Suit Limitation Deadlines in Connection With COVID-19 Business Interruption Claims
The Situation: Depending on policy language and factual circumstances, policyholders could be facing rapidly approaching contractual deadlines for initiating litigation regarding COVID-19-related business interruption insurance claims.
The Result: Failure to comply with contractual deadlines for initiating litigation could result in policyholders forfeiting coverage for COVID-19-related business interruption claims.
Looking Ahead: Regardless of whether policyholders are still in the claim investigation process, or taking a "wait-and-see" approach as the law develops regarding the scope of coverage for COVID-19 claims, they should identify and address any suit limitation provisions (or other deadlines) that could impact coverage.
Policyholders may have less time than they realize to commence litigation in connection with COVID-19-related business interruption insurance claims. Property policies (under which business interruption and related coverages are typically found) often include suit limitation provisions. Suit limitation provisions are the contractual equivalent of statutes of limitations. They require policyholders to file coverage lawsuits within a specified period of time or risk forfeiting coverage for the claim at issue. The most common time period is one or two years—which is often much shorter than the otherwise applicable statute of limitations. Despite the potential for Draconian results, suit limitation provisions are generally enforceable, subject to certain limitations. And, some jurisdictions don't require a showing of prejudice from the insurer.
Suit limitation provisions vary as to when the clock starts running. For example, policies often require suits to be filed within one or two years from the date of loss or damage to property (or the discovery of such loss). More favorable suit limitation provisions require suits to be filed within a certain amount of time from the date of written denial of the claim or the date the cause of action accrues. The nature of COVID-19-related business interruption claims can present unique challenges for determining when relevant events occurred, such as the loss or damage to property or the accrual of a cause of action. Accordingly, policyholders should err on the side of caution when calculating suit limitation (and other policy) deadlines.
Depending on the jurisdiction, suit limitation deadlines may not be tolled during the claim adjustment process. Therefore, policyholders should not assume that an insurer's continuing investigation of a claim relieves the policyholder from complying with any suit limitation provision.
While suit limitation provisions are common in property policies, they are rare in liability policies. As a result, they are more likely to impact COVID-19-related business interruption claims than COVID-19-related liability claims. However, policyholders should be on the lookout for suit limitation provisions (and other deadlines) in connection with any claim.
Below are some additional practice pointers that can help reduce the risk of missing a suit limitation deadline:
- Always obtain a copy of the actual policy at issue. Never rely on an insurer's representations alone regarding the policy terms.
- Read the entire policy carefully, including the Declarations page, the main insuring document, and the endorsements (suit limitation provisions are often added via endorsement and may even conflict with provisions in the main insuring document).
- Identify any suit limitation deadline and consider confirming the deadline with the insurer in writing (particularly if it is potentially unclear).
- Familiarize yourself with whether or not the applicable jurisdiction has any automatic tolling rules. Do not assume that any time period will automatically be tolled.
- Do not assume based on an insurer's conduct that it does not intend to enforce a suit limitation provision.
- If the suit limitation deadline is approaching, consider seeking an extension from the insurer in the form of a tolling agreement or plan to file a lawsuit before the deadline to preserve the claim.
- Always confirm important conversations and/or agreements with insurers regarding suit limitation deadlines in writing via confirming letters and/or formal agreements.
- If a contract claim is already barred by a suit limitation provision, consider whether the policyholder may still have any bad faith and/or Unfair Claims Practices Act claims, which may not be subject to the same suit limitation provision in the policy.
Two Key Takeaways
- Policyholders may have less time than they realize to commence litigation in connection with COVID-19-related business interruption insurance claims due to suit limitation provisions, which are the contractual equivalent of statutes of limitations.
- If a suit limitation deadline is approaching, policyholders should consider seeking an extension from the insurer in the form of a tolling agreement or plan to file a lawsuit before the deadline to preserve the claim.
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