NY Court Holds Claim Against Automobile Insurer Accrued on Date of Insurer's Denial of Coverage

A NYS appellate court held that where a provision in an automobile insurance policy required a lawsuit against the insurer to be filed within one year of the "date of loss"—relating to a first-party claim—and the term was undefined, the period began on the date coverage was denied and not the initial date on which the insured experienced a loss of property.

In New York, parties generally have six years to sue for breach of a contract, such as an insurance policy, running from the date of the alleged breach. In the insurance context, the date of the breach is usually measured from the date the insurer first denies coverage. However, most property insurance policies, such as automobile policies, contain a provision limiting the time period a lawsuit may be brought by the insured against the insurer for any claim arising out of the policy, usually running from the date of the loss. Generally, so long as the contractual-limitations period is clearly set forth in the policy, they are enforceable in New York.

In Mercedes-Benz Financial Services USA, LLC, the insured vehicle was rendered a total loss due to theft on or about February 15, 2016. The insured filed a claim for loss with the insurer, Allstate Insurance Company, which denied coverage as a result of the vehicle owner's noncooperation on May 3, 2016. The plaintiff sued Allstate for breach of the insurance policy, seeking to recover the value of the insured vehicle.

The policy provided that no action could be brought against the insurer unless the action was "commenced within one year after the date of loss." The policy did not define the term "date of loss." The insured started the lawsuit on February 16, 2017—one year and one day from the date of the theft. Allstate moved to dismiss, arguing the suit was not timely commenced since it was not filed within one year of the theft. The insured argued "date of loss" meant the date the insurer denied the claim and, thus, the suit was timely commenced. The trial court agreed with the insurer and dismissed the lawsuit.

On appeal, the Appellate Division, Third Department reversed, holding that the phrase "date of loss" was ambiguous and must be construed in favor of the insured, meaning that the one-year limitations period did not run until the date the insurer denied coverage. The court emphasized the insurance policy did not use distinct language such as "inception of loss" in shortening the limitations period.

The court acknowledged and expressly declined to follow a line of NY decisions from the Second Department holding that the "date of loss" is the date of the underlying theft or catastrophic loss. Rather, in support of its decision, the court looked to Lobello v. New York Cent. Mut. Fire Ins. Co., in which the Fourth Department held that "date of loss" meant the date the insurer denied coverage under similar circumstances.

The decision is significant because it marks a second appellate court in New York—after the Fourth Department in Lobello—holding that the "date of loss" means the date the insurer denied coverage and not the date of catastrophic loss. Still, policies with more specific language regarding the date of accrual of an action should still be interpreted as running from the date of the catastrophic loss. Additionally, this conclusion has not yet been uniformly adopted across courts in New York. Accordingly, practitioners should monitor closely for further developments.