The Second Circuit Court of Appeals on June 21 affirmed a Northern District of New York decision granting a carrier summary judgment and dismissing a policyholder’s claims for breach of contract, breach of the duty of good faith and fair dealing, and violation of New York General Business Law § 349.
The insurance coverage dispute arose from a water loss the homeowner suffered in 2014. Following the loss, the plaintiff hired a public adjuster who reported to the insurer that the homeowner suffered a sump-pump backup. Upon receipt of the notice, the insurer immediately sent an adjuster to examine the loss with the public adjuster, and the carrier issued a check that day for the total amount available under the policy’s sump-pump endorsement.
Neither the homeowner nor the public adjuster disputed the payment, or how the carrier adjusted the loss.
After the insurer adjusted the loss, it sent the file to its subrogation department to determine whether subrogation against the homeowner’s neighbor, who allegedly caused the water damage, should be pursued. Ultimately, the insurer decided not to pursue subrogation, but several months later, the plaintiff became more aggressive because he wanted to file a separate lawsuit against his neighbor, and he believed that discovery in the insurer’s subrogation action would assist with obtaining information he could use in his lawsuit against his neighbor.
The carrier capitulated and pursued subrogation against the neighbor’s homeowners’ insurer beginning in Fall 2014. However, in April 2017, the plaintiff had his attorney contact the insurer to “reopen” or “widen” his original claim. At that point, the carrier explained the claim had already been paid for the total available policy limits and that the policy’s two-year suit limitation expired.
In response, the plaintiff filed a lawsuit against the insurer in 2018, asserting the insurer was estopped from relying on the suit limitation provision, and claiming that the insurer had breached the duty of good faith and fair dealing and had violated General Business Law § 349.
The Northern District of New York later granted the carrier’s summary judgment motion dismissing all the plaintiff’s claims. The court concluded the plaintiff’s action was untimely and that the carrier was not estopped from enforcing the suit-limitation clause and the three-year statute of limitations that governs the business law claims.
The plaintiff then appealed that decision to the Second Circuit, which affirmed the lower court’s ruling. The court determined the plaintiff provided no evidence that the insurer induced his failure to timely sue, and, in fact, the record demonstrated the plaintiff relied on the advice of various advisors to pursue recovery from his neighbor instead of the carrier.
Importantly, the court also specifically concluded that the plaintiff’s claim for breach of the duty of good faith and fair dealing was a breach-of-contract claim subject to the policy’s 2-year suit limitation clause.
(EDITOR’S NOTE — To discuss the impact of this case on first-party insurance coverage lawsuits, contact Jonathan Schapp at firstname.lastname@example.org or Ashlyn Capote at email@example.com.)