What is the timeframe to sue your insurance company if you suffered a property loss?

Co-authored by: Elizabeth Anderson

Nearly all insurance policies contain a provision that bars policyholder’s ability to sue their insurer once the contractual clock limitation period has expired. Courts have long grappled with what triggers these limitation periods and the enforceability of such clauses. This article explores and reconciles three different court decisions on this issue from the State of New York and the Second Circuit Court of Appeals.

While most written contracts are governed by a six-year statute of limitations, property insurance policies generally contain a shorter timeframe to sue.[1] In New York and Connecticut, the timeframe to sue under a property insurance policy is two years.[2] Other states have varying timeframes to sue, ranging from as little as one year or as long as six years. Most states strictly enforce the timeframe stipulated in the insurance policy: if you do not file a lawsuit within this period, you will surrender the opportunity to pursue your claim and protect your rights.

Often the question arises, when does the timeframe to sue begin? If the date of loss is clear, this date may trigger the timeframe to sue. However, if the insured has not yet discovered its damages, the timeframe might not begin until the insured knew or should have known of its damages. So, what happens if the insured cannot comply with all the policy requirements within the timeframe to sue? Many courts will hold that the timeframe to sue must be extended by the time needed for the insured to comply with any underlying policy conditions. This discussion focuses on when the clock starts ticking for filing a lawsuit under a property insurance policy.

The Court of Appeals for the Second Circuit has held that generic insurance policy language requiring any suit to be commenced within two years “after the date of loss” should be interpreted as the date on which the loss was discovered, not the date on which damage was incurred.”[3] In Fabozzi v. Lexington Ins. Co., Paul and Annette Fabozzi were insured under a homeowner’s insurance policy that barred any action starting two years “after the date of loss.”[4] The Fabozzis filed a claim with their insurer after their ocean-side home on Staten Island, New York, began to collapse due to structural damage.[5] The claim was made approximately one month after the Fabozzis had to support their home to prevent collapse. The carrier conducted an investigation and ultimately denied the claim, citing various policy exclusions.[6] The Fabozzis then sued their insurance carrier for breach of contract and bad faith more than two years after they had submitted their claim.[7]

The District Court for the Eastern District of New York granted the insurer’s motion for summary judgment, ruling that because the insured’s suit was brought more than two years after the date on which damages were incurred, the suit was barred by the policy’s two-year limitation period.[8]

On appeal, the Second Circuit reversed and held that the district court erred in finding that the two-year timeframe to sue ran from the date of “the accident” and failed to consider “what conditions were precedent to filing suit, nor did it determine at what point a breach occurred.”[9] The Second Circuit relied on Steen v. Niagara Fire Ins. Co., in which the New York Court of Appeals held that policy limitations on suits after a certain period “after loss or damage” are triggered “only once the right to bring an action exists.”[10] The Second Circuit found that the district court erred in relying on the more recent decision of Costello v. Allstate Ins. Co., noting that the court in Costello provided little analysis and misstated precedents on the issue.[11] Costello erroneously held that “date of loss” and “after inception of the loss” both refer to the date of the insured catastrophe rather than the date the loss was discovered.[12]

Contrary to the rule stated in Costello, an insurer can claim that the limitation period “only by exceptionally clear language” should run from the date on which damage was incurred.[13] For example, a policy that bars action after a specified period “after the inception of loss” would be clear enough to make the limitation period begin to run on the date of the covered peril rather than on the date the loss was discovered.[14]

The Second Circuit reversed and remanded the case back to the district court to determine “when the Fabozzi’s claim accrued and whether, in light of this determination, their suit was timely.”[15] Following the Second Circuit’s ruling, there were no further proceedings on the time limitation issue.[16] The Fabozzi interpretation of “accrue” pursuant to insurance policy time limitation provisions is widely accepted and there are no competing definitions of “accrual” in the Second Circuit.[17]

The Second Circuit Court of Appeals has also held that an insurance policy’s limitation provision requiring a suit to be commenced within a specified period after the date of loss is unenforceable if the policy contains other conditions that cannot reasonably be satisfied within the specified period.[18] In Exec. Plaza, LLC v. Peerless Ins. Co., the owner of a commercial property in Island Park, New York, held a general liability and property damage insurance policy with Peerless Insurance Company.[19] The policy provided that upon property loss, the insurer was not obligated to pay the replacement cost until the property loss had been repaired or replaced, and unless the repair or replacement was made as soon as reasonably possible.[20] The policy also required that any action be brought within two years after the direct loss or damage occurred.[21]

The property was damaged by fire in February 2007, and the plaintiff promptly notified his insurer and arranged for building repairs and replacement.[22] Building permits were issued twenty-one months later in November 2008.[23] The insurer paid the insured the actual cash value of the property after the fire but notified the policyholder that, pursuant to the policy, it was not obligated to pay the replacement cost until the repairs were completed within a reasonable amount of time.[24] Before the building repairs were competed, the insured brought suit to compel the insurer to provide the replacement costs.[25] The insurer removed the case to federal court and moved to dismiss it as premature because the repairs and replacements were incomplete.[26] The District Court for the Eastern District of New York granted the insurer’s motion to dismiss, holding that the policyholder’s action was barred by the policy’s two-year limitation period.[27]

Once the insured’s repairs and replacements were complete—which exceeded the actual cash value of the property after the fire—they submitted another claim for payments to their insurer.[28] Their insurer denied the claim as being outside the two-year limitation period.[29] The policy holders again filed suit, arguing that the limitation clause was unenforceable because the repairs could not reasonably be completed within two years after the property loss.[30] The district court ruled in favor of the insurer, and the insured appealed to the Second Circuit.[31] The Second Circuit reversed the decision and certified the question to the New York Court of Appeals.[32] The Court of Appeals then addressed whether the policyholder was excused from bringing an action within two years when rebuilding the damaged property within that period was not reasonably possible.[33]

The New York Court of Appeals held that the policy limitation period was unenforceable, reasoning that “it is neither fair nor reasonable to require a suit within two years from the date of loss while imposing a condition precedent to the suit—in this case, the completion of replacement of the property—that cannot be met within that two-year period.”[34] The court pointed to New York’s long-standing precedent that an insurance policy may modify a statute of limitations period to a shorter but reasonable timeframe.[35] The court reasoned that the fairness and reasonableness of a policy’s limitation period should be considered “in view of the circumstances of each particular case . . . . The circumstances, not the time, must be the determining factor.”[36]

The court’s holding in Exec. Plaza is significant because it departed from the typical strict enforcement of the two-year limitation provision in favor of a more just result. Despite the policy’s two-year limitation to sue and the absence of late discovery or other court delays, the appellate court declined to enforce the policy provision. The court noted that the two-year timeframe was reasonable (and had even enforced shorter timeframes in the past), and it became unreasonable when read in conjunction with the provision requiring the policyholder to repair or replace damaged property within a reasonable amount of time.[37]

In light of Exec. Plaza, plaintiffs have successfully argued that insurance policy and other contractual time limitation provisions are unenforceable when the policy contains other conditions that cannot be satisfied within the specified period. However, the Exec. Plaza rule is sometimes rejected by courts when policyholders fail to show the existence of a condition precedent -a critical element in the exception to the strict enforcement of a policy’s time limitations for filing suit.

For example, in another New York District Court case, the plaintiff held an insurance policy that promised payment of additional living expenses in the event of a covered loss to the residence premises and required that action be brought within two years after the occurrence.[38] The repairs took almost two years, and the plaintiff filed suit seeking the additional living expenses promised under the policy.[39] In light of Exec. Plaza, the court held that the coverage for additional living expenses could extend beyond the two-year limitations period, holding that it would be unreasonable to interpret the policy’s limitation provision to require a party to file suit for expenses before they had been incurred or shortly after they were incurred.[40]

In another New York case, a plaintiff held a homeowner’s insurance policy that stated payments would not be made until repairs or replacements were completed.[41] The policy also stated that no action could be brought unless all conditions precedent had been met, including the completion of repairs and replacements, and unless brought within two years after the loss.[42] Applying Exec. Plaza, the court granted a motion for renewal/reconsideration because the record failed to establish whether plaintiffs were able to satisfy the condition precedent in the loss settlement provision of their policy prior to commencing the action.[43]

Despite these successful uses of Exec. Plaza, courts have sometimes rejected the plaintiffs’ reliance on Exec. Plaza because there is no condition precedent. For example, in a Northern District of New York case, the insured held a homeowner’s insurance policy with a two-year limitation period to suit.[44] In February of 2014, the neighbor’s sump pump caused significant water damage to the insured’s home.[45] The insurer kept the case open and active for over three years after the loss and denied the claim two years after the limitation period had expired.[46] The policyholder brought action against his insurer in January of 2018.[47] Relying on Exec. Plaza, the policyholder argued that the claim was not timed-barred because the two-year limitation period was unreasonable “given [the insurer’s] failure to address and either accept or deny the claim until . . . well after the expiration of the two-year limitations period.”[48]

The court rejected the policyholder’s reliance on Exec. Plaza and upheld the policy’s limitation period.[49] The court explained that Exec. Plaza was inapplicable because, in the present action, the policyholder was not required to satisfy a condition precedent before bringing action to recover.[50] The plaintiff also failed to establish that the insurer’s actions presented a barrier to the commencement of a suit when the plaintiff first determined that he did not receive the relief he sought.[51]

The New York Court of Appeals has applied the Fabozzi and Exec. Plaza interpretations of homeowners insurance policy limitation periods to a commercial crime insurance policy that barred plaintiffs from bringing suits after a specified period following the discovery of a loss.[52] In Sportsinsurance.com, Inc. v. Hanover Ins. Co., Inc., the New York Court of Appeals held that a provision limiting action to two years after the discovery of the loss is enforceable so long as it is (1) specific—meaning that the limitations period is tied to the discovery of the loss—and (2) reasonable—meaning that the policyholder is not prevented from timely suing.[53]

Sportsinsurance.com held a commercial crime insurance policy with Hanover Insurance Company.[54] The policy contained a limitation period, prohibiting the plaintiff from bringing legal action until ninety days after the plaintiff filed proof of loss with the defendant, and unless the action was brought within two years from the date the plaintiff discovered the loss.[55]  The policy defined “discovered” as

the time when [plaintiff] first become[s] aware of facts which would cause a reasonable person to assume that a loss of a type covered by this policy has been or will be incurred, regardless of when the act or acts causing or contributing to such loss occurred, even though the exact amount of details of loss may not then be known.[56]

In January 2016, Sportsinsurance.com discovered that its Chief Financial Officer had embezzled from the company.[57] In April, the company notified its insurer of the loss, and the insurer denied the claim.[58] In March 2020, the company filed suit against Hanover Insurance for breach of contract and breach of implied covenant of good faith and fair dealing.[59]

The district court held that the policy’s two-year limitation period was reasonable and enforceable, and therefore, there was no breach of contract.[60] The court distinguished the case from both Exec. Plaza and Fabozzi.[61] Unlike Exec. Plaza—where the policy barred an insured from bringing suit when the loss could not reasonably be replaced within the specified period—here, “there was no complete obstacle to Plaintiff’s initiation of a legal action within the two-year period.”[62] Accordingly, the limitation provision in Sportsinsurance.com’s policy was deemed reasonable and enforceable.

In contrast to Fabozzi, the policy language in this case specifically tied the limitations period to the discovery of the loss.[63] Unlike the vague “date of loss” deadline in Fabozzi, Sportsinsurance.com’s policy included a specific discovery deadline with an explicit definition of “discovery.”[64] The court in Fabozzi held that generic policy language requiring suits to be brought within two years “after the date of loss” should be interpreted as the date on which the claim accrued or, when the loss was discovered.[65] The court also noted that “exceptionally clear [policy] language” could require suits to be brought within a specified period after the date of the accident.[66] By defining “discovery,” Hanover Insurance made the limitation provision “exceptionally clear” and thus, enforceable.[67]

Both parties eventually appealed to the Second Circuit Court of Appeals.[68] The appellate court affirmed that the policy’s two-year limitation period was reasonable and enforceable, and consequently, the insured’s breach of contract and implied covenant claims were time-barred.[69]

Sportsinsurance.com cemented the two Second Circuit holdings on how courts should interpret insurance policy limitation provisions and emphasized the legitimacy of these provisions. While the clock starts later for generic limitation provisions, and unreasonable provisions are unenforceable, those provisions with reasonable terms are legitimate. Furthermore, if drafted with “exceptionally clear language,” limitation provisions can impose a stricter time constraint on plaintiffs. Since the Second Circuit’s ruling, one case has cited to Sportsinsurance.com to uphold a property insurance policy’s two-year limitation provision, which required plaintiffs to bring suit “within 2 years after the date on which the direct physical loss or damage occurred.”[70] There, the court held that the limitation provision was reasonable and unambiguous in tying the limitation period to the date the damage occurred.[71]

It is important for policyholders who have suffered a property loss to know the timeframe within their policy for filing a lawsuit to protect their rights. Almost every state holds that a policyholder is presumed to have read and understood their policy, making it essential to know when the timeframe to sue begins.[72] However, the starting point of this period is not always clear. When in doubt, consult an attorney and initiate your lawsuit promptly to safeguard your rights. Always read your insurance policy carefully, and if you do not understand it, contact your insurance agent, insurance company, or an insurance specialist to discuss your policy. If you ever suffer a property loss, be sure to know the timeframe you have to sue.