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By Andrew Delaney
Have you ever read an insurance contract? I have. But if it wasn’t required for me to do my job, I can think of plenty of other things I’d rather do, like get a root canal, or explain myself to a four-year old, or walk through a pile of hot coals, or . . . well, you get the picture.
In insurance contracts there are often “Easter Eggs” that may have gone past their sell-by date. One such common surprise is the if-you’re-going-to-sue-you’ve-got-to-do-so-within-a-year-of-the-so-called-date-of-loss provision. The reason this matters is because you’ve generally got a pretty long time to bring a breach-of-contract claim. In Vermont, for example, you usually have six years. But there might be a sneaky little proviso in your homeowner’s insurance contract that says if you don’t sue within a year, it’s game over. And that’s generally allowed. In this case, the trial court found that the one-year-within “date of loss” provision was ambiguous and ruled in favor of the homeowner on summary judgment—reasoning that the one year started to run upon alleged breach of the contract, not the date of the incident itself. SCOV reverses. But all is not lost for homeowner. Because she raises a colorable claim that the insurer waived that contractual requirement, it goes back to the trial court for further proceedings.
This is an interlocutory appeal, which means pretty much what it sounds like—an appeal in the middle of the case. Homeowner was insured and the policy specifically said: “No action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss.” Naturally, “date of loss” isn’t defined in the insurance contract.
In January 2010, homeowner had some water damage. She and the insurance company disagreed about the value of the claim. Insurer made its “final” payment in February 2017, and homeowner brought suit for breach of contract and bad faith about 360 days later, in February 2018.
Insurer moved for summary judgment. It argued that the one-year limitation period in the contract barred suit. Homeowner opposed and filed a motion for partial summary judgment arguing that “date of loss” was ambiguous and should be construed against insurer to mean the date of breach of the contract. Homeowner also argued that the continued negotiations meant that insurer waived the one-year limit defense.
The trial court ruled in favor of homeowner, finding “date of loss” ambiguous and adopting homeowner’s proposed construction. Accordingly, the trial court granted partial summary judgment in favor of homeowner and concluded her suit was timely filed. The trial court then granted insurer’s request for an interlocutory appeal, which brings us to SCOV’s door.
Do you know the standard for summary judgment, dear reader? Of course you do. Summary judgment stands when there’re no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.
SCOV first notes: “Vermont law provides that suit-limitation provisions requiring that an action be commenced within one year of the date of the covered occurrence are generally enforceable in connection with actions on the insurance contract itself, and may apply to bad-faith claims to the extent those claims are essentially breach-of-contract claims presented as a tort.” And that’s the crux of it. Here, SCOV sees nothing ambiguous about “date of loss” and holds that it’s the date of the covered incident.
Generally, so long as the limitation is unambiguous and reasonable, it’s allowed. The limitation will generally apply to some, but not all, bad-faith suits. The limitation must be consistent with applicable statutes, reasonable, clear and unambiguous, and give adequate notice of the reduction. SCOV concludes that this one hits the bases.
SCOV notes that the 12-month period complies with the applicable statute and is generally considered to be reasonable. Whether the provision is clear and unambiguous is a bit tougher in this case because neither “date of loss” nor “loss” are defined in the policy’s definitions section.
“The proper construction of language in an insurance contract is a ‘matter of law’” that SCOV reviews however it wants to review it. Here, SCOV opines: “We conclude that the phrase ‘date of loss’ as used in this policy unambiguously means the date of the occurrence giving rise to coverage.” SCOV points to good ol’ Black’s Law Dictionary and the other policy provisions involving the term “loss” to support its conclusion. SCOV also runs through some cases from other states that reach the same conclusion, but nobody reads these summaries for those cases. As usual, if you’re into that sort of thing, there’s a link at the top, just after the case name. Knock yourself out.
SCOV recognizes that these sort of contractual limitations periods can lead to weird and unfair results. For example, a policyholder might be required under the contract to file suit for breach of contract before there’s an actual breach of the contract. And that’s why some courts have concluded that the limitations period doesn’t start to run until the insurer denies the claim.
Here, SCOV reasons that waiver and estoppel can mitigate the harsh results. So, if the insurer’s conduct leads to the policyholder holding off on filing suit, then waiver and estoppel can provide some relief for the policyholder without gutting the otherwise lawful contractual limitations periods. In fact, SCOV notes that insurers engaged in negotiations with claimants are actually supposed to give unrepresented parties notice of impending deadlines.
Here, SCOV reasons that homeowner has set forth enough evidence of ongoing negotiations with insurer to raise the issue of waiver. Because the trial court found in favor of homeowner on the ambiguity issue and didn’t reach the issue of waiver, SCOV sends the case back to the trial court to consider the waiver arguments.
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