In the State of New Jersey, breach of contract claims are subject to a 6-year statute of limitations. However, this often changes in the context of homeowners’ insurance policies. Often, those policies contain provisions which provide that any suit against the insurer must be initiated within one year of the date of loss. Other policies provide that any suit against the insurer must be initiated within one year of the insurer’s denial of the claim.
The enforceability of shortened limitations clauses contained in insurance policies was first addressed in Weinroth v. N.J. Mfrs. Ass’n Fire Ins. Co., 117 N.J.L. 436 (E. & A. 1937). In Weinroth, the Court upheld a provision in an automobile insurance policy which required that any suit against the insurer be brought within 90 days of the insurer’s denial of coverage. Because the insured did not file suit until 106 days after the insurer denied coverage, his claim was dismissed.
Thirty-one years later, the Appellate Division applied Weinroth’s holding in the context of a homeowners’ insurance policy. In Staehle v. American Employers’ Ins. Co., 103 N.J. Super. 152 (App. Div. 1968), the homeowners’ insurance policy at issue provided that any suit against the insurer must be commenced within twelve months of the inception of the loss. Because the insured did not initiate suit until 1 year and 6 days after the loss, the Court affirmed the grant of summary judgment in favor of the insurer. In doing so, the Court noted that “the New Jersey rule [enforcing shortened limitations clauses] seems to be the one followed in the majority of the states.”
Since Weinroth and Staehle, the courts of New Jersey have continued to enforce 1-year limitations provisions contained in insurance policies and other contracts. See, e.g., Azze v. Hanover Ins. Co., 336 N.J. Super. 630, 636 (App. Div. 2001) (noting that the 6-year statute of limitations for contract actions “may be shortened by the terms of an insurance contract”); Peloso v. Hartford Fire Insurance Co., 56 N.J. 514 (1970) (enforcing a 1-year limitations period contained in a fire insurance policy); PPG Indus., Inc. v. American Home Assur. Co., 2007 N.J. Super. Unpub. LEXIS 1494 *27 (App. Div. 2007) (quoting Weinroth and noting “the validity of suit-limitation clauses in insurance policies has long been recognized in this state”).
In calculating the limitations period under an insurance policy, it is important to note that the shortened limitations period does not necessarily run uninterrupted from the date of loss. This is particularly so where the insurer spends some time investigating the claim before issuing a denial. This situation was addressed in Azze, citing the Supreme Court of New Jersey’s prior decision in Peloso. There, the Azze court noted as follows:
In Peloso…the Court determined that contractual limitation provisions should not be read literally, with the one-year period running uninterrupted from the date of the loss. According to the Court, such a reading of these provisions would be unfair, because it would allow, in effect, a ticking away of the limitations period while the insurance company investigated the loss. Peloso stated that:
The fair resolution…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 is given effect; the insured is not penalized for the time consumed by the company while it [investigates the loss]; and the central idea of the limitation provision is preserved since an insured will have only 12 months to institute suit.
The Azze court noted that “from the passage above, it becomes evident that between the time the insured gives notice of loss and the time that the insurance company formally denies coverage, the statutory period is tolled,” or paused.
A case I recently handled provides a good example of how this is applied in practice. As in the above-referenced cases, the homeowners’ policy at issue required any lawsuit to be initiated within one year of the date of loss. The loss at issue occurred on May 20, 2022. However, the homeowners did not report the loss until March 22, 2023 (306 days later). Our client, the insurer, investigated the loss and issued a partial denial letter on May 1, 2023 (40 days after the loss was reported). Thereafter, the homeowners did not file a lawsuit until July 26, 2023 (432 days after the date of loss).
Utilizing the above-referenced timeline, we argued that even after accounting for the tolling of the limitations period during the 40 days the insurer investigated the claim, it still took the homeowners 392 days to file suit (432 total days – 40 days to investigate and issue a denial = 392 days). Because that 392-day period exceeded the 1-year limitations period set forth in the policy, we argued that the homeowners’ lawsuit was barred. The Court agreed and granted our Motion for Summary Judgment, dismissing the case.
The above example demonstrates that the proper calculation of a limitations period requires strict identification of the date of loss; the date the loss is reported; the date a clear, formal denial is issued; and the date a lawsuit is ultimately filed. Under appropriate circumstances, a policy’s shortened limitations period can be used to defeat an untimely filed lawsuit at the outset, saving time and resources.
