Absent Precise Language To the Contrary, Limitations Period In Insurance Policy Runs From Date Coverage Was Denied, Not Date of Underlying Loss

On June 30, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Flat Ridge 2 Wind Energy LLC v. Those Underwriter at Lloyd's, 2014 NY Slip Op. 31804(U), holding that unless an insurance policy contains precise language to the contrary, a limitations period provided for the in the policy runs from the date the insurance company denies coverage, rather than the date of the underlying injury.

In Flat Ridge 2, the plaintiff (a wind power generation company) brought an action against its insurer, seeking coverage for damages to a wind farm caused by a tornado. The insurer moved to dismiss the complaint as time barred under a provision of the policy requiring that any suit against the insurance company be “commenced within twelve (12) months next after the happening becomes known to the Insured." The insurer argued that this 12-month limitations period ran from the date of the underlying loss and therefore the insured’s claim was time barred. The Court rejected this argument and found the claim timely because it was filed within 12 months of the insurance company’s denial of coverage:

New York law has consistently distinguished between generic policy language, like that used [in Flat Ridge 2’s policy], which is read to set the limitations period to run from the date the insured's claim accrues, and more specific, precise language, which sets the period to run from the liability triggering event. In Steen v. Niagara Fire Ins. Co., 89 NY 315, 322-23 (1882), the first New York case to address the issue, the court held that the generic language, "next after the loss or damage shall occur" should be construed to mean that the limitations period does not begin to run until "the right to bring an action exists" rather than when the loss "in fact occurs." The default rule in dealing with these contractual provisions then, is that, the time within which an action must be commenced shall be computed from the time the cause of action accrued, unless the parties agree that the date of loss or damage shall be looked to as the "happening" that starts the clock and they express this intention through clear and precise language. In Fabozzi [v. Lexington Ins. Co., 601 F3d 88 (2d Cir. 2010),] the Second Circuit concluded that only a limitations provision that uses the term of air "after the inception of the loss" or similarly precise language, "can tie a limitations period to the date of the accident or peril insured against." Fabozzi, 601 F3d at 93. Although the exact language used in the provision in Flat Ridge 2's policy was not construed by any of these New York courts, a leading insurance treatise quoted in Fabozzi addresses the phrase "after the happening of the loss," stating that, "language such as 'after the happening of the loss' is considered to be 'lacking in precision' such that the limitations period
is computed not from the time of the occurrence of the physical loss . . . but from the time that liability accrues." 601 F3d at 93 (quoting 71 NY Jur. 2d Insurance§ 2528 (2010)). Here, the provision at issue, stating only "after the happening becomes known [ ... ]" is similarly lacking in precision, as it does not employ any of the exacting language that would be sufficient to tie the limitations period to the occurrence of the loss or damage itself. For example, it does not make reference to "the physical damage out of which the claim arose," a particular type of damage causing occurrence itself, or even to "the loss." Since the language of the limitations provision here is vague and generic, it should be computed from the time that Flat Ridge 2's claim against Underwriters accrued – the date upon which Underwriter denied coverage - not from the date of the windstorm.

(Some internal citations and quotation marks omitted) (emphasis added). This decision illustrates that special limitations periods in insurance contracts are enforced. However, they must be written in precise language, and if ambiguous, they will be construed in a manner favorable to the insured.