Homeowners Association Claim Filed in 2015 May be Covered by a Policy Ending in 1982

Usually the suit limitations provision in a policy dictates when a suit to recover can be filed. However, recently the Federal District Court of Washington held that under certain circumstances that is not necessarily true. In Holden Manor v. Safeco,1 the trial court refused to dismiss a homeowners association’s coverage suit as untimely, notwithstanding the fact that the suit was filed in 2015 and sought coverage under a policy that ended in 1982.

Background: Construction of the Holden Manor Condominium was completed in 1979. The Holden Manor Homeowners Association (“HOA”) purchased an all-risk policy from Safeco which covered the condominium from August 27, 1980 to August 27, 1982. The policy provided a one-year suit limitations provision and stated that the policy “applies only to loss to property during the policy period.” The HOA submitted a claim to Safeco on September 5, 2014, where it asserted that “the Safeco policy may provide coverage for the cost of repairing hidden damage … caused by rainwater intrusion by wind-driven rain.” The HOA further asserted that “Safeco’s policy provides coverage for the cost of repairing portions of the building that are at risk of collapse.” During invasive testing performed in late 2014—early 2015, the HOA’s expert concluded that “wind driven rain began to have an impact on wall assemblies and cause damage from the time the building was completed.” Safeco denied coverage in August, 2015 and the HOA filed suit on September 16, 2015. Safeco moved to dismiss on summary judgment arguing that the HOA’s suit is untimely as a matter of law. The court disagreed and denied Safeco’s motion.

HOA’s position: The HOA argued that the loss was hidden damage from wind-driven rain due to faulty-construction and this loss had been present (albeit hidden) since the community’s completion. The HOA argued that the “one-year suit limitations clock did not start running until its loss was exposed during invasive testing on Holden Manor in 2014.”

Insurers’ position: Defendants argued that because the policy required the HOA to sue within one year after the loss occurred, the HOA’s suit was time-barred, given that the policy ended in 1982 and suit was filed in 2015.

Decision: The trial court relied primarily on two cases: Panorama2 and Queen Anne,3 both of which dealt with homeowners associations in similar positions as Holden Manor. In Panorama, which had a one-year suit limitation, the court held that “one year after a loss occurs” does not mean “one year after the loss began,” but one year after the loss concluded or was exposed, whichever comes first.” The Queen Anne court affirmed the Panorama holding. In Queen Ann, it was discovered that the building’s siding was leaking 11 years after its policy expired and filed suit two years later. There, because the policy had a two-year suit limitations, the court held that suit was timely.

Here, the court rejected Defendants’ attempt to limit the Panorama and Queen Anne holdings to policy that cover “collapse caused by hidden decay” and that because the HOA’s policy did not provide such coverage the HOA’s suit remained untimely. The court, relying on Eagle Harbour,4 stated that “where an insurance policy’s suit limitations period hinges on the date a loss “occurs,” the Panorama holding applies regardless of whether the policy makes “the hidden nature of damage a prerequisite to coverage.” The court clarified that “where a policy’s suit limitations period relies on the date a loss “occurs,” all of that policy’s covered losses may be sued on within one year of the date they are exposed or concluded, regardless of whether they are “hidden.” On the issue of “Express Coverage for Hidden Decay” the court concluded that the HOA’s suit was “not time-barred,” stating:

Because the Safeco policy insured against “all risks,” it must be construed as covering risks of loss due to hidden damage or decay, since they were not expressly excluded. Therefore, Defendants have failed to prove that, as a matter of law, the [HOA’s] policy with Safeco did not cover the losses alleged exposed in 2014.

This decision is of paramount importance to all condominium and homeowners’ associations. While this case may be an extreme in terms of the length of time that hidden damage may fester and prolong coverage, it shows the importance of not accepting a denial as being final and creative and passionate advocacy. If your association discovers old damage, make sure to consult with a claims professional to see what avenues may be available for you.

1 Holden Manor Homeowners Ass’n v. Safeco Ins. Co. of America, No. C15-1676 JCC (W.D. Wash. June 16, 2016).
2 Panorama Vill. Condo. Owners Ass’n Bd. of Directors v. Allstate Ins. Co., 144 Wash. 2d 130, 135 (2001).
3 Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., 2012 U.S. Dist. LEXIS 160592 (W.D. Wash. Nov. 8, 2012).
4 Eagle Harbour Condo. Ass’n v. Allstate Ins. Co., 2016 U.S. Dis. LEXIS 15791 (W.D. Wash. Feb. 9, 2016).

More Confusion of Florida's Statute of Limitations for Property Insurance Claims

On May 17 of this year, Florida Governor Rick Scott signed into law Senate Bill 408, which, among other things, shortened the statute of limitations for property insurance claims in Florida to five years from the date of the loss. Under the earlier Florida Statutes § 95.11 and § 95.031, the statute of limitations did not expire until five years after a property insurer had breached the insurance policy. The Senate Bill 408 change came roughly five and a half years after Hurricane Wilma destroyed an enormous amount of Florida property, and the change left many questioning whether they could still seek redress for these claims.

These questions, mixed with legal arguments of retroactivity, have led to confusion as to which statute of limitations applies to a property insurance claim. Just over one month after Governor Scott signed Senate Bill 408, the Florida Supreme Court published an opinion that addressed the relationship between the insurance contract and statutes. In Florida Ins. Guar. Ass'n, Inc. v. Devon Neighborhood Ass'n, Inc., 36 Fla. L. Weekly S311 (Fla. June 30, 2011), the Florida Supreme Court reaffirmed its earlier decision in Menendez v. Progressive Exp. Ins. Co., Inc., 35 So.3d 873, 876 (Fla. 2010), which held, “we look at the date the insurance policy was issued and not the date that the suit was filed or the accident occurred, because ‘the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.’” (Emphasis added).

Applying this legal standard to Senate Bill 408, the old statute of limitations applies to insurance policies executed on or before May 16, 2011. The new statute of limitations applies to insurance policies executed on or after May 17, 2011.

Recently, the Southern District of Florida was faced with this statute of limitations issue in View West Condo. Ass'n, Inc. v. Aspen Specialty Ins. Co., No. 11-20423-CIV, 2011 WL 3704782 (S.D. Fla. Aug. 23, 2011). In View West, the plaintiff’s cause of action involved property damage from Hurricanes Katrina and Wilma. The plaintiff filed its action for Katrina damages more than five years after the date of the storm. Instead of looking to the statute that applied when the policy was issued as the Florida Supreme Court requires, the Court looked to the statute that applied at the time the cause of action was filed and dismissed the claim with prejudice. The Court stated:

After passage of SB 408, the limitations period unequivocally runs from the date of the loss. Here, the date of the loss was August 25, 2005. Plaintiff filed this lawsuit on October 23, 2010, and waited until July 11, 2011 to amend its complaint to add a claim for breach of property insurance contract based upon Hurricane Katrina damages. Because Plaintiff brought its Hurricane Katrina Claim more than five years after the date of the loss, the claim is barred by the statute of limitations.

This analysis runs contrary to the Florida Supreme Court’s rulings in Menendez and Devon Neighborhood.

From the opinion, the footnotes, and the memoranda filed in the case, it appears that statutory retroactivity and equitable tolling of the statute of limitations were considered by the View West parties and Court, but neither party cited the legal precedent recently reaffirmed by the Florida Supreme Court. Unfortunately, this opinion will likely lead to more confusion on the issue.

Court Analyzes Whether A Statute of Limitations Issue is Ripe

Last week in Can Insurers, Through Written Statements, Waive A Statute Of Limitations Defense?, I wrote about how Florida’s five-year statute of limitations applicable to the 2004 and 2005 hurricanes can be difficult to determine because it begins on the date an insurer breaches an insurance contract. Last week’s post discussed how the U.S. District Court for the Middle District of Florida held that the statute of limitations defense can be waived by insurers through written statements. The Southern District recently analyzed whether a claim for declaratory relief related to a statute of limitations issue in a Hurricane Wilma case was ripe for determination.

In Summit Towers Condominium Association, Inc. v. QBE Insurance Corporation, the condominium association filed a lawsuit for breach of contract against QBE in Florida state court in October 2010, regarding a claim from Hurricane Wilma. The damaged property consisted of two twenty-five story buildings (567 units) and a three story parking garage. The association submitted an insurance claim to QBE, and QBE denied the claim in November 2005, asserting that the damages would not exceed the hurricane deductible of nearly $2 million. Summit Towers claimed the damages of approximately $11 million.

QBE removed the case to federal court and contested a count of the complaint which sought a declaration from the Court on the date that QBE breached the insurance contract, and the date the statute of limitations began to run.

The Court analyzed whether there was an actual dispute or controversy between the association and QBE surrounding the facts related to the statute of limitations. The court cited a case from the Eleventh Circuit Court of Appeals which stated:

[A] justiciable controversy is . . . distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot.

The Court explained that the statute of limitations is an affirmative defense which must be specifically pled and QBE had not yet raised a statute of limitations defense in the case. The Court ruled that,

If QBE has not raised the defense, there can be no ‘dispute’ that a declaratory judgment will resolve.

A unilateral concern, without a contrary position asserted by QBE, was apparently one of the decisive factors for the Court in ruling that the statute of limitations issue was not ripe for determination.

As this case and last week’s reveal, determining the date the statute of limitations begins to run in Florida is a fact specific analysis.

New Changes to Florida Property Insurance Statute of Limitations

A statute of limitations serves to restrict access to the courts after a specified amount of time has passed. The reasons for such are many, but the underlying principle is simply that if you wait too long, you give up the opportunity to resolve your issue with the courts. The statute of limitations is created by the legislature, but the parties to a contract can also agree to limit the time to bring an action before a court of law. When this happens, a question often arises as to which controls, the statute or the contract.

In Lakeview Condo. Owner’s Ass’n v. Nationwide Mut. Ins. Co., No. 3:09cv543, 2011 WL 1453813 (N.D. Fla. Apr. 7, 2011), the condominium association’s insurance policy required that all legal action be brought “within 5 years from the date the loss occurs.” The condominium association had apparently suffered a termite related collapse loss to its property more than five years prior, and the insurer raised the contractual limitation on court action against the association. The court looked to the Florida statutes to determine whether the contract or the statute controlled:

Under Florida law, “[a]ny provision in a contract fixing the period of time within which an action arising out of the contract may be begun at a time less than that provided by the applicable statute of limitations is void.” Fla. Stat. § 95.03. Florida Statute § 95.11(2)(b) provides that an action on a contract founded on a written instrument must be brought within five years. A cause of action for breach of an insurance contract accrues at the time the insurer breaches its obligation to pay a claim rather than at the time of loss. Passman v. State Farm Fire & Cas. Co., 779 So.2d 323, 325 (Fla. 2d DCA 1999).

The policy provision upon which Defendants' eleventh affirmative defense is based requires an action to be filed not within five years from the date of breach but, rather, within five years from the date of loss. Where, as here, the date of loss antedates the date of breach, the provision contravenes Florida law by effectively reducing the otherwise applicable limitation period. Defendants' attempt to shorten the limitations period is thus void under § 95.03. See Palma Vista Condo. Ass'n of Hillsborough County, Inc. v. Nationwide Mut. Fire Ins. Co., No. 8:09–CV–155–T–27EAJ, 2010 WL 4274747, at *6 (M.D.Fla. Oct.7, 2010) (finding the identical provision in a Nationwide policy unenforceable under § 95.03).

The court held that the insurance policy’s provision that limited legal action to a period shorter than allowed by the relevant statute of limitations was void, and the condominium association was entitled to summary judgment in its favor on the issue.

While this decision is still fresh off the press, having been decided just over one month ago, important changes have since taken place to Florida’s statute of limitations for property insurance claims. On May 17, 2011, Governor Rick Scott signed new Florida legislation that changed the statute of limitations for property insurance claims to run “from the date of loss,” rather than from the date of the breach. While Fla. Stat. § 95.11 is changing, Fla. Stat. §95.03 is not, and any policy provision that attempts to shorten the time for legal action to less than five years from the date of loss will still be void in Florida.

For a thorough review of this and other major parts of this new Florida legislation, check out Chip Merlin’s analysis over on the Property Insurance Coverage Law Blog.

Time Is Of The Essence For Associations

The story goes like this: A condominium association in South Florida incurred damage during Hurricane Wilma. The association called its insurer, which sent an insurance adjuster to inspect the damage.  The adjuster determined that the damages were below the deductible. The association's board of directors considered re-opening the claim while there is still time. Based on unit owner complaint, the Board recently discussed hiring insurance professionals to determine whether the condominium sustained more extensive damage than that found by the insurance company’s investigation. Unit owners within the association have expressed their feelings that it is imperative to conduct this investigation before it is too late. The unit owners have even threatened to sue the board for its inaction if the appropriate steps are not taken.

This is a scenario that can occur with any condominium association. On May 17, 2010, my post, Condominium and Homeowner Associations’ Fiduciary Duties Particularly in Light of Approaching Statutes of Limitation, discussed an association board’s duties to ensure they have covered the bases in investigating a potential re-opening of an insurance claim before it is too late.

I am writing about this scenario again because it seems to be prominent in board members' discussions as the five year anniversary of Hurricane Wilma (October 24, 2010) approaches. There is still some time for re-evaluation. As my father used to say to me “Don’t worry about what you need to do, just go do it.”

It is better for a board to take action now while there is time and know whether there is a basis to re-open a claim. This knowledge will allow for an informed decision before it is too late and can potentially avoid a lawsuit for breach of  fiduciary duties.

Associations with concerns should consult with experienced insurance professionals immediately to ensure they do not miss the deadline.

Associations Should Mark October 24, 2010 On The Calendar

In a recent post on Property Insurance Coverage Law Blog, Jeremy Tyler discussed general issues with the statute of limitations for filing lawsuits. As Jeremy correctly pointed out, the statute of limitations is a legal deadline for filing a lawsuit. If a lawsuit is not filed before the statute of limitations has expired, the lawsuit may be barred, despite the merits of the action. Complying with the statute of limitations is extremely important, and any association that suffered damages from Hurricane Wilma should pay close attention to the status of its claim and immediately make decisions on how to best proceed.

In Florida, an action for breach of contract has a five year statute of limitations. Thus, the insured has five years to commence an action for breach of contract or the suit may be barred. While there certainly are exceptions to this rule, the main question that arises in the context of an insurance dispute is when the five year statute begins to run.

Insurance companies generally argue that the five year statute begins to run from the date of loss, i.e. the date the storm caused damage to the property. In some states like North Carolina and Wisconsin, this position is correct. In Florida, however, courts have generally held that the statute of limitations for breach of an insurance contract runs from the date that the insurer breached the contract. Therefore, the proper beginning of the five year timeframe should be the date the insurer breached the contract by failing to pay the amounts owed.

While the timeframe for filing a claim for breach of an insurance contract may seem clear in Florida, there are a number of other factors that need to be considered. Because most associations and board members are not familiar with insurance law, they may not realize when the breach actually occurs. Similarly, there can be issues raised with supplemental and re-opened claims that may cause the statute of limitation to run sooner than the policyholder thinks.

Hurricane Wilma was one of the most destructive hurricanes to hit the State of Florida. Many associations in southern portions of the state were significantly damaged. As the five year anniversary of Wilma approaches, associations should mark October 24, 2010 on the calendar. If you feel that you have not been properly paid for your damages, currently have an open claim being investigated, or are involved in an appraisal with the insurance company, I strongly suggest contacting an insurance coverage attorney now to ensure that your rights are protected. Waiting until it is too late may leave even the strongest claims unrecoverable.