Case Briefs

This article first appeared in the New Jersey Law Journal, a sister publication of this newsletter.

Suit Limitation Period Enforceable Even If Absent from Insured's Policy

Insurers routinely include suit limitation provisions, limiting the time to file lawsuits over coverage determinations, in their insurance policies. The recent decision in Matos v. Farmers Mut. Fire Ins. Co., 399 N.J.Super. 219, 943 A.2d 917 (App. Div. 2008), clarified that an insurer can rely on a suit limitation provision even if the clause is absent from the policy provided to the insured, as long as the insured was given sufficient notice of the limitation period after the loss.

In the Matos matter, the plaintiffs suffered water damage to the patio at their summer home in Toms River, NJ. After completing its investigation, the insurer declined to cover the bulk of the plaintiffs' claim as the loss resulted from normal wear and tear, a peril excluded by the policy, rather than a leaking pipe.

Plaintiffs reported the claim contemporaneous with the loss. The insurer issued its declination letter on May 6, 2005. In the declination letter, the insurer's adjuster advised that if the plaintiffs wanted to pursue litigation against the insurer, any suit would have to be filed within 12 months of the date of the declination letter.

After the declination letter was issued, plaintiffs' counsel asked that the adjuster provide him with an appeal request form, and on July 1, 2005 the insurer sent the appeal form. The letter enclosing the appeal form contained a disclaimer that stated “your request for appeal does not waive any of the terms, provisions or conditions under the policy, including but not limited to the time limit for filing suit in this matter.”

On July 8, 2005, plaintiffs' counsel sent a letter to the adjuster advising that plaintiffs intended to file an appeal and that plaintiffs were in the process of obtaining their own engineering expert's report. Neither a completed appeal form nor an engineering expert's report was provided to the insurer. Not hearing from plaintiffs, the insurer closed its file on Oct. 1, 2005.

On Oct. 4, 2006, the plaintiffs filed suit against the insurer for the improper declination of its claim. The insurer moved to dismiss the complaint based on the 12-month suit limitation provision in the policy. Plaintiffs opposed the motion by noting that the endorsement containing the suit limitation provision was not included with the copy of the insurance policy issued to plaintiffs.

The trial court granted the insurer's motion and held that even though the suit limitation provision was not contained in plaintiffs' copy of the policy, plaintiffs were made aware of the suit limitation provision in post-loss correspondence from the insurer's adjuster.

Plaintiffs, relying on Fredericks v. Farmers Reliance Ins. Co. of NJ , 80 N.J.Super. 599, 194 A.2d 497 (App. Div. 1963) and Nieder v. Royal Indem. Co., 62 N.J. 229, 300 A.2d 142 (1973), argued that because the insurer did not provide the endorsement containing the suit limitation provision to the plaintiffs prior to the loss, the suit limitation provision was unenforceable. In both Fredericks and Nieder, the court held that because the insurer withheld information regarding the suit limitation period from the insureds, the limitation period was unenforceable.

However, as the Appellate Division noted, both the Fredericks and Nieder courts held that the suit limitation period would have been enforceable “if the insured should have known of the limitation period provided in the policy.” These decisions reinforce that, under New Jersey law, an insured may be notified of the suit limitation period by means other than the receipt of the endorsement in the policy containing the suit limitation provision.

In Matos, the Appellate Division held that based on the letters from the insurer's adjuster to plaintiffs and plaintiffs' counsel, plaintiffs knew or should have known that their policy contained a 12-month suit limitation period and that the limitation period began to run from the date of the declination letter.

The Appellate Division also rejected plaintiffs' argument that the suit limitation period was tolled by plaintiffs' counsel's July 8, 2005 letter advising their insurer that they were going to appeal the declination decision. The New Jersey Supreme Court held in Peloso v. Hartford Fire Ins. Co., 56 N.J. 514, 267 A.2d 498 (1970), that a suit limitation period is tolled from the date the loss is reported until the declination letter is issued. In rejecting plaintiffs' argument, the Appellate Division noted that the July 1, 2005 letter from the insurer's adjuster enclosing the appeal form specifically advised plaintiffs that the insurer did not waive any terms and conditions under the policy “including but not limited to the time limit for filing suit in this matter.” Further, plaintiffs never submitted the appeal form or an engineering report challenging the insurer's findings. Consequently, the suit limitation period was not tolled, and had expired by the time plaintiffs filed the within suit.

In a state that requires an insurer to prove appreciable prejudice to rely on a late notice or a failure to cooperate defense, New Jersey courts have consistently upheld and strictly enforced suit limitation provisions, without the requirement of a showing of prejudice to the insurer. The Matos decision reaffirms that as long as notice of the suit limitation provision is provided to the insured, the limitation period will be upheld, even if the endorsement containing the suit limitation provision is absent from the insurance policy provided to the insured.

This article first appeared in the New Jersey Law Journal, a sister publication of this newsletter.