Member Article

Many commercial property policies offer insureds the option to recover the “replacement cost” of lost or damaged property, but only if the property is actually repaired or replaced. If the property is not replaced, the insured may only be entitled to recover the “actual cash value,” i.e., the replacement cost less depreciation. In Executive Plaza, LLC v. Peerless Insurance Company, a similar policy condition requiring replacement of damaged property conflicted with a separate policy term stating that no action could be maintained against the insurer unless brought within two (2) years after the date the loss or damage occurred.

Despite Executive Plaza’s efforts, damage caused by a 2007 fire to an office building could not reasonably be replaced within two years of the loss. When Executive Plaza filed suit to preserve its “replacement cost” claim on the second anniversary of the fire, Peerless successfully moved to dismiss the suit as premature. When Executive Plaza re-filed suit upon completion of the repairs, Peerless again successfully moved to dismiss the suit as untimely.

Ultimately, after the issue was certified by the Second Circuit Court of Appeals, New York’s high court held that, while a two-year limitations period is not inherently unreasonable, “a ‘limitation period’ that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim.” Recognizing the conflicting obligations created by the policy’s terms, the court reasoned that a suit that is too early on the last day of the limitations period cannot be too late only a day later.

Insureds must continue to act reasonably to comply with otherwise enforceable contractual limitations provisions. For those faced with the Hobson’s choice illustrated in Executive Plaza, the Court’s decision provides some common-sense relief, with which policyholders should be familiar. More broadly, the Court’s opinion also serves as an important vindication of the general rule that when policy terms conflict, the resulting uncertainty must be resolved in favor of coverage for the insured.