National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

With respect to timeliness, the policies contained a two-year incontestability clause as required by Section 3203(a) of the New York Insurance Law; however, the action was commenced two years and two days after the policies were dated. Security Mutual argued that since the two-year anniversary fell on a Saturday, New York General Construction Law § 25 (extending contractual deadlines falling on weekends and holidays) and § 25-a (extending statutory deadlines falling on weekends and holidays), applied to extend the time to file the action by two days. Defendants countered that § 25-a was only applicable to statutory deadlines and since the incontestability clause was written into the contract, the only applicable provision was § 25, which applies to contractual deadlines. Defendants further argued that there was no applicable extension under § 25 because it only applies to performance of a contractual "condition," and the incontestability clause was not a “condition” within the meaning of the General Construction Law.

The Appellate Division agreed with Security Mutual, holding that §25-a applied because the incontestability clause was required by statute. The Court reasoned that if the insurance policy had failed to contain the incontestability provision, it would have been read into the policy since it is required by statute. Under this reasoning, a ruling that §25 (as opposed to §25-a) governed would produce an anomalous result: “[A]n insurer that complies with the law and includes in its life insurance policies the clause it is required by law to include will have a shorter period of time in which to contest the policies than it would have if it omitted the clause from the policies.” Therefore, the Court concluded the action was timely filed.

Defendants argued that the rescission claim should be dismissed, reasoning that Security Mutual was estopped from seeking that relief because it had accepted premiums after learning of grounds for rescission. Finding that Security Mutual had collected and retained nine premium payments totaling $40,000 since the action was commenced, the Appellate Division agreed. The Court rejected arguments that commencement of a rescission action prevented estoppel as contrary to N.Y. precedent. Rodriguez, 2009 WL 144524 (discussing Continental Ins. Co. v. Helmsley Enters., 211 A.D.2d 589 (1st Dep’t 1995) (holding that plaintiff waived right to seek rescission of insurance contract when it knowingly accepted premium payments for several months following discovery of alleged misrepresentations) and Scalia v Equitable Life Assurance Soc’y, 251 A.D.2d 315 (2d Dep’t 1998) (holding that that insurer’s continued acceptance of premiums after learning of facts permitting rescission of policy constitutes an estoppel against right to rescind)).

As for the fraud claims, the Court held that they were pled with sufficient detail under CPLR 3016(b), since the complaint included allegations of misstatements of net worth, falsity of medical statements, and the proffering of fictitious accountant and medical records. Thus, the Court concluded that the motion to dismiss the fraud claims was properly denied.
 

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.

Plaintiff’s primary argument was that the policy was “irremediably ambiguous” because the retroactive date was meaningless to the property at issue, one of 17 properties, because the tanks at that location were installed after the retroactive date. Plaintiff argued this created an ambiguity because there was a potential for coverage based on a leak from before the tanks were installed. Plaintiff argued that because of this ambiguity the policy should be interpreted to cover tanks and prior tanks at a scheduled location so long as the release happened after the retroactive date.

The Oregon Court of Appeals rejected this argument. Following Oregon’s interpretative rules, the Court found that the policy was not ambiguous. The Court found that Plaintiff’s proposed interpretation was not plausible because it is directly contradictory to policy language that the policy was location and storage tank specific. Since Plaintiff’s proposed interpretation contradicted specific policy language, it was by definition not reasonable.

The Court also rejected an argument that the insurer was barred from taking its position by the doctrine of judicial estoppel. Plaintiff argued that because the insurer had taken a contrary position in a case in Alaska, that it should be estopped from asserting that the policy does not apply to older tanks at a scheduled location. The Court found that since the insurer did not prevail in the Alaska case, that judicial estoppel does not apply.