New York Court Holds That Claim Against Property Insurer Accrued on Date of Insurer's Denial of Coverage

A New York State appellate court recently disavowed two of its prior decisions and held that where a provision in a property insurance policy required a lawsuit against the insurer to be filed within two years of the "date of loss," and "loss" was undefined, the period began on the date that coverage was denied and not the initial date upon which the insured experienced a loss of property. Lobello v. N.Y. Cent. Mut. Fire Ins. Co., ___ A.D.3d ___, 2017 NY Slip Op 05543 (4th Dep't July 7, 2017).

In New York, parties generally have six years within which 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 measured from the date that the insurer first denies coverage. However, most property insurance policies, such as homeowners policies, contain a provision limiting the time period that 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 catastrophic loss. Generally, so long as the contractual limitations periods are clearly stated, they are enforceable in New York.

In Lobello, as relevant here, the insured's home was burglarized on September 24, 2009. The insured filed a claim with his homeowners insurer, New York Central Mutual, which denied coverage on September 30, 2011. Plaintiff sued New York Central Mutual for breach of the insurance policy and sought a declaration that the insurer owed coverage.

The policy provided that no action could be brought against the insurer unless the action "is started within two years after the date of loss." The policy did not define the term "loss." The insured started the lawsuit more than two years after the 2009 theft, and New York Central Mutual moved to dismiss, arguing that the suit was time-barred under the terms of the policy since it was not filed within two years after the theft. The insured responded that "date of loss" meant the date the insurer denied the claim and that the suit, thus, was timely commenced. The trial court agreed with the insurer and dismissed the lawsuit.

On appeal, the Appellate Division, Fourth Department reversed and reinstated the lawsuit, holding that the phrase "date of loss" was ambiguous and must be construed in favor of the insured, meaning that the two-year limitations period did not begin to run until the date the insurer denied coverage. The Court acknowledged that prior New York decisions, including its own, had held that "date of loss" means the date of the underlying catastrophe. The Court expressly disavowed its prior decisions in this regard, implying that those decisions had ignored longstanding New York Court of Appeals precedent that only very specific and distinct language such as "inception of loss" permits using the catastrophe date as the limitations date.

This decision marks a significant development in the law for property insurers whose policies contain limitations provisions with the undefined phrase "date of loss" or other language similar to the New York Central Mutual policy in the Lobello case. It should be noted, however, that 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. The Court expressly stated that its decision was limited to the language of the policy at issue which did not define the word "loss" and thus was ambiguous. Finally, we note that appellate courts in New York and other states have reached different conclusions with respect to this issue. Practictioners should monitor closely for any developments.