New York Court of Appeals Rules Insurance Companies Cannot Deny Policyholders Right to Collect Recoverable Depreciation Within Reasonable Time
- Wilkofsky, Friedman, Karel & Cummins
February 17, 2014
In a far-reaching and historic decision, the highest court in New York State, answering a certified question posed by the United States Court of Appeals, has ruled that insurance companies cannot hide behind their policies' two year contractual limitations period to deny policyholders the right to collect their recoverable depreciation, as long as repairs are effectuated within a reasonable time. The New York Court of Appeals held, unanimously, in Executive Plaza v. Peerless Insurance Company, that policyholders should be permitted as long as reasonably needed to complete repairs, even if that time period extends past the two year policy limitation period.
The Peerless policy is typical of many in that it provides for payment to an insured of the actual cash value of a loss (a sum that has been reduced by depreciation) whenever a carrier decides to release the funds, but allows that insured to recover full replacement costs only if and when repairs are completed. The policy contained two conflicting provisions, one which required those repairs to be made as soon as reasonably possible and another which required suit to be instituted within two years of the date of loss.
In an amicus brief authored by Mark L. Friedman of Wilkofsky, Friedman, Karel & Cummins, attorneys on behalf of the New York Public Adjusters Association, the Group argued that the replacement cost coverage Peerless provided its insureds is completely illusory when an insurance company can elect to make its actual cash value payment so close to the end of the two year policy suit limitation period as to render it impossible for repairs to be completed before its expiration, even if they are made as soon as reasonably possible. The Court of Appeals agreed holding that:
"A limitations period that expires before suit can be brought is not really a limitations period at all, but simply a nullification of the claim.”
A portion of NYPAA's brief was quoted by the New York Law Journal:
"By offering replacement cost coverage and then reneging, Peerless acts like a confidence man, patting you on the back with one hand and picking your pocket with the other," Mark Friedman of Wilkofsky, Friedman, Karel & Cummins wrote on behalf of the adjusters' group. "The insuring public of this State deserve more."
As has been made crystal clear by catastrophic events such as Superstorm Sandy, even under the best of circumstances it is often impossible to accomplish rebuilding within two years of a loss even if the insurance company pays the actual cash value promptly after the loss.
Bureaucratic delays regarding inspections, permits and filings can often stretch months, sometimes years, after a loss before repairs can even begin. Add to this weather, logistics, labor unrest, unavailability of contractors or materials, and many other common impediments to a prompt completion of work, and the two year period provided in the policy to start suit often renders replacement cost claims objectively impossible. This decision restores fundamental fairness to the process whereby now, each case will be determined by a "reasonableness" standard, not by an arbitrary cut-off date.
This is the latest in a series of landmark decisions which NYPAA has influenced through its Amicus program. Other successful projects have included the recognition of a consumer’s claim for consequential damages due to an insurer’s bad faith (Bi-Economy Market v. Harleysville Ins. Co. of New York, 10 N.Y.3d 187, 886 N.E.2d 127, 856 N.Y.S.2d 505 (2008)); recognition of the rights of an innocent spouse when an estranged spouse intentionally damages the insured property (Lane v. Security Mutual Ins. Co., 96 N.Y.2d 1 (2001)); the consumer’s right to recover contractor’s overhead and profit as part of the actual cash value insurance payment (Mazzocki v. State Farm Fire and Casualty, 1 A.D.3d 9, 766 N.Y.S.2d 719, 2003 NY Slip Op. 17945 (2003) ); and the consumer’s right to recover when a vandal commits an act of arson in a vacant house (MDW Enterprises v. CNA, 4A.D.3d 338 (2nd Dept. 2004). These claims were previously denied as an excluded act of vandalism and are now considered a covered fire.
Wilkofsky, Friedman, Karel & Cummins has represented consumers against the insurance industry for 25 years.