The New York Court of Appeals determined that a two year period for obtaining replacement costs for damage to property was unenforceable where the property could not be reasonably replaced in two years. Executive Plaza, LLC v. Peerless Ins. Co., 2014 WL 551251 (N.Y. Ct. App. Feb. 13, 2014).
Plaintiff's office building was severely damaged in a fire on February 23, 2007. It cost more than a million dollars to restore the building to its previous condition. Plaintiff had $1 million in coverage from Peerless. The policy provided that replacement costs for any loss would be paid after the damaged property was repaired. The insured was required to make the repairs as soon as possible. Further, the policy provided that any legal action against the insurer had to be brought within two years of the loss.
Peerless paid the "actual cash value" of the destroyed building pursuant to the policy in the amount of $757,812.50. Peerless informed the plaintiff that it would have to provide documentation of the completion of repairs to collect the full replacement value, another $242,187.50.
Plaintiff was unable to complete replacement of the damaged building by the two year anniversary of the fire, February 23, 2009. Plaintiff sued Peerless, seeking a declaratory judgment that Peerless was liable for replacement costs up to the policy limit. The action was dismissed because plaintiff had not finished replacing the building, making the action premature.
The replacement building was completed in October 2010. Peerless denied payment of the unpaid portion of the policy limits because the two year period had expired. Plaintiff filed another suit. The federal district court again dismissed the complaint because the policy barred all suits commenced more than two years after the date of loss.
In a certified a question to the New York Court of Appeals, the Second Circuit asked whether the insured was covered for replacement costs if the insured property could not reasonably be replaced within two years. The New York court answered yes.
The court recognized that an agreement which modified the statute of limitations by specifying a shorter, but reasonable, period within which to commence an action was enforceable. But replacing damaged property within two years from the date of the loss was not reasonable if the property could not reasonably be replaced within two years.
The problem with the limitation period in this was was not its duration, but its accrual date. It was unfair and unreasonable to require a suit within two years form the date of the loss, while imposing a condition precedent to the suit (i.e., completion of replacement of the property) that could not be met within that two-year period. A "limitation period" that expired before suit could be brought was not a limitation period, but simply a nullification of the claim.
