TIME LIMIT TO SUE
A recent New Jersey Appellate Division case reinforces the need to be vigilant regarding the time limit within which an insured must institute suit under a policy of insurance.
In Zaun v. Franklin Mutual, a homeowner sustained water damage from a broken feed line to a toilet. The insurer denied the claim because the home was vacant for more than 60 days and the policy was suspended pursuant to its terms. The denial letter advised the insured of a 12 month time limit to institute suit from the date of the denial letter and a 30 day time limit to seek an internal appeal. The denial letter made no mention of any interplay between the internal appeal and the running of the time to sue.
More than one year after the denial letter, the insured requested an internal appeal panel review, which the Company granted and again denied the claim. The insured then promptly filed suit.
The Appellate Division determined that the time to sue ran from the date of the original denial letter and that the insurer's acceptance of the late request for internal review did not waive the time limitation. Summary judgment dismissing the insured's suit was upheld.
Curiously, the Appellate opinion did not cite the seminal New Jersey case, Peloso v. Hartford Fire Insurance Co., 56 N.J. 514 (1970). That case clearly set forth a method of calculating the time to sue. Under Peloso, the time to sue begins on the date of the casualty and runs until the insured gives notice of the loss to the insurer. At that time, the period of limitations is tolled (suspended) and does not start up again until the insurer denies liability. Once the claim is denied, you start counting again.
Thus if a loss occurs on September 1 and the insured gives notice to the insurer on September 3, 2 days of the limitations period have run. If the insurer investigates for some months and then denies the claim on December 15, the limitations period starts up again. The insured would then have until the following December 13 to file suit, assuming a 12 month period of limitations. (Many insurers now allow 2 years. Be sure to check the policy.)
The insured in Zaun may have thought that the insurer's acceptance of the late request for an internal review started the clock anew. The Supreme Court in Peloso stated that its rationale for suspending the running of the limitations period was to give the insurer time to investigate and negotiate with the insured. Zaun puts the waiver issue to rest where the denial letter clearly cites the limitations period. Of interest is the denial letter (from Decker Associates) which started the limitations clock from the date of the letter. Whatever gap in time there was between the loss and notice was not cited nor claimed by the insurer.
There is no discussion in Zaun of any reason why the insured did not institute suit within the 12 month time limit. The practice point is not to get into this situation. Once the insurer denies a claim, you should advise your insured to contact counsel promptly.
The Supreme Court in Peloso used the denial as the trigger for re-starting the limitations period. Not mentioned in Peloso is what happens if the insurer does not deny the claim. The situation sometimes occurs where the insurer pays a part of a claim and some remaining issue, such as a loss of business income claim, is not resolved or may not have been promptly pursued. In the one case in which I litigated the issue, the Court (Passaic County) ruled that in the absence of a denial, the period of limitations simply would not start up again and the insured would have the full statutory period for contract actions (6 years in NJ) to institute suit, despite contract language that simply advised of the shortened time limit in which to institute suit. Beware, however, if the insurer cites a limitations period in any correspondence, perhaps invoking N.J.A.C. 11:2-17, that could be interpreted as a denial of any outstanding or unperfected aspect of the claim.
As always, vigilance is the best practice and prompt assertion of the insured's rights avoids these and other pitfalls.
If you have any situations involving this or other matters, please feel free to contact us at 973-538-4100 or by email at email@example.com. We are here to help!