Peloso v. Hartford Fire Ins. Co.

• Decision Date: 16 July 1970
• Citation: 56 N.J. 514,267 A.2d 498
• Parties: Arthur A. PELOSO and Marilyn Peloso, Plaintiffs-Appellants, v. HARTFORD FIRE INSURANCE CO., a Connecticut corporation and Sophie Stein Schiller, Defendants-Respondents.
• Court: New Jersey Supreme Court

Page 514

56 N.J. 514

267 A.2d 498

Arthur A. PELOSO and Marilyn Peloso, Plaintiffs-Appellants, v. HARTFORD FIRE INSURANCE CO., a Connecticut corporation and Sophie Stein Schiller, Defendants-Respondents.

Supreme Court of New Jersey.

Argued Nov. 17, 1969.

Decided July 16, 1970.

Sam Weiss, Newark, for appellants.

William B. McGuire, Newark, for respondent Hartford Fire Ins. Co. (Lum, Biunno & Tompkins, Newark, attorneys, William J. McGee, Newark, on the brief).

The opinion of the court was delivered by

SCHETTINO, J.

Plaintiffs instituted suit in the Superior Court, Law Division, seeking recovery from defendant insurer for damages caused by fire to their home. ¹ An answer was filed on behalf of defendant asserting the statute of limitations as an affirmative defense. Thereafter, defendant moved for summary judgment based upon the pleadings, plaintiff Arthur A. Peloso's answers to interrogatories, and an affidavit of defendant's counsel. The trial court, finding that no genuine issue regarding any material fact existed and that the complaint had not been filed within the applicable one-year period of limitation, granted defendant's motion for summary judgment. (102 N.J.Super. 357, 246 A.2d 52 (Law Div.1969). The Appellate Division affirmed in a Per curiam opinion (105 N.J.Super. 474, 253 A.2d 183 (App.Div.1969)), and we certified on plaintiffs' application. (54 N.J. 253, 254 A.2d 797 (1969)).

Plaintiffs are the owners of a multiple dwelling located in the Borough of Belmar. On or about October 20, 1964, defendant issued a three-year insurance policy covering the multiple dwelling and its contents against loss resulting from fire. The policy contained the standard statutory period of limitation as required by N.J.S.A. 17:36--5.20, which provides:

No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless * * * commenced within twelve months next after inception of the loss.

On September 12 and 13, 1965, the premises in question were damaged by fire. Plaintiffs gave defendant prompt notice of the fire and the resultant damage. ²

Defendant then advised plaintiffs that it intended to investigate the claim, following which notice would be given of its decision. Between November 1965 and March 1966, plaintiffs were informed by defendant, in response to inquiries made by them regarding their claim, that the claim was being investigated. In February 1966, plaintiffs' counsel informed defendant in writing that suit would be commenced unless the claim was immediately adjusted. In response, defendant notified plaintiffs in writing to submit to depositions regarding the details of the fire as required by the policy. Plaintiffs did so on April 6, 1966.

On May 11, 1966, plaintiffs' counsel telephoned defendant's attorney, who told him that defendant would be advised to reject the claim and that plaintiffs should start suit on the policy. On June 13, 1966, plaintiff husband, who was no longer represented by counsel, called defendant's attorney, who advised plaintiff that defendant was denying liability on his claim. When plaintiff husband requested that the denial of liability be put in writing, defendant's counsel did so by letter dated June 15, 1966, in which he said that pursuant to reports furnished by him to defendant, liability would be 'declined insofar as the loss of September 12--13, 1965 is concerned. Please be guided accordingly.'

In July 1966, defendant's position was reaffirmed by its counsel in telephone conversations with plaintiff husband. The latter ended their final conversation on July 21, 1966, by stating that he would sue, and was told in turn that this would be the appropriate course to take.

Plaintiffs did nothing further about their claim until March 10, 1967, when they instituted this action to recover for their loss. Their complaint was filed some 18 months after the date of the fire and approximately 9 months after plaintiffs had received the letter of June 15, 1966, formally denying liability.

Before the Law Division, plaintiffs resisted the motion for summary judgment on two grounds, which they again raise on appeal. They contend that the statute of limitation did not begin to run until June 15, 1966, when liability was fomally declined and that therefore their suit is timely. Alternatively, they argue that if suit was required within 12 months from the date of the fire, recovery should not be barred because defendant either waived its rights under the provision or should be estopped by its conduct from presenting this defense.

The determination of when the statute of limitation begins to run depends upon the interpretation to be accorded the phrase 'inception of the loss' contained in N.J.S.A. 17:36--5.20. The time limitation provision, like all the standard provisions set forth in N.J.S.A. 17:36--5.20, is modeled after the 1943 New York standard policy which has been adopted by some 46 states. See 3 Richards, Insurance (Supp.1968), § 497, p. 118. As with the other provisions of the standard policies, the limitation provision must be used in '(e)very such fire insurance policy * * * in the words and in the order' set forth in the statute. See N.J.S.A. 17:36--5.20.

Although the concept of a standard policy was intended to provide provisions whose meaning would be clear, two divergent views have developed regarding when the limitation period begins to run. The majority of courts, reasoning that the language of the limitation provision is clear and unambiguous, have held that the limitation period should be calculated from the date of the fire or other casualty insured against. See Sager Glove Corp. v. Aetna Ins. Co., 317 F.2d 439, 441 (7th Cir.), cert. denied, 375 U.S. 921, 84 S.Ct. 266, 11 L.Ed.2d 165 (1963); Proc v. Home Ins. Co., 17 N.Y.2d 239, 243--245, 270 N.Y.S.2d 412, 414--415, 217 N.E.2d 136, 138--139 (1966); Lardas v. Underwriters Ins. Co., 426 Pa. 47, 51, 231 A.2d 740, 742 (Sup.Ct.1967); and cases collected in Annot., 95 A.L.R.2d 1023, 1025--29 (1964).

A few courts, however, have held that the limitation period begins to run from the time the cause of action accrues. See Finkelstein v. American Ins. Co. of Newark, N.J., 222 La. 516, 62 So.2d 820 (Sup.Ct.1952); Phoenix Ins. Co. v. Brown, 53 Tenn.App. 240, 381 S.W.2d 573 (Tenn.Ct.App.1964). These courts have reasoned that the limitation provision must be read in conjunction with the provision requiring the insured to supply proof of loss, See N.J.S.A. 17:36--5.20 at lines 97--99 ('within sixty days after the loss, unless such time is extended in writing by this Company, the insured shall render to this Company a proof of loss'), and the provision regarding the time the insurer becomes liable, See N.J.S.A. 17:36--5.20 at lines 150--153 ('The amount of loss for which this Company may be liable shall be payable sixty days after proof of loss, as herein provided, is received by this Company. * * *'). In effect, these provisions afford the insurer immunity from suit for 60 days after the insured has filed his proof of loss.

There obviously is an incongruity in the statute. While the limitation provision purports to give the insured a clear 12 months to institute suit, yet, by virtue of the other statutory provisions cited above, this period is greatly reduced. Nonetheless, we think that the central idea of the limitation provision was that an insured have 12 months to commence suit. This must be so since the period is much shorter than the usual 6 years for ordinary contracts and 16 years for contracts under seal. In addition, the period during which an insured's right to bring suit is postponed is for the benefit of the company so that it can pursue its statutory and contractual rights. Accordingly, it ought not to be charged against the insured's time to bring suit.

The incongruity in the statute and the unfairness caused to an insured is amply demonstrated by the facts in the present case. Plaintiffs gave notice 2 days after the fire. They then had 60 days to file a proof of loss and the insurance company had a further 60 days to decide its liability. ³ During this time, plaintiffs were barred by the statute from instituting suit. Negotiations were still continuing in February 1966, when plaintiffs threatened to sue. In response, defendant demanded that plaintiffs submit to interrogatories as required under the cooperation clause of the policy. Plaintiffs did so on April 6, 1966. It was not until June 15, 1966, that plaintiffs were notified in writing that liability was declined.

the fair resolution of the statutory incongruity is to allow the period of limitation to run from the date of the casualty but to toll it from the time an insured gives notice until liability is formally declined. In this manner, the literal language of the limitation provision is given effect; the insured is not penalized for the time consumed by the company while it pursues its contractual and statutory...