Can you sue for lost business income after policy's time limit?
One company challenged the lawsuit limitations period, saying it couldn’t ascertain its losses in that time. See what a federal appeals court ruled.
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The U.S. Court of Appeals for the Second Circuit has rejected an insured’s argument that enforcing an insurance policy’s two-year suit limitation clause would make it impossible to bring claims for business income and extra expense losses because they were not fully ascertainable within two years.
The case
After a fire at Classic Laundry and Linen Corporation’s business premises, Classic notified its insurer, Travelers Casualty Insurance Company of America, of its loss.
Travelers paid Classic for damage to Classic’s business personal property. Travelers, however, denied Classic coverage for business income and incurred extra expense, asserting that Classic had failed to timely return an executed sworn statement proving its losses.
Classic sued Travelers for business income and extra expenses. The U.S. District Court for the Southern District of New York granted Travelers’ motion to dismiss. The district court concluded that the case was untimely because the Travelers insurance policy specified that lawsuits enforcing the policy had to be brought within two years after the physical loss occurred, and Classic had sued almost three years after the fire.
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Classic appealed to the Second Circuit. It argued that a reasonable person could interpret the limitations period clause in the Travelers policy to mean that the two-year clock started to run:
- at the time of the accident for business personal property damages claims, and
- at the time the claims accrued for business income and extra expense claims.
If the clock were to start to run after the physical loss for all claims, Classic maintained, it often would prove impossible to sue for business income and extra expense losses because they would not be fully ascertainable within two years.
The Travelers policy stated that “No one may bring a legal action against [Travelers] under this Coverage form unless: … [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred.”
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The Second Circuit’s decision
The circuit court affirmed.
In its decision, the Second Circuit found that the limitations clause was “unambiguous.” The circuit court pointed out that New York courts have interpreted “the date on which the direct physical loss or damage occurred” to refer to the date of the physical loss, casualty or accident, not the date on which the insured’s claim accrued.
The circuit court then rejected Classic’s argument that a different rule should apply because its claim concerned business income. In the Second Circuit’s view, the relief Classic sought had “no bearing on the meaning of the phrase ‘date on which the direct physical loss or damage occurred.’” The circuit court explained that the limitations period clause specified that the two-year clock started running after that date for all claims, including those for business income.
The Second Circuit was not persuaded by Classic’s contention that if the limitations period began to run on the date of loss, it would make it impossible for many policyholders to bring claims for business income and excess expenses losses. The circuit court noted that, under New York law, limitations period clauses in insurance contracts were not enforceable against plaintiffs if the limitations periods expired before the plaintiffs’ causes of action had accrued.
In any event, the circuit court pointed out, Classic had not argued that it could not have met the two-year deadline and, by Classic’s own admission, its claim had accrued nine months before the limitations period had expired.
The Second Circuit concluded that the clause was not only unambiguous, but also was reasonable and, therefore, enforceable against Classic.
The case is Classic Laundry and Linen Corp. v. Travelers Casualty Ins. Co. of America.
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Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is director of FC&S Legal, editor-in-chief of Insurance Coverage Law Report, and founder and president of Meyerowitz Communications Inc.