Exec. Plaza, LLC v. Peerless Ins. Co.

• Decision Date: 13 February 2014
• Citation: 22 N.Y.3d 511,2014 N.Y. Slip Op. 00898,5 N.E.3d 989,982 N.Y.S.2d 826
• Parties: EXECUTIVE PLAZA, LLC, Appellant, v. PEERLESS INSURANCE COMPANY, Respondent.
• Court: New York Court of Appeals Court of Appeals

22 N.Y.3d 511

5 N.E.3d 989

982 N.Y.S.2d 826

2014 N.Y. Slip Op. 00898

EXECUTIVE PLAZA, LLC, Appellant,

v.PEERLESS INSURANCE COMPANY, Respondent.

Court of Appeals of New York.

Feb. 13, 2014.

Jaroslawicz & Jaros LLC, New York City (David Jaroslawicz and David Tolchin of counsel), for appellant.

Robins, Kaplan, Miller & Ciresi L.L.P. (John N. Love, of the Massachusetts bar, admitted pro hac vice, of counsel) and Mura & Storm, PLLC, Buffalo (Scott Storm of counsel), for respondent.

Amy Bach, San Francisco, California, and Anderson Kill P.C., New York City (William G. Passannante of counsel), for United Policyholders, amicus curiae.

Wilkofsky, Friedman, Karel & Cummins, New York City (Mark L. Friedman of counsel), for New York Public Adjusters Association, amicus curiae.

OPINION OF THE COURT

SMITH, J.

This case involves a fire insurance policy that contains a clause limiting the time in which the insured may bring suit under the policy. The limitation period is two years, running from the date of the fire. The policy also says that the insured may recover the cost of replacing destroyed property—but only after the property has already been replaced. Thus, if (as happened in this case) the process of replacing the property takes more than two years, the insured's claim will be time-barred before it comes into existence.

Answering a question from the United States Court of Appeals for the Second Circuit, we hold that such a contractual limitation period, applied to a case in which the property cannot reasonably be replaced in two years, is unreasonable and unenforceable.

I

Plaintiff owned an office building in Island Park, New York, that 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 insurance coverage from defendant, under a policy that gave the insured a choice between the payment of “actual cash value” and “replacement cost.” The policy said, however:

“We will not pay on a replacement cost basis for any loss or damage:

“(i) Until the lost or damaged property is actually repaired or replaced; and

“(ii) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.

The policy also had a “Legal Action Against Us” clause, saying:

“No one may bring a legal action against us under this insurance unless: ...

“b. The action is brought within 2 years after the date on which the direct physical loss or damage occurred.”

Defendant paid plaintiff the “actual cash value” of the destroyed building, $757,812.50. Plaintiff notified defendant that it would be making a replacement cost claim up to the $1 million policy limit—i.e., it would be seeking another $242,187.50. Defendant replied that, to collect that amount, plaintiff would have to provide “documentation verifying the completion of repairs.”Plaintiff alleges that it acted reasonably to replace the damaged building, but was not able to do so before the second anniversary of the fire, February 23, 2009. On that date, plaintiff sued defendant in Supreme Court, seeking a declaratory judgment that defendant was liable for replacement costs up to the policy limit. Defendant removed the action to federal court, and successfully moved to dismiss it on the ground that, since plaintiff had not finished replacing the building, the action was premature ( Executive Plaza, LLC v. Peerless Ins. Co., 2010 U.S. Dist. LEXIS 99602 [E.D.N.Y., Feb. 8, 2010, No. CV 09–1976] ).

The replacement building was completed in October 2010, and plaintiff demanded payment of the unpaid portion of the policy limits. Defendant denied liability on the ground that the two-year period had expired, and plaintiff brought another action, the present one, against defendant in Supreme Court. Defendant again removed the case to federal court and again moved to dismiss. The United States District Court for the Eastern District of New York granted the motion, finding that the policy “unambiguously bars any and all suits commenced more than two years after the date of the damage or loss” (Executive Plaza, LLC v. Peerless Ins. Co., 2012 WL 910086, *6, 2012 U.S. Dist. LEXIS 36174, *16 [E.D.N.Y., Mar. 13, 2012, No. 11–CV–1716 (JS)(GRB) ] ). The District Court found “that the two-year limitation period in the Policy is reasonable, as New York courts have consistently upheld two-year limitations periods in insurance contracts as reasonable” (2012 WL 910086, *3, 2012 U.S. Dist. LEXIS 36174, *9–10).

Plaintiff appealed to the United States Court of Appeals for the Second Circuit, which certified the following question to us:

“If a fire insurance policy contains

“(1) a provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced ‘as soon as reasonably possible after the loss'; and

“(2) a provision requiring an insured to bring suit within two years after the loss;

“is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years?” ( Executive Plaza, LLC v. Peerless Ins. Co., 717 F.3d 114, 118 [2d Cir.2013].)

We accepted certification (21 N.Y.3d 975, 970 N.Y.S.2d 743, 992 N.E.2d 1087 [2013] ) and now answer the question yes.

II

“[A]n agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to commence an action is enforceable” ( John J. Kassner & Co. v. City of New York, 46 N.Y.2d 544, 551, 415 N.Y.S.2d 785, 389 N.E.2d 99 [1979] [emphasis added] ). We conclude that the contractual period at issue here—two years from the date of “direct physical loss or damage” (i.e., from the date of the fire)—is not reasonable if, as the Second Circuit's question requires us to assume, the property cannot reasonably be replaced within two years.

It is true, as the District Court pointed out, that there is nothing inherently unreasonable about a two-year period of limitation. In fact, we have enforced contractual limitation periods of one year (Blitman Constr. Corp. v. Insurance Co. of N. Am., 66 N.Y.2d 820, 498 N.Y.S.2d 349, 489 N.E.2d 236 [1985];Sapinkopf v. Cunard S.S. Co., Ltd., 254 N.Y. 111, 114, 172 N.E. 259 [1930] ) and six months ( Continental Leather Co. v. Liverpool, Brazil & Riv. Plate Steam...