Private Limitation of Action Provision Defeats Law Suit Against Insurer

Good Deeds by Insurer Still Punished by Late Filed Lawsuit

Insurance policies, to protect the insurer from stale claims and lawsuits where available evidence is difficult to obtain, contain private limitations of action provisions usually one or two years. In addition, those who are insured by a first party property insurance policy must protect the property from further loss and produce evidence to establish the amount of loss.

In Martha Ventilla v. Pacific Indemnity Co., 19-CV-1134 (JMF), United States District Court Southern District Of New York (July 9, 2020) Martha Ventilla submitted a supplemental insurance claim against Pacific Indemnity Company (“Pacific Indemnity”), seeking to recover, pursuant to a homeowner’s insurance policy (the “Policy”), nearly $400,000 in damages in addition to the $951,428.46 already paid that occurred when, on January 31, 2015, the bathtub in her Manhattan apartment overflowed and flooded her apartment with one to two inches of water.

Pacific Indemnity moved for summary judgment. Pacific Indemnity averred that all of Ventilla’s claims were time barred by the Policy’s two-year limitations clause.

FACTS

On January 31, 2015, Ventilla was in her apartment bedroom when she noticed water creeping in from under her door. She followed the rising stream to the bathroom, where she discovered that her bathtub was inexplicably overflowing. In a desperate attempt to stem the flood and protect her most-cherished items, Ventilla (in addition to contacting building staff, who arrived with a wet vacuum cleaner) mopped up the water with clothing and linens. But instead of laundering the clothing and linens for reuse or, at the very least, keeping the damaged possessions in storage in support of a later insurance claim, Ventilla bagged the soaked items and other ruined contents from her apartment and threw them away that same day.

Ventilla reported the incident to Pacific Indemnity on February 2, 2015, and on February 4 and 25, 2015, representatives from the insurance company conducted initial and follow-up surveys of her apartment. Ventilla did not, and indeed, could not, present the damaged items to the representatives for inspection during either visit.

More than a year passed, and other than presenting some receipts and credit card statements for certain items, Ventilla never provided more definitive details about her supplemental loss claim or provided the artwork for inspection or appraisal, despite Pacific Indemnity’s follow-up requests. An art appraisal from Ventilla’s expert was submitted June 2018, more than three years after the loss.

Eventually, the parties entered into a Settlement Agreement and Release (“Release”) signed by Ventilla on December 5, 2016, pursuant to which Pacific Indemnity paid Ventilla $951,428.46 on account of construction repairs, mold remediation, contents, fine arts and extra living expenses. In exchange, Ventilla released any “claims and potential claims for Additions & Alterations and Additional Living Expenses” arising under the Policy and pertaining to the January 31st incident.

Nearly twenty-eight months after the January 31st flood, on May 23, 2017, Ventilla submitted a Supplemental Contents Claim and, for the first time, advised Pacific Indemnity that she was seeking “$286,640.48 for damage to ‘seven closets’ worth of items.” Pacific Indemnity obtained a proof of loss and examination under oath. Yet it was only after this lawsuit commenced, on July 9, 2019 — over four and a half years after the date of loss — Ventilla in her First Set of Interrogatory Responses finally claimed $99,098.00 for damage to her fine arts collection (the “Fine Arts Claim”).

Pacific Indemnity advised Ventilla that the company disclaimed coverage for Ventilla’s Supplemental Contents Claim and any potential Fine Arts Claim as time barred by the policy’s two-year limitation clause.

ANALYSIS

Under New York law an agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period in which to commence an action is enforceable. Courts have held that there is nothing inherently unreasonable about a two-year period of limitation; in fact, as Pacific Indemnity rightly notes, courts in New York have enforced limitation clauses that are even shorter. What matters here, however, is not so much the duration of the limitations period, but the accrual date and whether, in view of the circumstances of the particular case, the relevant conditions precedent can be satisfied within the prescribed time period.

Under the Policy Ventilla’s ability to bring any legal action against Pacific Indemnity was conditioned on two events: first, that she complied with all conditions of the policy, and second, that she bring the action within two years after a loss occurs. To satisfy all of the conditions for a property damage claim, Ventilla was required to notify Pacific Indemnity or her agent of the loss as soon as possible; take all reasonable means that are necessary to protect property from further loss or damage; prepare an inventory of damaged personal property, attaching bills, receipts, and other support of the like; and, upon Pacific Indemnity’s request, show Pacific Indemnity the damaged property, participate in an examination under oath, and submit, within sixty days of the request, a signed, sworn proof of loss.

All of these events could, with reasonable diligence, have been completed within two years of the January 31, 2015 incident. Ventilla’s failure to launder or keep the damaged items — and the snowball effect that that misguided decision may have had with respect to her ability to submit the Supplemental Contents and Fine Arts Claims before January 31, 2017 — does not excuse that fact. The court concluded that no reasonable jury would conclude otherwise.

Upon acceptance of an insurance policy and in the absence of fraud or misrepresentation, an insured is charged with knowledge of all of the terms and conditions of the policy.

ZALMA OPINION

No one is entitled to sit on rights, breach material conditions of a contract, and then claim their sloth was caused by an insurer taking advantage of their innocence or old age after being paid almost one million dollars. The two-year private limitation of action provision in many first party property policies is designed to avoid late or piecemeal  claims like those presented by Ventilla. This case teaches that the insured also has an obligation to deal fairly and in good faith with the insurer and act promptly and efficiently to prepare and prove a claim.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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