Tom Thomas Organization, Inc. v. Reliance Ins. Co.

• Decision Date: 03 June 1976
• Docket Number: No. 11,11
• Citation: 396 Mich. 588,242 N.W.2d 396
• Parties: The TOM THOMAS ORGANIZATION, INC., a Michigan Corporation, Plaintiff-Appellant, v. RELIANCE INSURANCE COMPANY, a Foreign Corporation, and Marsh & McLennan, a Michigan Corporation, Defendants-Appellees.
• Court: Michigan Supreme Court

Page 396

242 N.W.2d 396

396 Mich. 588

The TOM THOMAS ORGANIZATION, INC., a Michigan Corporation Plaintiff-Appellant, v. RELIANCE INSURANCE COMPANY, a Foreign Corporation, and Marsh & McLennan, a Michigan Corporation, Defendants-Appellees.

No. 11.

Supreme Court of Michigan.

June 3, 1976.

Frederick G. Bahr, Troy, for plaintiff-appellant; Hayim I. Gross and John L. Salter, Birmingham, of counsel on appeal.

Brent A. Bremer, Roy H. Christiansen, Robert R. Nix, II, Kerr, Wattles & Russell, Detroit, for defendant-appellee Reliance Ins. Co.; Lowell C. Stellberger, Detroit, of counsel on appeal.

LEVIN, Justice.

Tom Thomas Organization, Inc. commenced this action to recover damages resulting from the loss of films and tapes which were insured under an inland marine policy issued by Reliance Insurance Co. ¹

Reliance asserts that the twelve-month limitation on suit contained in the policy began running December 14, 1971, the date of loss, and bars Thomas' action, which was commenced March 16, 1973. Thomas contends that the period of limitation did not begin to run until Reliance denied liability on June 22, 1972. Thomas alternatively contends that Reliance is estopped by its conduct from relying on the limitation. ²

The circuit court denied Reliance's motion for summary judgment on the ground of estoppel. The Court of Appeals reversed, holding that the period of limitation began to run on the date of loss and that Reliance was not estopped from asserting the limitation because it had denied liability six months before the period ran.

We reverse the Court of Appeals.

The running of the period of limitation was tolled from the date Tom Thomas gave notice of loss until liability was formally denied by Reliance.

The question whether Reliance has any liability under the policy for this loss has not been adjudicated and is not before this Court. The cause is remanded for trial.

I

The insurance policy provides that no action 'shall be sustainable in any court of law or equity unless the same be commenced within twelve (12) months next after discovery by the insured of the occurrence which gives rise to the claim * * *.'

The general rule, absent statute, is that a provision in a policy of insurance limiting the time for bringing suit is valid if reasonable even though the period is less than that prescribed by otherwise applicable statutes of limitation. ³

While a twelve-month limitation on suit may represent a reasonable balance between the insurer's interest in prompt commencement of action and the insured's need for adequate time to bring an action, ⁴ the insured usually does not have the full 12 months within which to commence an action.

Substantial delays are built into standard insurance policies. The insured is generally allowed 60 to 90 days to file proof of loss. The insurer is generally given another 60 days to pay or settle the claim.

Notwithstanding diligence by both parties at all stages of the claim procedure, considerable time often elapses before the insured learns whether the insurer will pay. Even if the insured promptly reports a loss to his insurance agent, discussions concerning resolution of the claim may take weeks. Additional time often passes before the insurance company provides a form for filing proof of loss. Even then the insured does not know whether it will be necessary to start an action; under the policy in this case, payment is not required until sixty days after 'acceptance' by the insurer of the proof of loss. No time limit for acceptance is imposed.

While inclusion of such terms in a policy clarifies the claims procedure, the practical consequence is considerable shortening of the time within which suit may be commenced. Here the films and tapes were lost December 14, 1971. Thomas reported the loss January 20, 1972 and filed proof of loss March 7, 1972. Reliance denied the claim June 22, 1972--more than 60 days after the proof of loss was filed. Over half of the twelve-month period of limitation had elapsed between discovery of the occurrence giving rise to the claim and formal denial of the claim.

II

The New Jersey Supreme Court, in Pelaso v. Hartford Fire Insurance Co., 56 N.J. 514, 267 A.2d 498 (1970), reached what we regard to be a sound result reconciling policy provisions concerning proof of loss and payment of claims with the provision imposing a time limitation for commencement of an action. Suit on a fire insurance policy was instituted 18 months after the date of the fire and 9 months after liability was denied by the insurer. The Court noted that while the policy purported to give the insured 12 months to begin an action, operation of the proof of loss and payment of claim terms significantly shortened that period of time. The Court concluded that the period of limitation was tolled from the time an insured gives notice of loss until the insurer formally denies liability:

'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 rights to have a proof of loss, call the insured in for examination, and consider what amount to pay; and the central idea of the limitation provision is preserved since an insured will have only 12 months to institute suit. We think this approach is more satisfactory, and more easily applied, than the pursuit of the concepts of waiver and estoppel in each of the many factual patterns which may arise.'

The Supreme Court of Alaska, in Fireman's Fund Insurance Co. v. Sand Lake Lounge, Inc., 514 P.2d 223, 226--227 (Alas., 1973), reached a like result by finding the policy limitation unconscionable. The Court noted that insurance companies use form policies and consumers have a take-it-or-leave-it option. The Court declined to interpret the policy phrase 'inception of the loss' to mean the date of the fire. Analogizing to the Uniform Commercial Code, ⁵ which permits reduction of the four-year statute of limitation by agreement of the parties but not to less than one year, the Court held that the insured must be allowed a full year from the accrual of a cause of action to sue and that a cause of action does not accrue until formal denial of a claim. ⁶

The United States Court of Appeals for the Ninth Circuit, applying Nevada law, ⁷ extended the twelve-month limitation period provided in a casualty policy by the 60-day payment of claim period. The Court quoted with approval Steel v. Phoenix Insurance Co., 51 F. 715, 721 (CA 9, 1892), Aff'd 154 U.S. 518, 14 S.Ct. 1153, 38 L.Ed. 1064 (1893):

"* * * A policy of insurance which contains conditions reducing the statutory time for the commencement of any suit thereon ought, in justice and equity, to be so construed--if reasonable under its terms--as to give the full period of time mentioned in the policy, freed from the provisions of all other clauses of the policy, or from the conduct of the insurance company, limiting, or attempting to limit, the time actually given in the limitation clause. This, it appears to us, is the consistent and logical view that ought to be taken of such policies of insurance, * * * It would prevent either party from taking any undue or improper advantage of the other." Westchester Fire Insurance Co. v. Sperling, 421 F.2d 141 (CA 9, 1970).

In this case the policy allowed the insured 90 days from discovery of loss to file proof of loss and gave the insurer 60 days from presentation and acceptance of proof of loss to pay the claim. ⁸

The effect of these terms is to substantially shorten the twelve-month limitation period for commencement of suit. The policy permits a delay of up to 150 days after discovery of loss for filing proof of loss and payment. An indefinite additional period of time--for 'acceptance' after presentation' of the proof of loss--is allowed the insurer before the 60-day period for payment begins to run.

We adopt the approach of the New Jersey Supreme Court. ⁹ The appropriate resolution is to allow the contractual period of limitation to run from the date of the casualty or, as provided in this policy, discovery of the loss, but to toll the running of the limitation from the time the insured gives notice until the insurer formally denies liability. ¹⁰

It appears that Thomas gave notice of the loss on or about January 20, 1972 (although proof of loss was not filed until March 7, 1972) and Reliance denied liability June 22, 1972. The running of the limitation was tolled for approximately five months and did not expire until mid-May, 1973. Thomas' action was timely commenced on March 16, 1973 and is not barred by the limitation.

It is unnecessary to reach the alternative argument advanced by Tom Thomas--unconscionability and the reasonableness of a one-year limitation. We predicate our holding on reconciliation of the provisions of the policy.

Reversed and remanded for trial.

T. G. KAVANAGH, C.J., and WILLIAMS and FITZGERALD, JJ., concur.

RYAN, J., not participating.

LINDEMER, Justice.

This lawsuit involves a claim for payment under the provisions of an insurance contract. The Court of Appeals has held the insured's (Tom Thomas) suit against the insurer (Reliance) is barred by a contractual limitation. We agree.

Tom Thomas, a producer of motion pictures, entered into an insurance contract with Reliance which contained the following clause:

'7. Suit: No suit, action or proceeding for the recovery of any claim under this policy shall be sustainable in any court of law or equity unless the same be commended within twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim.'

Subsequently, the following events occurred:

12--14--71 Approximately 8,000 feet of exposed but unprocessed 16-mm motion picture film and 10 reels of recorded 1/4-inch sound tapes in transit from Jackson Hole, Wyoming to New York, New York could not be located at their destination. As...