In Laeroc Waikiki Parkside, LLC v. Westchester Fire Ins. Co., 2008 U.S. Dist. LEXIS 65711 (D. Haw. Aug. 22, 2008), the Federal District Court of Hawaii determined the insured’s claim for coverage was time-barred under the policy’s two-year limitation period. 

     The insured purchased a hotel on August 24, 2001.  It hired Hawaiian Resorts, Inc. to manage the hotel from August 2001 to December 2001.  Thereafter, Aston managed the hotel.  By January 2002, Aston realized damage to the hotel arising from condensation problems caused by saturated chill water lines.  Aston learned from a report in March 2002 that fungus and mildew were present on the exterior of the hotel.  Aston was also aware in April 2002 that water damage had been caused to interior walls of the hotel rooms by chilled water pipes.  Aston did not inform the insured of these problems, however. 

     The insured’s agent provided the March 2002 report, noting only fungus and mildew damage, to Westchester.  Thereafter, Westchester investigated.  No one mentioned or pointed out to Westchester’s investigator the water or mold damage to the interior walls of the hotel.  In August 2002, Westchester denied coverage because problems outlined in the March 2002 report were not the result of a covered loss.  The insured did not learn of the mold problem until the time coverage was denied. 

     The insured sued Hawaiiana and Aston concerning damages and eventually settled.  It then filed suit against Westchester in July 2004, seeking coverage for water and mold damage attributed to faulty insulation surrounding the chilled water pipes. Westchester’s policy required any legal action against it be "brought within two years after the date on which the direct physical loss or damage occurred."

     The insured’s agent, Aston, knew about damage from the chilled water pipes in early January 2002. Moreover, the insured admitted it had actual knowledge of the damage arising from the chilled water pipes by at least April 2002.  The insured did not file suit, however, until July 2004, more than two years after the damage was known by Aston.  The insured argued Westchester’s denial of coverage failed to specifically deny the water and mold damage claims, and therefore the limitation period should be indefinitely tolled.  The court was unpersuaded.  The insured’s notice to Westchester only mentioned "fungus and mildew", which were tied to problems with the exterior paint and windows, not to the chilled water pipes.  The complaint, however, did not seek coverage for damages related to exterior paint or windows, but for mold and water problems.  Because the insured failed to submit a claim regarding the mold and water problems, the limitation period was not tolled by submission of the claim.   

     Further, Aston knew about the damage arising from the chilled water pipes in January 2002.  This indicated that the "physical loss or damage occurred" at least by January 2002.  Aston’s failure to promptly notify the insured did not extend the period under Westchester’s policy.