Limitation Provision in Homeowner’s Insurance Policy Upheld by Court

While the New Jersey statute of limitations for a contract claim, which would include a claim against an insurance policy, is 6 years, some insurance policies contain shorter limitation periods to file a lawsuit against the carrier. In the federal court case of Majagah v. AIG Property Casualty Insurance Agency, Inc., 2016 U.S. Dist. LEXIS 14705 (D.N.J. 2016), the court interpreted such a policy provision, in which the homeowner was required to bring any action against the carrier within one year after a loss occurred.

In Majagah, the pipes in the plaintiff’s home burst on or around May 11, 2013. The plaintiff submitted a claim for water damage under his homeowners policy about 3 months later. By letter of October 14, 2013, the defendant insurance carrier disclaimed coverage, advising that the claim was not covered “due to a lack of maintenance in maintaining heat to the property.”

Thereafter, plaintiff requested an additional review of the claim. However, the insurance company once again disclaimed coverage by letter of May 15, 2014.

On July 6, 2015, the plaintiff filed suit in the Superior Court of New Jersey, Law Division, Passaic County, seeking a declaratory judgment. The defendant insurance company removed the matter to federal court and then filed a motion to dismiss, based upon the limitation of action provision in its policy.

The AIG policy limited actions against it as follows:

You also agree to bring any action against us within one year after a loss occurs, but not until thirty (30) days after proof of loss has been filed and the amount of the loss has been determined.

It was the carrier’s position that this provision required the plaintiff to file his suit within one year of the date on which the defendant denied plaintiff’s water claim. Or, at the latest, the plaintiff was required to file within one year after plaintiff’s claim was denied the second time.

Plaintiff, however, argued that he timely filed his complaint. It was the plaintiff’s position that the limitation provision is ambiguous. He argued that this clause could reasonably be read to mean that he could not file suit until the repairs from the water damage were essentially complete since only then would “the amount of loss” be “determined.”

The District Court pointed out that New Jersey law does permit the parties to modify the limitation period for a lawsuit brought for violations of an insurance policy. Thus, the issue was whether plaintiff timely filed under the terms of this policy’s provision.

Here, both parties agreed that the policy required the plaintiff to file within one year of the date of loss. Further, both parties agreed that this one year period was tolled for a period of time. While the defendant contended it was tolled until, at the latest, the date of one year from the date of the second denial letter, the plaintiff disagreed with that assessment. The plaintiff argued that the tolling should continue until all of the repairs were completed and, hence, that would be when the “amount of the loss has been determined.”

The District Court rejected plaintiff’s argument. The Court did not find the limitation provision to be ambiguous. It found that the only reasonable interpretation is that the loss has been determined at the point when the insurance company has made an offer to settle or has denied the claim.

Plaintiff’s construction of the language would essentially defeat the purpose of the 12 month limitation provision. If the plaintiff delayed making the repairs to the property, it would give plaintiff complete control over when a loss has been “determined.”

Thus, the District Court found that the loss was “determined,” at the latest, on the date when the carrier denied the claim for the second time. At that time, the defendant carrier determined the amount of the loss to be $0. Thus, the plaintiff had until May 15, 2015 to file suit. Because the plaintiff did not file suit until July 6, 2015, the Court found that the claim was time- barred and dismissed the suit.