When the scope of the COVID-19 pandemic became apparent in March 2020, an avalanche of articles appeared in which many insurers took the position that there was no coverage for losses associated with the SARS-CoV-2 virus due either to a lack of physical loss or damage to property necessary to trigger coverage under most commercial property policies, or to the effect of virus exclusions found in many such policies. Law firms representing policyholders pushed back, bringing to the attention of insureds the body of case law finding physical loss to property when a dangerous physical condition or social perception thereof prevents an insured from fully using its property as intended.
Numerous policyholders filed claims under their commercial property policies, many of which were denied by insurers. Policyholders and insurers have begun to test their theories in court, and the initial spate of trial court decisions are a mixed bag with regard both to whether and how the SARS-CoV-2 virus or public health orders pertaining to the COVID-19 pandemic can cause coverage-triggering “physical loss or damage” and to what are the scopes and effects of the various virus exclusions in the market. Understandably, many businesses are waiting until appellate courts start to weigh in before deciding whether to file their own lawsuit.
Such businesses need to be aware of several risks associated with the “wait and see” approach and take steps to mitigate them. The risks stem from the following three issues:
- Statutory Limitations Periods: Insurance coverage actions almost always involve breach of contract claims, and many involve claims for bad faith. Statutes of limitations for claims involving written contracts vary from jurisdiction to jurisdiction and range from three to fifteen years. Limitations periods on contract claims typically begin to run at the time of breach, meaning when the insurer denies coverage. Bad faith claims are often, but not always, subject to shorter statutes of limitation for tort claims—two years in many jurisdictions. Jurisdictions take various approaches to when bad faith claims accrue.
- Contractual Limitations Periods: Many commercial property insurance policies require insureds to file suit within a period of time shorter than the one specified by statute—often one or two years after a triggering event. Different policies can specify different triggering events, although the two most common are dates of loss and dates of denial. Some policies even include endorsements with state-specific contractual limitations periods that may be less generous than the contractual limitation period in the base form.In addition, different jurisdictions take different approaches to the enforceability of contractual limitations provisions. Some states refuse to enforce them, while others have established minimum contractual limitations periods. Contractual limitations period can be quite short. For example, Colorado enforces contractual limitation provisions of six month from the time of loss, even though its statutory limitations period for contract claims is three years.
- Broker Liability Claims: Broker liability claims can be brought as actions for breach of contract, negligence, breach of fiduciary duty, misrepresentation, tortious interference with contract, or unjust enrichment, depending on the law of the jurisdiction and the facts of the case. A single jurisdiction is likely to have different statutory limitations periods for such causes of action. In most jurisdictions, the limitations period runs from the time when the insurer denies coverage. There also are more policyholder-friendly jurisdictions, such as Florida, where the limitations period does not start to run until an underlying insurance coverage action is decided in favor of the insurer.
The best way for businesses taking the “wait and see” approach to limit exposure to the risk of failing to sue on time is to:
- Ascertain the jurisdiction or jurisdictions in which each of your losses occurred.
- Review your insurance policies to see whether they have contractual limitations periods or choice of law provisions.
- Make sure that you pin down the shortest applicable limitation period and calendar it.
- Starting at least three months before the first such deadline is set to expire, begin to negotiate a tolling agreement with your insurers or brokers. Please keep in mind that, if your policy contains a one-year contractual limitations period keyed to the date of loss, you should begin these negotiations very soon.
In short, the best way to manage the risk of falling into a limitations period trap is be aware of the possibility and take all necessary steps to map out a plan of attack that will put you on pace to sue by the first such deadline if an insurer or broker refuses to enter a tolling agreement.
DISCLAIMER: Limitation periods often pose highly nuanced and complex issues of fact and law. By way of example only, the period within which to bring suit is usually controlled by the law of the forum, but some forums have “borrowing statutes” that look to the law of another forum, such as the forum where the claim accrued. Given the draconian results that a limitations bar imposes on an otherwise possibly meritorious claim, one should always consult with counsel before deciding either whether to delay filing a lawsuit for tactical reasons or where to file suit when the action may be filed in more than one forum.
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