Policyholders Must Address Short Limitations Periods or Risk Losing Coverage

By | April 4, 2019

Many commercial property/business interruption insurance policies contain a contractual limitations period that prohibits a policyholder from suing the insurer more than 12  or 24 months after the insured loss occurred. Most states have longer statutes of limitations, but in some states, the statutory period may be only a year or two. A year or two may seem ages in the abstract. But with any sizeable loss, that’s not long at all. Cleanup, demolition, design, and repair or rebuilding often takes a year or more in the best case. It may be unclear whether the business policyholder and the insurer will have a dispute meriting litigation until the process is complete, and interim squabbles often prolong the process. In fact, if one or two years ordinarily would be sufficient, it’s usually the case that when the limitation period actually matters (i.e., when the policyholder needs to sue) is precisely when the period is too short.

Contractual limitations periods that are less than the limitations period provided by statute are unenforceable in some states. For example, in Missouri, Mo. Rev. Stat. § 431.030 provides that “[a]ll parts of any contract or agreement hereafter made or entered into which either directly or indirectly limit or tend to limit the time in which any suit or action may be instituted, shall be null and void.” But in many other states, such as Kansas, these limitations periods are enforceable. See B.S.C. Holding Company v. Lexington Ins. Co., 947 F. Supp. 2d 1150 (D. Kan. 2014), aff’d, 625 Fed. Appx. 906 (10th Cir. 2015).

While arguing that a contractual limitations period is unenforceable may be necessary if that’s all you’ve got, addressing the issue before the period has run is less perilous. In a state in which the limitations period provided by statute is unduly short, in a pinch and based on the right circumstances, an insured might be able to argue that the statute of limitations was waived or should be tolled. But again, it’s better to address the issue before the period has run.

The first step in addressing the issue is to calendar any lawsuit deadline as soon as possible after the loss. Then, if all matters are not resolved with the insurer a few months before the deadline, the policyholder should make plans to be prepared to file a suit before the deadline. Preparation to file a lawsuit takes time and can be quite involved. It may entail (a) finding and engaging experienced insurance counsel (if they aren’t already engaged), and then enabling counsel (b) to investigate the issues, which may involve site visits, witness interviews, document review, and expert consultation, and (c) drafting and filing the complaint and other documents necessary to initiate the lawsuit. Counsel may simultaneously ask the insurer to extend the limitations period, which may be documented in a tolling agreement. Insurers (which have the upper hand) typically take their time to consider requests for extensions, and they may not agree to an extension, particularly if the request is made too early. So, again, the only solution for the policyholder is to be prepared to file a lawsuit by the deadline.

Christina Arnone

Contact Christina Arnone for more information.