Court Rejects "Rigid Approach;" Applies Limitation on Suits Clause as Written
In Fabozzi v. Lexington Insurance Company, 2009 U.S. Dist. LEXIS 1109, at ** 1-2 (2009), the Court upheld a limitations of suit clause while rejecting the insureds’ arguments that the limitation period “did not begin to run until all conditions precedent to recovery under the policy were satisfied,” and that the insurer should be estopped from asserting the limitations period because the insurer had repeatedly assured them that the claim would be paid.
In May of 2002, the insureds sought coverage under a policy’s “collapse” provision after they learned that “hidden decay” had progressed to such a point that their home was in danger of an imminent collapse. Fabozzi, 2009 U.S. Dist. LEXIS 1109, at *7. Lexington sent a representative to investigate the claim, and the insureds alleged that the representative had assured them that the claim was covered and would be paid. Id., at *8. However, about two weeks later, Lexington sent a letter to the insureds advising them that an investigation was being conducted and that the company was reserving all of its rights under the policy. Id. at **8-9. The insureds asserted that over the next two-and-a-half years they repeatedly contacted their insurance broker who continued to reassure them that “Lexington is a good company,” and the claim would be paid. Id., at **10-11.
In October of 2004, the insureds filed suit against Lexington, alleging that it breached the insurance contract by failing to pay the claim. Id., at *13. In response to Lexington’s argument that the suit was barred by the policy’s two-year limitation on suits clause, the insureds argued that the “two-year limitation period did not begin to run until July 2003, after the cause of damage was determined.” Id., at *14. The Court reviewed case law from 1856 through 2008 in an attempt to determine when the two-year period commenced running. The review included a 1992 case wherein a New York court had held that a similar limitation of suits clause “did not begin to run until the full extent of the loss was known.” Id., at *20. However, the Court found that in more recent cases, “New York courts appear to have abandoned the rigid approach that underlay the ancient cases … in favor of a more flexible approach that considers the plain meaning of the contractual language.” Id., at *21. Accordingly, the Court applied the limitation of suits clause according to its plain language and held that the claim was time-barred. Id., at *22.
With respect to the insureds’ estoppel argument, the Court held that the letter Lexington sent to its insureds about two weeks after the Lexington representative visited the insureds’ home, “undercut any assurances that [the insureds] may have previously received.” Id., at *8. Moreover, due in part to the insurance broker’s reference to Lexington as a third-party, the Court held that the insureds “either knew or should have known that [they] could not rely on assurances” from the broker. Id., at *25. At the very least, the Court noted, the insureds should have realized that the claim would not likely be paid when Lexington took one of the insured’s depositions, prior to the litigation and prior to expiration of the two-year limitation period, that included several questions “which suggested Lexington’s belief that [the insured] had not given prompt notification of the damage.” Id., at *26.
