When I was a kid in Maplewood, New Jersey, our next-door neighbor was a feisty Irish widow named Anne Byrne. (She was related to our former Governor, Brendan Byrne, but I forget how.) When I would do something stupid, which usually involved putting some kind of ball through one of her windows, she would grab me by the ear, look me in the eye and ask: “When are you going to learn to use your head for something other than a hat rack?” (This was back in the days before safe spaces.)
I still occasionally do dumb things (okay, if you ask my wife, more than occasionally), but 30 years of practicing insurance law have taught me that one of the dumber things we can do is lose insurance coverage by failing to comply with policy conditions. A trio of very recent cases will illustrate my point.
Ryan v. Liberty Mutual, from the federal district court here in New Jersey, is a Sandy case. The homeowners’ insurance policy contained a one-year suit limitation. The carrier denied coverage, primarily because of a flood exclusion, but agreed to pay a small amount for non-flood-related damages. The partial denial letter was sent on November 30, 2012, and apparently received by no later than December 10, 2012.
For a lengthy period of time, the policyholders engaged in negotiations with the carrier to try to get the carrier to revisit the claim. During this period, the policyholders promised to send additional information to the carrier supporting their claim, but never did so.
On October 10, 2014, the policyholders filed suit. Naturally, the carrier moved for summary judgment based on the one-year limitations period, which the Court granted. The policyholders argued that coverage had never been fully and finally denied, since negotiations were ongoing. Wrong, said the Court: “The one-year statute of limitations in plaintiff’s homeowners policy began to run on October 29, 2012 – the date that Hurricane Sandy damaged plaintiff’s home – and was tolled from October 30, 2012 – the date plaintiffs made a claim for homeowners insurance benefits – until the date defendant declined liability…It is plain from the face of the [partial denial] letter that Defendant is denying Plaintiffs coverage for flood-related damage. The language used is clear and unequivocal, and would be interpreted by any reasonable reader as a denial of benefits. Accordingly, the statute of limitations began to run again on the date on which plaintiffs received the [partial denial] letter. After December 10, 2013, plaintiffs were barred from bringing suit.”
OneWest Bank v. Houston Casualty Co., from the Ninth Circuit Court of Appeals (recently in the news for political reasons), involved a suit against OneWest by Assured Guarantee Municipal Corporation. Assured contended that OneWest, as a loan servicer, had failed to mitigate or avoid losses on mortgage loans for which Assured had guaranteed the principal and interest payments. OneWest entered into settlement negotiations with Assured, and the parties prepared a term sheet reflecting the agreed-upon settlement terms. After agreeing upon the term sheet, but apparently before executing the final settlement documents, One West reported the loss to its professional liability carrier. The professional liability policy contained a standard condition prohibiting OneWest from “admitting or assuming any liability,” or “entering into any settlement agreement” without the carrier’s prior written consent. The Court concluded that “the term sheet provided all the relevant terms of a settlement agreement”…and “poof” went the insurance claim.
Minasian v. IDS Property Casualty Insurance Company, from the Second Circuit, involved a claim for burglary. The policy required that notice of loss be given to the carrier “as soon as reasonably possible,” “immediately,” and “as soon as practicable.” The policyholders lost jewelry through a burglary, but didn’t notify their carrier until three months later. The carrier (naturally) denied coverage based upon late notice. The policyholders argued that they reasonably believed a police investigation was ongoing, and that the stolen jewelry might be located, and that they notified the insurance company promptly after learning that the police investigation was closed.
The Court held that, in light of the notification provisions in the policy, “such a belief cannot form a reasonable – and thus excusable – basis for notice delay.”
Ugh, a third time.
I have an old Travelers claims manual in my office. At one point, it says: “[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.” That’s a wonderful sentiment, but usually it’s not how the real world operates. Insurance policies are (intentionally) complex webs of exclusions, limitations, and arcane language, that are interpreted differently by different courts. If you submit a large claim to your carrier, the claims department is understandably going to comb through the policy looking for applicable exclusions. Don’t help them by failing to comply with the policy requirements about giving notice.