October 14, 2015
Insurance Law Alert
Author(s): Kurt M. Mullen
This alert was co-authored by Julianna Malogolowkin.
The intermediate Massachusetts Appeals Court recently settled some uncertainty concerning when the two-year statute of limitations for losses under a standard fire insurance policy is triggered, concluding that the statute begins to run from the date that the loss occurs, not from the date that the loss reasonably should have been discovered. In reaching this conclusion, the Appeals Court appears to have limited the discovery rule in Massachusetts only to statutes of limitation referring to when the loss “accrued.” By contrast, the statute of limitations in the Massachusetts standard fire insurance policy (Mass. Gen. Laws c. 175, § 99) is triggered when the loss “occurred.”
The facts that the Appeals Court found relevant in Nurse v. Omega US Insurance, Inc., 2015 WL 5774390 (Oct. 5, 2015), were undisputed. The policyholder’s building was damaged when a plumbing joint failed on December 18, 2009, resulting in the release of thousands of cubic feet of water into the building. Because the building was vacant, the policyholder did not discover the damage until ten days later, on December 28, 2009, when he was notified by the local water and sewer commission of a large spike in the building’s water usage.
Following the insurer’s denial of the claim, the policyholder filed suit on December 28, 2011, exactly two years after the water and sewer commission had notified him of the increased water usage. The Superior Court granted the insurer’s summary judgment motion, concluding that the discovery period did not toll the two-year statute of limitations.
The Appeals Court agreed. While the Appeals Court recognized that the discovery rule had been applied to toll the statute of limitations in certain circumstances, such as medical malpractice, fraudulent misrepresentation or a negligent title search, the court reasoned that the limitation period in those circumstances referred to when the cause of action “accrued.” By contrast, the standard fire insurance policy’s statute of limitations is two years “from the time the loss occurred . . . .”
While the Appeals Court concluded that this statutory language was clear, it also determined that the majority of earlier courts applying the statute of limitations in the standard Massachusetts fire insurance policy likewise concluded that the triggering event was the occurrence, not the insured’s discovery of the loss. This included a decision by the state’s highest court, the Massachusetts Supreme Judicial Court, in J&T Enterprises, Inc. v. Liberty Mutual Ins. Co., 384 Mass. 586 (1981), in which it was unclear when the policyholder first learned of the loss.
The Appeals Court noted, however, that a federal district court judge applying Massachusetts law in Mulhern v. Philadelphia Indemnity Ins. Co., 802 F. Supp. 2d 317 (D. Mass. 2011), concluded that the discovery rule would toll the statute of limitations under the standard fire insurance policy where the damage occurred gradually. Likewise, the Appeals Court noted that while some jurisdictions have strictly applied a statute of limitations for insurance claims to be from the time that the loss occurred, others have applied the discovery rule where the claim is based on a “nonobvious injury or loss.” Compare Sager Glove Corp. v. Aetna Ins. Co., 317 F.2d 439, 441 (7th Cir. 1963) (applying Illinois law) (concluding a statute of limitations of “twelve months next after inception of the loss” was clear and therefore, “the loss occurs and has its ‘inception’ whether or not the insured knows of it”), with Prudential-LMI Commercial Ins. Co. v. Superior Court, 51 Cal. 3d 674, 678 (1990) (concluding a statute of limitations of “within 12 months after inception of the loss” did not bar the policyholder’s suit filed one and one-half years after the discovery of damage as a matter of law because “date of inception of the loss” should be interpreted to mean the point in time when appreciable damage occurs and is or should be known to the insured).
While the insurance industry may expect policyholders to continue to argue that the discovery rule should apply to claims under the Massachusetts standard fire insurance policy where the loss was gradual, the Massachusetts Appeals Court’s reasoning in Nurse appears to foreclose that argument.
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