Take It to the Limit: Suit Limitation Clauses and Their Defenses
Pennsylvalnia - Suit Limitation Clauses
In the recent Pennsylvania Superior Court decision in Prime Medica Assocs. v. Valley Forge Ins. Co., 2009 Pa. Super. 39, __ A.2d __ (Mar. 5, 2009), Pennsylvania's intermediate appellate court overturned a damage award in favor of an insured in excess of $2 million based upon a two-year suit's limitation clause. The decision also shed light on the defenses of waiver and estoppel as an attempt to thwart the application of those clauses.
Prime Medica Associates owned a property on Broad Street in Philadelphia, Pennsylvania, that it had leased to Tenet Healthcare Services. Valley Forge Insurance Company insured the commercial property for Prime Medica.
After Tenet Healthcare Services advised the landlord that it was terminating its lease, the landlord inspected the property and found it abandoned, although several pieces of medical equipment remained on the property. One month later, in April 2001, the building was vandalized and additional medical equipment was taken.
Prime Medica filed a lawsuit against the tenant, Tenet, but did not make a claim to its insurance carrier for the loss until May of 2002. Meanwhile, it had also discovered water damage from three separate sources and in April 2001, submitted a claim for that damage. Only one of those claims was paid. Ultimately, the Valley Forge Insurance Company denied coverage for the submitted claims on November 5, 2003.
On November 4, 2004, the insured filed an action against Valley Forge alleging breach of contract and bad faith in denying the insured's claims. Among its defenses, the insurance company raised a two-year suit limitation clause, which applied from the date of the loss. The case ultimately proceeded to trial, where a jury awarded the insured $4 million in damages, although the court found that award to be speculative and lowered the award to just over $2 million. In a bench trial, the court concluded that the insurance company did not act in bad faith.
On appeal, the insurance company argued that the two-year suits limitation clause barred the jury's award. The insured argued that the carrier had waived the suits limitation clause because it never referenced that limitation in its coverage denial, and because the insurer's claims representative was deposed in the insured's lawsuit against Tenet and never raised the running of the limitations period at that time. The court rejected these arguments.
The court explained that while the denial letter did not specifically reference the limitations period, the insurer had sent four separate letters to the insured during the limitations period that had referenced the suit limitation clause. Moreover, while the denial did not reference the suits limitation clause specifically, it did reference the general terms, exclusions, and limitations of the policy. Likewise, merely advising the insured that the insurance company is continuing its investigation was not enough to conclude the insured was lulled into believing the carrier was not going to rely upon the limitation. As a result, the court concluded that the insurance company gave no formal or informal promise that it would not rely upon the suits limitation clause. Therefore, the court found that the insured's failure to file suit within two years from the date of the losses barred its claims against the insurer.
This decision is significant in that very few Pennsylvania cases have addressed suits limitation clauses, especially outside the context of a homeowner's policy. This decision shows that, unlike other jurisdictions, in Pennsylvania, even if a denial does not include every potential basis for denying coverage, by identifying more generally that there may be other terms, conditions, or exclusions that apply, a carrier will not be estopped from later raising issues not addressed in the letter, merely by their absence. In other words, the insured must show detrimental reliance for estoppel to apply.
Of course, it is important for claims handlers involved with a claim that includes a suits limitation clause to make sure the insured is aware of that clause in writing with ample time prior to its expiration. In this case, the court notes that the insurance company had issued four separate communications where the clause was referenced. While the court ultimately concluded that the carrier did nothing to lull the insured into believing the limitation clause would not apply, it is only because it had previously referenced that suits limitation clause in communications with the insured. Had the carrier failed to ever mention the suits limitation clause until it was too late for the insured to file suit, it is likely that the court would have come to a different conclusion regarding waiver or estoppel. Therefore, it is important to recognize the existence of suits limitation clauses early on when handling a claim and advise insureds of those clauses so the carrier has preserved that defense in the event the claim ultimately winds up in litigation.
*Eric is an associate in our Philadelphia, Pennsylvania, office. He can be reached at (215) 575-2620 or firstname.lastname@example.org.
Defense Digest, Vol. 15, No. 2, June 2009