasionally bar coverage by deeming an early event to be the cause of action "accrual" date. For example, in Dilmar Oil Co. v. Federated Mutual Insurance Co.,23 the Fourth Circuit, applying South Carolina law, determined that a denial of coverage caused the insurance policy to be "void" for the claim presented and that the cause of action had accrued on the denial date. The court rejected the policyholder's argument that at that time it had not yet incurred any recoverable expenses under the specialized pollution liability policy at issue, reasoning that the policyholder had incurred some investigatory expense.
Litigants are often surprised to learn that suit limitations period issues in particular insurance coverage disputes are more complex than expected. Policy provisions, underlying facts, claim-related events, state statutes of limitations, and case law may influence results in various counter-intuitive ways. Policyholders, in particular, should be aware of these issues, as a bar on suit may deprive them of coverage for a claim.1 In Continental Casualty Co. v. Stronghold Insurance Co., 77 F.3d 16, 18 (2d Cir. 1996), the Second Circuit characterized interpretation of a New York statute of limitations as "deceptively simple."
2 For example, decisions often analyze the potential applicability of a statute of limitation to the duties to defend a claim in a liability policy separately from the issue of application of the statute to the duty to indemnify.
3 See, e.g., Gahney v. State Farm Ins. Co., 56 F. Supp. 2d 491, 495 (D.N.J. 1999)(enforcing "unambiguous" one-year suit limitation set forth in a property policy).
4 See, e.g., id.
5 See id. at 496 (considering alleged delay period owing to inability to discover cause of action but finding length of delay period insufficient to preclude time bar). See also, e.g., Fireman's Fund Ins. Co. v. Sand Lake Lounge, Inc., 514 P.2d 223 (Ak. 1973)(Alaska law)(policyholder permitted to sue one year from the date of denial of liability rather than one year from date of loss).
6 Peloso v. Hartford Fire Ins. Co., 267 A.2d 498, 501 (N.J. 1970)("the parties negotiated for 9 months. During this time, the statute was tolled").
7 See, e.g., Estes v. Ak. Ins. Guar. Ass'n, 774 P.2d 1315, 1318-19 (Ak. 1989).
8 29 F.3d 57, 61 (2d Cir. 1994).
9 N.Y. Gen. Oblig. L. 17-103(1). The court also relied upon Bayridge Air Rights, Inc. v. Blitman Constr. Corp., 599 N.E.2d 673 (N.Y. 1992)(declining to infer a specific time period into a tolling agreement deemed invalid by reason of indefiniteness).
10 See, e.g., Blutreich v. Liberty Mut. Ins. Co., 826 P.2d 1167 (Ariz. 1991); Allstate Ins. Co. v. Spinelli, 443 A.2d 1286, 1290 (Del. 1969).
11 See, e.g., Vaughn v. Collum, 224 S.E.2d 416 (Ga. 1976); Brown v. Lumbermens Mut. Cas. Co., 204 S.E.2d 829 (N.C. 1974).
12 Green v. Selective Ins. Co., 676 A.2d 1074, 1079 (N.J. 1996). See also, e.g., Gedeon v. State Farm Mut. Auto Ins. Co., 261 F. Supp. 122, 123 (W.D. Pa. 1966)(statute of limitations began to run upon refusal of carrier to defend).
13 Green, supra note 12, 676 A.2d at 1979. Recognizing that the decision would generally shorten the time available for a policyholder to bring suit, the court applied its decision prospectively.
14 Policyholders are typically not as fortunate with respect to late suits asserting claims under insurance policies which are not liability policies. See, e.g., Gallo v. Savings Bk. Life Ins. Fund, 684 N.Y.S.2d 278, 279 (2d Dep't 1999)(cause of action on life insurance policy accrued at policyholder's death).
15 238 F. Supp. 165, 175 (M.D. Pa. 1964).
19 See, e.g., Crest-Foam Corp. v. Aetna Ins. Co., 727 A.2d 1030, 1036 (N.J. App. Div. 1999) ("[i]n essence, the 'no action' clause may prevent or delay an action for indemnification, but it also prevents the assertion of the statute of limitations defense to a declaratory judgment action before it is triggered and for six years thereafter" and holding irrelevant the fact that the policyholder may bring a declaratory judgment action against a carrier at an earlier time). See also Stronghold Ins. Co., supra note 1, 77 F.3d at 20 (condition allowing a reinsurer to consider claim after termination of underlying action contemplated delay and therefore delayed accrual of cause of action against reinsurer). But see, e.g., Hall v. Allstate Ins. Co., 880 F.2d 394, 397 (11th Cir. 1989).
20 Hall, supra note 19, 880 F.2d at 399. See also Lane v. Nationwide Mut. Ins. Co., 582 A.2d 501, 505 (Md. 1990)(disclaimer of coverage is an "anticipatory repudiation [which] does not cause the statute of limitations to begin running against the insured.")
22 See id. at 399-400.
23 1997 U.S. App. LEXIS 30353 at *9-*10 (4th Cir. 1997).
Charles Allen Yuen is Counsel in the Litigation Practice at the New Jersey office of Pitney Hardin llp.