New York Court of Appeals Examines the Enforceability of a Contract’s Two-Year Suit Limitation Period

• Posted on: Dec 2 2024

By: Jeffrey M. Haber

In Farage v. Associated Ins. Mgt. Corp., 2024 N.Y. Slip Op. 05875 (Nov. 26, 2024) (here), the New York Court of Appeals examined the enforceability of an insurance contract’s two-year suit limitation period. In a 4-3 decision, written by Judge Madeline Singas, the Court held that the contract provision in the parties’ insurance agreement shortening the statute of limitations barred plaintiff from receiving payment for the restoration of her property that the fire had damaged.

On August 4, 2014, plaintiff’s multi-unit apartment building in Staten Island, NY was damaged in a fire. At the time, plaintiff had an insurance policy in effect with defendant Tower Insurance Company of New York. The policy provided, in relevant part, that an insured “may not bring a legal action against” the insurer under the policy unless: “a. [t]here ha[d] been full compliance with all of the terms of this insurance”; and “b. [t]he action [was] brought within 2 years after the date on which the direct physical loss or damage occurred.” Another portion of the policy provided: “We will not pay on a replacement cost basis for any loss or damage: ‘(i) Until the lost or damaged property is actually repaired or replaced’; and ‘(ii) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.’”

In July 2020, restoration of the property was completed, and plaintiff submitted an itemized invoice to her insurance carrier. On September 1, 2020, the carrier denied plaintiff’s claim.

On August 4, 2020—six years after the fire, and four years after the expiration of the contractual limitation period—plaintiff commenced an action, seeking the full replacement value of the property and coverage for lost business income and other damaged personal property. Plaintiff asserted causes of action against defendants Tower Insurance Company of New York, Tower Risk Management Corporation, Tower Group, Inc., Tower Group Companies, Castlepoint Insurance Company, AmTrust Financial Services, and AmTrust North America, Inc. (“Tower/AmTrust defendants”) for breach of contract and breach of the covenant of good faith and fair dealing.

Plaintiff alleged that “as a direct result of Tower/AmTrust’s bad faith conduct … restoration work was delayed for years.” Specifically, plaintiff asserted that “[g]iven the massive structural damage wrought by the fire, the restoration of [plaintiff’s] property would have been multi-year process [sic] under even the best of circumstances. Yet the bad faith conduct of Tower/AmTrust delayed the process even longer.” Further, alleged plaintiff, “because of Tower/AmTrust’s misconduct, it was not possible for [plaintiff] to complete the restoration of the property until July 2020.” Plaintiff gave three examples of Tower/AmTrust’s alleged misconduct. First, Tower/AmTrust refused to pay vendors’ invoices for initial remedial work, such as boarding windows and removing debris, which resulted in “liens on the property” and “prevented [plaintiff] from obtaining much needed financing for the seven-figure restoration costs.” Second, Tower/AmTrust “assigned a succession of claims adjusters, none of whom would take responsibility for the claims handling process” resulting “in months of delay and setting back the restoration process.” Finally, according to plaintiff, the Tower/AmTrust defendants “forbade [plaintiff] from even beginning the remediation until the property was inspected by the insurer’s expert, but delayed in sending the so-called expert, who in fact had no understanding of the engineering challenges posed by the structural damage.”

The Tower/AmTrust defendants moved to dismiss the action pursuant to CPLR 3211 (a) (1) and (7), asserting that the insurance policy’s two-year suit limitation provision barred the action. Plaintiff opposed the motion, arguing that the suit limitation provision was unreasonable and unenforceable under Executive Plaza, LLC v. Peerless Ins. Co., 22 N.Y.3d 511 (2014). Plaintiff asserted two additional facts—that the fire was a four-alarm fire and that the property damage was “caused both by the fire and the water used by the fire department to extinguish it”—but otherwise relied on the factual allegations in her complaint.

Supreme Court granted the Tower/AmTrust defendants’ motion to dismiss the complaint in its entirety and denied the broker defendants’ and plaintiff’s motions as moot. As pertinent here, the motion court held that the policy’s suit limitation provision “bar[red] plaintiff’s claims.” The motion court rejected plaintiff’s argument that the provision was unenforceable under Executive Plaza because plaintiff “failed to demonstrate sufficiently that she attempted to repair the Property within … two years” and she “did nothing to protect her rights as the suit limitation expired.”

The Appellate Division, First Department affirmed the order dismissing the complaint.[1] The First Department held that the Tower/AmTrust defendants conclusively established that the suit limitation provision barred the action, and Executive Plaza did not apply because plaintiff “failed to allege that she reasonably attempted to repair the property within the two-year limitations period but was unable to do so.”[2]

The Court granted plaintiff leave to appeal and affirmed the First Department’s order.

As an initial matter, the Court examined the standard of review for a motion to dismiss under CPLR 3211(a) (1) and (7). Under CPLR 3211(a) (1), which played an outsized role in the Court’s decision, the Court emphasized that “[s]uch a motion ‘may be appropriately granted only where the documentary evidence utterly refutes [the] plaintiff’s factual allegations, conclusively establishing a defense as a matter of law.’”[3] “Unambiguous contracts that can ‘be interpreted only in one manner’ may be the basis for a dismissal pursuant to CPLR 3211 (a) (1)”, said the Court.[4]

Next, the Court turned to the law governing suit limitation provisions.[5] “Suit limitation provisions that specify a ‘reasonable’ period, shorter than the statute of limitations, within which an action must be commenced are generally enforceable,” said the Court.[6] In that regard, the Court has held that “‘there is nothing inherently unreasonable about a two-year period of limitation’ in a case involving the same provisions at issue here: a two-year suit limitation provision and a condition precedent to the suit requiring complete replacement of the damaged property.’”[7] “Nevertheless,” said the Court, “the ‘period of time within which an action must be brought … should be fair and reasonable, in view of the circumstances of each particular case.’”[8]

In Executive Plaza, the plaintiff alleged “that it acted reasonably to replace the damaged building, but was not able to do so” within the two-year limitation period, detailing several steps taken within that period to restore the property. Answering a certified question from the United States Court of Appeals for the Second Circuit, the Court held that a suit limitation provision in an insurance policy is unreasonable where the policy requires total replacement before an action may be commenced but the damaged “property cannot reasonably be replaced within” the limitation period. Accordingly, a plaintiff seeking to nullify a suit limitation provision under Executive Plaza must demonstrate that the damaged property could not reasonably be replaced within the limitation period.

Against the foregoing principles, the Court held that “the Tower/AmTrust defendants met their burden of establishing, by reference to the contract’s two-year suit limitation provision, that the action was time-barred because plaintiff did not commence it within two years of the fire, utterly refuting plaintiff’s factual allegations.”[9] The Court found that “[n]othing in plaintiff’s response raised any issue as to whether the provision should bar her claims.”[10]

The Court further found plaintiff’s allegation that “[g]iven the massive structural damage wrought by the fire, the restoration of [plaintiff’s] property would have been [a] multi-year process under even the best of circumstances” to be conclusory and, therefore, not supportive of her allegation that the provision was unreasonable:

Here, plaintiff failed to allege actions that she took to complete the repairs within two years; she did not provide any details regarding the extent of the damage, other than that the damage was “massive” and the fire set off four alarms, or why complete restoration within two years was an impossibility. This bare-bones allegation stands in stark contrast to the plaintiff’s factual assertions in Executive Plaza. There, the plaintiff pleaded the specific remedial actions taken to restore the property, including retaining an architect and construction company, submitting a variance application, and seeking and obtaining building permits, which were not issued until 20 months after the property damage. Most importantly, that plaintiff provided that these remedial actions were taken within the limitation period. All of this information is notably absent from plaintiff’s pleadings and motion response here.[11]

The Court rejected plaintiff’s “attribution of the lengthy restoration” to the conduct of the Tower/AmTrust defendants because it lacked specificity “as to whether the property could be reasonably restored within two years.”[12] “Plaintiff’s allegation that ‘because of Tower/AmTrust’s misconduct, it was not possible for [plaintiff] to complete the restoration of the property until July 2020’ [was] patently conclusory,” said the Court.[13] The Court explained that plaintiff offered “no factual specificity as to the length of the resultant delay except for one allegation that the assignment of ‘a succession of claims adjusters … result[ed] in months of delay.’”[14] As such, concluded the Court, “plaintiff failed to sufficiently allege that Tower/AmTrust’s conduct made it impossible for her to reasonably complete restoration within two years of the fire.”[15]

Moreover, said the Court, plaintiff’s failure to “assert that she informed the Tower/AmTrust defendants at the expiration of the limitation period that the repairs could not be completed within the term specified in the contract, further undermin[ed] her claim that she could not do so.”[16] The Court noted that in Executive Plaza, the plaintiff had filed an action prior to the expiration of the limitation provision, and before the restoration had been completed, detailing the efforts taken to restore the property. By doing so, the plaintiff demonstrated that it was diligently, but unsuccessfully, working to satisfy the condition precedent.[17] By contrast, although plaintiff alleged that she “promptly submitted’ a claim to the Tower/AmTrust defendants after the fire and otherwise suggested that she was in contact with them during some of the restoration process, she failed to allege “when any of this contact allegedly occurred or what information she relayed to defendants regarding the circumstances giving rise to the impossibility of timely restoration.”[18]

The Court concluded that “[b]ecause plaintiff did not raise a question of fact as to the enforceability of the limitation provision, the Tower/AmTrust defendant’s motion to dismiss the complaint in its entirety pursuant to CPLR 3211 (a) (1) was property granted.”[19] Accordingly, the Court affirmed the First Department’s order.

Judge Jenny Rivera, writing for the dissent, in which Chief Judge Rowan D. Wilson and Judge Caitlin J. Halligan concurred, held that the insurance policy at issue did not utterly refute “any contention that plaintiff’s property could not reasonably be replaced within the two-year contractual limitation period.”[20]

Judge Rivera found that plaintiff’s allegations of obstructive conduct by the Tower/AmTrust defendants was sufficient to survive a motion to dismiss.[21] Judge Rivera found that the complaint “put defendants on notice that [plaintiff] intended to prove that her property could never have reasonably been replaced in less than two years and that Tower/Amtrust defendants’ conduct delayed replacement beyond that period.”[22] Moreover, said Judge Rivera, “by alleging that she ‘promptly’ began the process of replacing the property, and then describing what steps she took, plaintiff indicated how she intended to substantiate those claims.”[23] As a result, “[h]ad plaintiff met her ultimate burden,” said Judge Rivera, a court would be bound by Executive Plaza to hold that the two-year contractual limitation period was unreasonable and unenforceable.[24]

Having concluded that the Tower/Amtrust defendants did not meet their burden, Judge Rivera turned to the majority decision.

First, the dissent took issue with the majority’s holding that plaintiff’s allegations were conclusory:

Plaintiff’s allegation here is based on facts—massive structural damage due to fire—rather than on a legal proposition, doctrine or theory. Plaintiff never invoked the limitation provision in her complaint, let alone argue that it was unreasonable. Indeed, plaintiff never mentioned the “reasonableness” standard at all. Instead, it was defendants who invoked the limitations provision in their motions to dismiss.[25]

Second, the dissent claimed the majority ignored the principle that on a motion to dismiss, the courts must “‘accord plaintiff[ ] the benefit of every possible favorable inference.’”[26] Applying this standard to the majority’s finding that the complaint failed to detail the extent of the damage or explain why complete restoration could not be completed within two years, the dissent argued that “a favorable inference” could be drawn “that a four-alarm fire in a three-story building caused significant damage.[27] “That inference,” said Judge Rivera, was “supported by plaintiff’s allegation that the harm caused by this ‘catastrophic’ event ‘included structural damage caused both by the fire and [by] the water used by the fire department to extinguish it.’”[28] Judge Rivera added: “Of course, plaintiff would still have to establish that ‘complete restoration within two years was,’ reasonably speaking, ‘an impossibility.’”[29] “But at the pleading stage,” said the dissent, plaintiff “need only assert a viable claim, not prove it.”[30]

Third, the dissent took issue with the majority’s finding that plaintiff failed to plead that she undertook “specific remedial actions” “within the limitation period”.[31] Yet, when according every favorable inference to plaintiff, that is exactly what plaintiff had alleged, said Judge Rivera: that “she ‘promptly’ submitted an insurance claim for the property damage to the Tower/AmTrust defendants; that those defendants ‘forbade Ms. Farage from even beginning the remediation until the property was inspected by the insurer’s expert,’ but ‘delayed’ the inspection; and that the Tower/AmTrust defendants refused to pay vendors, prompting the vendors to ‘place[ ] liens on the property.’”[32] “When construed liberally and holistically, as our pleading standard requires,” concluded Judge Rivera, “these allegations portray plaintiff as acting dutifully to fulfill her contractual obligations in a timely manner.”[33]

The dissent also claimed that the majority’s finding that plaintiff’s allegation concerning the delay in restoration to be conclusory was beside the point: “under Executive Plaza, what matters is only whether the property could reasonably have been restored within the limitation period.”[34] “On a motion to dismiss,” said the dissent, “we must accept [plaintiff’s] factual allegation that defendants’ conduct caused delay, not her conclusion that it legally constituted misconduct or bad faith. And if the restoration would have been a ‘multi-year process’ no matter what, as plaintiff alleged, then even ‘months of delay’ would have prevented plaintiff from completing the restoration within two years.”[35]

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] 210 A.D.3d 470 (1st Dept. 2022).

[2] Id. at 471.

[3] Slip Op. at *2 (quoting Goshen v. Mutual Life Ins. Co. of New York, 98 N.Y.2d 314, 326 (2002) (citation omitted)).

[4] Id. (quoting Goldman v. Metropolitan Life Ins. Co., 5 N.Y.3d 561, 571 (2005)).

[5] Id.

[6] Id. (quoting John J. Kassner & Co. v. City of New York, 46 N.Y.2d 544, 551 (1979), and citing CPLR 201).

[7] Id. (quoting Executive Plaza, 22 N.Y.3d at 518).

[8] Id. (quoting id. at 519 (quoting Continental Leather Co. v. Liverpool, Brazil & Riv. Plate Steam Nav. Co., 259 N.Y. 621, 622-623 (1932) (Crane, J., dissenting)).

[9] Id. (citing Goshen, 98 N.Y.2d at 326).

[10] Id.

[11] Id. at *2-*3 (citing Executive Plaza, LLC v. Peerless Ins. Co., 717 F.3d 114, 115-116 (2d Cir. 2013); Executive Plaza, LLC v. Peerless Ins. Co., 2012 WL 910086, *1, 2012 US Dist. LEXIS 36174, *3 (E.D.N.Y., Mar. 13, 2012)).

[12] Id. at *3.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id. The majority was quick to note that it was not “suggest[ing] that a plaintiff seeking to defeat a suit limitation provision need file a premature action, but [it was observing that] had plaintiff here informed the insurer of the relevant circumstances during the limitation period and detailed that communication in her motion papers, she would have provided support to her claim that the suit limitation provision was unreasonable under these circumstances.” Id.

[19] Id.

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id. at *4.

[26] Id. (quoting Leon, 84 N.Y.2d at 87).

[27] Id.

[28] Id.

[29] Id.

[30] Id. (citation and footnote omitted).

[31] Id.

[32] Id.

[33] Id.

[34] Id.

[35] Id.