New York Homeowners’ Suit Against Insurer for Mold Damage Barred by Policy’s Suit Limitations Provision

Rejecting the homeowners’ argument that the insurer was equitably estopped from asserting a statute of limitations defense, the United States District Court for the Southern District of New York recently held that the two year suit limitations provision of the insurer’s policy barred the insured’s breach of contract action, which was not filed until almost nine years after the date of loss. In granting the insurer’s Motion for Judgment on the Pleadings, the court in Clement v. Farmington Casualty Company found that the insureds failed to prove any affirmative wrongdoing by the insurer that could meet the requirements of the doctrine of equitable estoppel.

In Clement, the insured brought suit against the insurer for breach of contract, bad faith and fraud after the insured failed to fully cover mold damage to their home. The mold damage resulted from an ice dam on the roof of the house, which allowed water to enter the home and led to mold growth. The homeowners filed a claim with the insurer, who retained the services of an engineer to inspect the property. The engineer concluded that the ice damming occurred due to the age of the roof and the lack of ice shields on the roof. The insurer did not provide a copy of the report to the insureds, but instead issued a two page summary of telephone conversations between the homeowners and adjuster. Subsequently, the insurer issued a partial denial letter and disclaimed coverage for damage to the roof caused by wear and tear.

Upon receiving the denial letter, the insureds filed suit against the former owners of the home. During that litigation, they subpoenaed the insurer for all documents related to their claim. The insurer did not produce the engineering report and the insured did not become aware of the content of the report until they subpoenaed the engineer directly. The insureds then brought suit against the insurer. While the insureds conceded that their breach of contract action was time-barred under the suit limitations provision of the policy, they argued that the insurer’s actions in fraudulently misrepresenting the cause of the mold growth in the partial denial letter equitably estopped the insurer from asserting a statute of limitations defense. The insurer argued that equitable estoppel did not apply because the insureds did not investigate any potential claims against the insurer following receipt of the denial letter.

The court agreed with the insurer and noted that equitable estoppel in the insurance context requires that the carrier engage in a course of conduct that lulls the policyholder into inactivity in the belief that its claim will be paid or where the insured is induced by fraud or misrepresentation to refrain from commencing a timely action. In this case, the court determined that the denial letter placed the insured on notice that only part of their losses would be covered. The insureds then commenced an action against the former owners, but failed to investigate any potential claims against the insurer. The court held that the insureds choice not to similarly investigate potential claims against the insurer could not support application of the equitable estoppel doctrine.

Accordingly, the court held that equitable estoppel was not inapplicable and that the insureds’ failure to file suit within two years after the date of loss rendered their breach of contract action untimely. Additionally, the court also dismissed both the bad faith claim and fraud claim because both causes of action were duplicative of the breach of contract claim and could not be supported under New York law.