The Purpose of the Suit-limitation Clause Is to Preclude Stale Claims, Require the Insured’s Diligence, and Prevent Fraud
The law protects the diligent and ignores those who are slothful in the exercise of their rights. Insurance policies, including the mandatory standard fire insurance policy, contain a private limitation of action provision designed to protect insurers from stale claims and prevent fraud.
In Jacqueline Keller; Phillip Yaney v. Federal Insurance Company, a corporation; et al., No. 17-55323, D.C. No. 2:16-cv-03946-GW-PJW United States Court of Appeals for the Ninth Circuit (April 1, 2019) Jacqueline Keller and Phillip Yaney sought to recover under a homeowner’s insurance policy issued by Federal Insurance Company (Federal) even though more than a year had elapsed before reporting the claim and much more time elapsed before filing suit.
A backup of water and sewage in the downstairs bathroom flooded portions of Keller and Yaney’s Beverly Hills home and damaged parts of their newly installed hardwood flooring. At issue in this appeal is whether a clause in the policy that provides for a one-year suit-limitation period prevents them from recovering under the policy.
The policy has a Legal Action Against Us (LAAU) clause, which reads as follows: “You agree not to bring legal action against us unless you have first complied with all conditions of this policy. For property, you also agree to bring any action against us within one year after a loss occurs, but not until 30 days after proof of loss has been submitted to us and the amount of loss has been determined.”
Around November or December 2012, Keller and Yaney noticed “warping” or “cupping” in portions of their newly installed hardwood floors as a result of the flooding. By June or July 2013, they determined that the cupping was not subsiding and that it would not be resolved on its own. Keller and Yaney finally notified Federal of the sewage backup and damage to their floors on September 15, 2014. Federal denied coverage because of the breach of the private limitation of action provision, the LAAU, and thereafter, Keller and Yaney sued Federal on December 10, 2015.
TRIAL COURT DECISION
The District Court ruled in favor of Federal and enforced the LAAU.
The Ninth Circuit concluded that the LAAU clause established both conditions precedent and established a one-year suit-limitation period that begins “after a loss occurs.” The conditions precedent and the suit-limitation period are distinct elements of the clause, and each was given effect.
Kelley and Yaney’s interpretation of the clause—that it does not create a suit-limitation period at all or, in the alternative, that the suit-limitation period is triggered only after a claim is filed and Federal makes its final determination regarding the amount of the insured’s claim—is inconsistent with the clear language that the suit-limitation period begins “after a loss occurs.” Their reading is also inconsistent with the purpose of the suit-limitation period, which is to preclude stale claims, require the insured’s diligence, and prevent fraud. [Prudential-LMI Commercial Ins. v. Superior Court, 798 P.2d 1230, 1235-36 (Cal. 1990)]
Keller and Yaney failed to comply with the one-year suit-limitation provision in the LAAU clause because they filed their claim over one year after the loss occurred. The loss in this case occurred in November or December 2012, when Keller and Yaney noticed the cupping of their floors. And even if we were to assume that the loss did not occur until July 2013, when Keller and Yaney decided that the cupping issue would not resolve itself over time, they were still late in submitting their claim to Federal in September 2014.
True enough, the limitations period was tolled while Federal was evaluating Keller and Yaney’s claim between September 2014 and December 2015. But the December 10, 2015 complaint was still time-barred by the LAAU’s suit-limitation provision because Keller and Yaney waited over a year after the loss occurred before even filing their claim with Federal.
Keller and Yaney seek to avoid this result by arguing that either collateral estoppel or judicial estoppel precludes Federal’s interpretation of the LAAU clause. But neither collateral estoppel nor judicial estoppel apply in the present case. In addition Federal did not take a clearly inconsistent position.
Equitable estoppel and waiver are also inapplicable in the present case. “[C]onduct by the insurer after the limitation period has run—such as failing to cite the limitation provision when it denies the claim, failing to advise the insured of the existence of the limitation provision, or failing to specifically plead the time bar as a defense—cannot, as a matter of law, amount to a waiver or estoppel.” Prudential-LMI Commercial Ins., 798 P.2d at 1240 n.5. All of the alleged statements by Jeffrey Gesell, Federal’s coverage counsel, were made in 2015, well after the limitations period had already expired. Accordingly, the district court did not abuse its discretion in concluding that Gesell’s statements did not give rise to any waiver or equitable estoppel by Federal.
Finally, Keller and Yaney argue that Federal failed to show that they acted with unnecessary delay or that Federal was prejudiced by their delay in filing the claim. Keller and Yaney’s reliance on the notification provision of the policy is misguided, however, because Federal did not deny coverage based on lack of notification. It instead denied coverage based on the one-year suit-limitation provision in the LAAU clause. As the district court held, the notification and suit-limitation provisions are separate and distinct policy conditions. The notification provision is irrelevant to the question of whether the limitation period had run.
Accordingly, the Ninth Circuit concluded, the district court did not err in holding that Federal did not need to show that Keller and Yaney acted with unnecessary delay in filing their lawsuit or that Federal suffered any prejudice because of this delay. It was sufficient that the LAAU clause was breached and the plaintiffs failed to fulfill the condition precedent.
Even the Ninth Circuit, on April Fools Day, can reach a correct result and uphold more than a century of precedent. Since the first New York Standard fire insurance policy was enacted more than a century ago the LAAU clause has been a condition precedent to the right to indemnity under a policy of first party property insurance. Keller and Yaney failed to fulfill their obligations under the policy. Federal, properly rejected their claim because it was time barred by the clear and unambiguous language of the LAAU.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
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 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 51 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.
Passover Seder for Americans
Passover is one of the many holidays Jewish people celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the mountains, the rain, sun, the planets, the stars, and the people and wonder how did all these wonderful things come into being?
All Jewish fathers are required to teach their children, at least once a year at the Passover holiday, about the exodus from slavery in Egypt. For American Jews who have difficulty understanding Hebrew and complicated books describing the Exodus, my wife and I wrote this book to use for our own Seder where each member of the family reads part of the book.