NORTHRIDGE TENANTS CORPORATION v. CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON

(NOTE: The status of this decision is .)
 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4860-07T34860-07T3

NORTHRIDGE TENANTS CORPORATION,

a non-profit Corporation of the

State of New Jersey,

Plaintiff-Appellant,

v.

CERTAIN UNDERWRITERS AT

LLOYD'S OF LONDON,

Defendant-Respondent,

and

TOPANGA INSURANCE AGENCY, INC.,

and JACOBSEN GOLDFARB & SCOTT,

Defendants.

____________________________________________

 

Argued May 5, 2009 - Decided

Before Judges Fuentes, Gilroy and Chambers.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-3168-05.

Robert W. Jennerich argued the cause for appellant (McCarthy & Jennerich, attorneys;

Mr. Jennerich, on the brief).

Daniel S. Jahnsen argued the cause for respondent (Bolan Jahnsen Reardon, attorneys; Elizabeth A. Wilson, on the brief).

PER CURIAM

The issue presented by this appeal is whether the two-year limitations period in defendant's insurance policy was tolled from notice of the claim until the claim was formally denied. The trial court rejected the argument of the insured that the limitations period had been tolled, and dismissed the complaint since it was filed outside the two-year period.

We reverse, determining that in accordance with the doctrine set forth in Peloso v. Hartford Fire Ins. Co., 56 N.J. 514 (1970), the period of limitations was tolled from the time that the insured gave notice of the claim until it was formally denied. Once this tolling period is deducted from the limitations period, the suit was timely filed.

I

Plaintiff Northridge Tenants Corporation (Northridge) owns a fourteen building complex that sustained a fire on February 26, 2003, destroying twelve of its units. Plaintiff had at the time, a commercial property insurance policy with defendant, Certain Underwriters of Lloyd's of London (Lloyd's), that provided coverage up to $21,000,000 for the entire complex. In its Undisputed Proof of Loss Statement dated July 16, 2003, Lloyd's advised Northridge that it would not dispute $199,212.68 of the claim. In it's brief, Lloyd's states that it later determined that an additional $18,022.25 was due and paid Northridge a total of $217,234.93 on the claim. Northridge disagreed with this determination, finding that the sum allowed for the loss by Lloyd's was too low for a variety of reasons.

Unable to reach agreement with Lloyd's on the value of the loss, in October 2003, Northridge invoked the policy's appraisal process. Each party selected an appraiser and when the appraisers were unable to agree, the matter was submitted to an umpire. This process was not completed until February 10, 2004, when the umpire issued an award, determining that the replacement cost of the property was $33,781,995, but making no determination on the amount of the loss.

After the umpire's award, disputes still remained and negotiations continued. By letter dated September 27, 2004, Lloyd's denied Northridge's claim for additional payment on the claim. Northridge asked for reconsideration, and by letter dated November 16, 2004, Lloyd's denied reconsideration.

On May 2, 2005, Northridge filed this lawsuit against Lloyd's, seeking sums it contended were due under the insurance policy. Since the complaint was filed more than two years after the fire, Lloyd's maintained that the suit was out of time, relying on the limitations of action provision in the policy. That provision provided:

D. LEGAL ACTION AGAINST US.

No one may bring a legal action against

us under this Coverage Part unless:

1. There has been full compliance with all of the terms of this Coverage Part; and

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

The parties raised numerous issues on cross-motions for summary judgment. The trial court initially denied both motions without addressing the time bar issue, finding that material issues of fact were present. On motions for reconsideration, the court addressed the issue, determined that plaintiff's claim was barred by the contractual limitations period, and dismissed the complaint.

On appeal, plaintiff contends that the two-year period in the policy was tolled from the time that plaintiff gave notice of the claim until Lloyd's formally denied coverage. Plaintiff also contends that the umpire's award should be vacated for a variety of reasons.

II

Applying the equitable principles discussed by the Supreme Court's decision in Peloso v. Hartford Fire Ins. Co., supra, 56 N.J. 514, we are satisfied that plaintiff's cause of action is not barred by the policy's two-year limitation period. In that case, Arthur Peloso's multiple dwelling sustained a fire on September 12 and 13, 1965. Id. at 517. Peloso's insurance policy with Hartford Fire Insurance Company contained a provision required by N.J.S.A. 17:36-5.20, that no suit could be brought under the policy "unless . . . commenced within twelve months next after inception of the loss." Ibid. (alteration in original). Under the statute and policy, the insured had sixty days to submit proof of loss, and the insurance carrier had an additional sixty days to pay the claim. Id. at 519-20.

Peloso provided notice of the fire to his insurer on September 15, 1965, two days after the fire. Id. at 520. After conducting an investigation, the insurer denied the claim in writing on June 15, 1966, nine months later. Id. at 518. On March 10, 1967, more than eighteen months after the fire but within one year after denial of the claim, Peloso commenced suit against the insurer to recover for the loss. Ibid. The insurer raised a statute of limitations defense. Id. at 516.

The Court found an incongruity in the statute because it purported to give the insured twelve months in which to institute suit, yet in reality the time was greatly reduced due to the time permitted for the insured to submit proof of loss and the insurer to make payment. Id. at 520. As a result, the Court allowed "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." Id. at 521. Following this principle, the Court found that Peloso's suit was timely filed. Ibid. The Peloso doctrine remains sound New Jersey law. See Azze v. Hanover Ins. Co., 336 N.J. Super. 630 (App. Div.) (applying the Peloso doctrine to claims made on a homeowner's insurance policy, and addressing the issue of when coverage has been unequivocally denied), certif. denied, 168 N.J. 292 (2001).

Lloyd's seeks to distinguish this case from Peloso by emphasizing that its policy's period of limitations is twice as long as the twelve-month period required by N.J.S.A. 17:36-5.20 and discussed in Peloso. Lloyd's argues that the length of the limitation period is key to the fairness concerns discussed by the Court in Peloso.

Following the rationale of the Peloso Court for tolling, we see no basis to distinguish between a one and a two-year tolling period. The Court in Peloso construed the period of limitations as intending "to give the insured a clear 12 months to institute suit." Peloso v. Hartford Fire Ins. Co., supra, 56 N.J. at 520. In reaching this conclusion, the Court stated:

There obviously is an incongruity in the statute [N.J.S.A. 17:36-5.20]. 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 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 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.

[Id. at 520-21.]

While Peloso was concerned with a twelve-month contractual limitations period required by statute, its equitable tolling principles, often referred to as the Peloso doctrine, have been read broadly to apply to contractual limitations in property insurance policies, contrary to Lloyd's narrow interpretation. Peloso presents one of the two ways courts have treated these limitations periods, explained as follows:

Two divergent interpretations of suit limitation provisions have emerged. Some courts strictly interpret the suit limitation provision, holding that the limitation period begins to run on the date of loss. Other courts have recognized the princip[le] of equitable tolling. Under the most common tolling theory, the suit limitation period is tolled from the time the insured gives notice of the loss to the insurer until the insurer formally denies liability. The New Jersey Supreme Court first recognized the equitable tolling doctrine in Peloso v. Hartford Fire Insurance Co.

[Azze v. Hanover Ins. Co., supra, 336 N.J. Super. at 636 (quoting Scott G. Johnson, The Suit Limitation Provision and the Equitable Tolling Doctrine, 30 Tort & Ins. L.J. 1015, 1017 (1995)).]

The Peloso doctrine sets forth the minority view permitting tolling of contractual limitations. FDIC v. Hartford Accident & Indem. Co., 97 F.3d 1148, 1150 (8th Cir. 1996). As one circuit court explained:

[A] minority of courts [] have used the concept of tolling to enlarge [] contractual time limitations. See, e.g., Peloso v. Hartford Fire Ins. Co., 56 N.J. 514, 519 (1970); Prudential-LMI Comm. Ins. Co. v. Superior Court, 798 P.2d 1230, 1232 (Cal. 1990); Ford Motor Co. v. Lumbermens Mut. Cas. Co., 319 N.W.2d 320, 323-25 (Mich. 1982). The minority rule is premised on a perceived incongruity in insurance contracts that have time limitations. The perception of the incongruity stems from the fact that the insurance policy requires suit to be commenced within one or two years, but does not account for the delays either required by the policy or inherent in the claims process. These courts purport to reconcile this by "allow[ing] 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." Peloso, [supra, 56 N.J. at 521.]

. . . .

The majority of courts have refused to toll a limitation provision during the initial non-suit period or during the insurer's investigation. See, e.g., Ashland Fin. Co. v. Hartford Acc. & Indem. Co., 474 S.W.2d 364, 366 (Ky. 1971); Closser v. Penn. Mut. Fire Ins. Co., 457 A.2d 1081, 1085-86 (Del. 1983) (refusing to toll a limitations provision where insured was not prevented from complying with the provision); Suntrust Mtg., Inc. v. Georgia Farm Bureau Mut. Ins. Co., 416 S.E.2d 322, 323-24 (Ga. Ct. App. 1992) (refusing to toll the limitations period during the 60-day nonsuit period); Kelley v. Travelers Ins. Co., 458 N.E.2d 406, 407 (Ohio Ct. App. 1983) (rejecting tolling argument); Brunner v. United Fire & Cas. Co., 338 N.W.2d 151, 152 (Iowa 1983) (rejecting Peloso).

[FDIC v. Hartford Accident & Indem. Co., supra, 97 F.3d at 1150 (second alteration in original) (parallel citations omitted).]

We conclude that applying the Peloso doctrine to insurance policies with two-year limitations periods is in keeping with the philosophy of that decision. Pursuant to Peloso, if time to investigate and reach a final decision on a claim may not erode a twelve-month limitations period, then we see no reason why it should erode the limitations period on a contract intended to give the insured a two-year period of limitations.

Further, we note that in the context of a claim against a bond, the Court has applied the Peloso doctrine to two-year contractual limitations periods. See Nat'l Newark & Essex Bank v. Am. Ins. Co., 76 N.J. 64 (1978) (applying the Peloso doctrine to a twenty-four month limitations period for a claim on a fidelity provisions of a Banker's Blanket Bond).

We need not fix the exact parameters of the tolling period in this case. Even if the limitations period were tolled only from March 3, 2003, when Lloyd's received Northridge's notice of loss, until Lloyd's Undisputed Proof of Loss statement on July 16, 2003, a period of four and one-half months, the complaint is timely, since it was filed only two months after the limitations period expired.

The other arguments raised by Lloyd's in opposition to Northridge's tolling argument do not merit further discussion. R. 2:11-3(e)(1)(E).

We note that Northridge also argues that the umpire's award should be vacated and that the appraisal process should begin anew. These issues were raised in Northridge's summary judgment motions and were denied, the trial court finding material issues of fact. Since these questions are interlocutory, we will not address them at this time. See Franklin Med. Assocs. v. Newark Pub. Sch., 362 N.J. Super. 494, 512 (App. Div. 2003) (stating that a denial of a summary judgment motion is interlocutory).

The dismissal of the complaint is reversed, and the case is remanded for further proceedings.

 

(continued)

(continued)

11

A-4860-07T3

June 17, 2009