ALERT: New Jersey Coverage Letters Must Set Forth Decisions Unequivocally to Properly Protect Insurers’ Bargained-for Limitations Periods
June 22, 2016
New Jersey is no different from the bulk of jurisdictions that permit insurers to shorten the statute of limitations applicable to coverage decisions which are generally typical actions on a contract, otherwise subject to a six-year limitation period. As such, a carrier may limit that limitation period, and often does, typically to one year. Such a limitation provides much-needed predictability and finality to insurers, a benefit for which policyholders are paid by way of lower premiums. That said, it has not always been abundantly clear how to determine when that year commences and thus ends, on occasion rendering elusive the insurer’s benefit.
New Jersey law is clear that no matter whether the limitation period is six years as provided by statute or by some lesser period as provided by the contract, the limitations period begins to toll when the unequivocal denial of the claim (or part in dispute) takes place. Left not entirely clear is what constitutes a denial that is appropriately unequivocal.
In Biegalski v. Farmers Ins. Co. of Flemington, 2016 U.S. Dist. LEXIS 57011 (D. N.J. April 29, 2016), a case not handled by Zarwin attorneys, the court provided guidance with regard to the level of unequivocalness the denial must possess. Plaintiff submitted a claim to Farmers, among others, with regard to damage to their home during and in the aftermath of Hurricane Sandy. Farmers denied the claim because the alleged damage fell below the policy’s deductible based on its appraisal. The plaintiff sought to challenge Farmers’ denial and asserted its rights appraisal rights under the policy.
When the matter did not resolve, plaintiff filed suit and Farmers defended on the basis of the statute of limitations, arguing that an unequivocal denial took place with its initial denial letter and plaintiff’s actions to challenge the appraisal did nothing to toll or otherwise alter the one-year period provided for in the insuring agreement. The court agreed with Farmers, finding that the plaintiff’s assertion of its appraisal rights did nothing to undo the finality of Farmers’ decision.
In addition to finding that the insured’s assertion of its appraisal rights does not toll the limitations period, the court analyzed the language of the denial, specifically with regard to its notification of the insured’s appeal rights. Citing to Azze v. Hanover Insurance Co., 336 N.J. Super. 630 (App. Div. 2001), the court noted that where appeal rights are addressed by the insurer, they cannot be couched in such a manner to suggest that a lawsuit is unnecessary for the insured to resolve its claims. In contrast, Farmers’ letter “very clearly informs Plaintiff, in larger font than the notice about the Internal Appeals Panel, that she was required to file an action in court within one year of the letter.”
Predictability and finality come at a premium in business, and drafters of insurance coverage letters must be careful that the correspondence they draft and the actions they recommend their clients take with regard to pending claims do nothing to rob their clients of what they’ve bargained for. Correspondence should be unequivocal with regard to the intended action taken, whether to establish the value of a claim, to decline coverage or otherwise.