Urgent Considerations with Harvey, Irma, and Maria Suit Limitations Deadlines Approaching Commercial Property and Business Interruption insurance policies customarily include suit limitations clauses to protect the insurer against lawsuits. These clauses may be found buried amid general conditions in the property form or in an endorsement. Their sole purpose is to shorten the otherwise longer statute of limitations and hinder your organization’s ability to challenge your insurance company’s decision not to fully pay your organization’s insured loss. Savvy risk managers, lawyers, and insurance professionals should keep these hidden, sometimes tricky, exclusions top of mind over the summer months as it is the two-year anniversary of the destructive 2017 hurricane season.

1. Suit Limitations Clauses Are Generally Enforceable in Texas, but Puerto Rico and Florida Offer Better Protection for Policyholders

While each U.S. state and territory may apply different rules regarding enforceability of suit limitations clauses, it sometimes comes as an unpleasant surprise to policyholders that most jurisdictions uphold suit limitations clauses. For example, in Texas, suit limitation clauses are enforceable as long as the limitation is not less than two years. If the suit limitations clause is less than two years, the provision is void as a matter of law. Then and only then will a Texas court apply either the longer statutory limitations period for breach of contract (four years from the date of breach) or a two-year contractual limitations clause if the policy contains a “savings clause.”

In Florida, suit limitations clauses are prohibited by statute, however, even if your damaged location was in Florida, you should not assume that Florida law will necessarily apply. Counsel can be helpful in working with your risk management department to determine (i) the correct deadline and (ii) what state’s law will control. Your insurer may argue that Florida law does not apply so that it can attempt to enforce a suit limitations clause. There are still potential risks posed by a suit limitations clause in your insurance policy.

Until recently in Puerto Rico, suit limitations clauses as short as one year were enforced by courts. However, in late 2018, the Puerto Rican legislature retroactively amended the insurance code to allow the informal, extra-judicial tolling of the applicable limitations period through the submission of a written claim. The same law also allowed for appraisal of property losses, which were previously prohibited under Puerto Rican law. The Supreme Court of Puerto Rico recently confirmed that this amendment was retroactively applicable to property damage and business interruption claims from Hurricanes Irma and Maria. Similar to Florida, however, insurers may attempt to circumnavigate favorable Puerto Rican law by seeking to apply the law of a different jurisdiction.

So, while there are potential exceptions, you should treat the suit limitations clause in your insurance policy as an absolute bar to avoid any potential disputes down the line.

2. Calendar the Earliest Possible Suit Limitations Date

While specific policy language can vary significantly depending on your specific policy language, let’s assume your organization’s policy runs two years from the date of loss:

  1. Hurricane Harvey – August 26, 2019 (Texas and Louisiana)
  2. Hurricane Irma – September 9, 2019 (Barbuda, Saint Martin, and Virgin Gorda); September 10, 2019 (Florida, Georgia and South Carolina)
  3. Hurricane Maria – September 19, 2019 (Windward Islands, Dominicana and Guadeloupe); September 20, 2019 (Virgin Island, Puerto Rico, and the Dominican Republic); September 26, 2019 (North Carolina)

3. Use a Tolling Agreement to Protect Your Rights

While suit limitations clauses can be a potential bar, filing a lawsuit in advance of a pending limitations deadline is typically unnecessary. In many jurisdictions, including those affected by Harvey, Irma and Maria, by agreement of both parties they may contractually agree to “toll,” or pause, the applicable limitations period to allow for further negotiations and adjustment.

That said, there are multiple factors to consider before entering into a tolling agreement: (1) length of tolling period; (2) renewal process for extending tolling period; (3) process for terminating tolling agreement if negotiations fail; and (4) which claims will be subject to the tolling agreement (i.e., breach of contract claims only or bad faith claims as well). Additionally, depending on where your organization is located, counsel can be engaged to assist with the analysis of specific laws or procedures that impact the terms and conditions of your tolling agreement. Finally, even in cases where you believe that a suit limitations clause is not an issue, either because the provision may be unenforceable or because of an informal tolling process, seeking a written tolling agreement is preferable to mitigate the risk that a court will apply the law of a different, less favorable jurisdiction.

Suit limitations clauses are a trap for the unwary to limit or bar your organization’s insurance recovery, but by being aware of applicable laws, calendaring pending limitations dates, and protecting your organization’s rights through tolling agreements, policyholders can mitigate the impact of these potentially troublesome provisions.

Christine Davis Named to General Council of Tort Trial and Insurance PracticeWe are pleased to announce that Christine Davis, an attorney on our Policyholder Insurance Coverage team in Washington, D.C., was recently selected to serve a three-year term as a member of the General Council of the Tort Trial and Insurance Practice Section (TIPS) of the American Bar Association, beginning in August 2019.  The General Council is the section’s governing body, which oversees the work of the section to maintain its prominence in relevant fields and provide invaluable benefits to its members.

Election to the General Council is a competitive process that can only be attained after years of hard work and proven commitment to the section. Christine’s election to the council is recognition by her peers of her contributions to the section and the legal profession to date.

Christine has been an active member of TIPS since she was selected as a TIPS Fellow over a decade ago. During that time, she served in various leadership roles, including as chair of the Business Litigation Committee. In her tenure as chair, the Business Litigation Committee was selected for the Award of Excellence, which is given to the top-performing committee of roughly 35 working committees.  Christine is also vice chair of various other committees, including the Insurance Coverage Litigation Committee and the Women Trial Lawyers Committee.

Christine is currently editor-in-chief of the Tort Trial and Insurance Practice Law Journal, the section’s premier law journal, which presents scholarly articles on timely and pertinent tort and insurance issues. She is also the current executive editor of TortSource, another of the section’s publications that presents readers with timely information on legal developments in the tort and insurance fields. Christine is herself a frequent contributor of articles on insurance coverage issues.

With nearly 20 years of experience in the insurance coverage field, Christine has advised corporate policyholders in all stages of coverage disputes, ranging from informal negotiation, formal mediation and arbitration, to litigation and appeal. She also has considerable experience in claims handling issues and insurance placement.  Christine can be reached at cdavis@bradley.com.

It’s a Bird! It’s a Plane! But Is It Insured? California Case Reinforces Importance of Liability Coverage for Drone OperationsAs the popularity and diverse nature of drones increase, the liability risks associated with drone operations increase as well. A California federal judge recently held that a standard CGL aircraft exclusion barred liability coverage for injuries related to drone operations. The case arose out of a wedding reception gone wrong when a wedding photography company operated a drone to capture the big day. While the drone was hovering at eye level, a guest collided with the drone and sustained serious injuries, including loss of sight in one eye. The court found that the drone fell under the ordinary meaning of the word “aircraft” as defined in the Merriam-Webster’s Collegiate Dictionary, even though the policy did not define the term “aircraft.” The court ruled that the insurance company could recover the costs it spent defending the wedding photographer because the exclusion meant that the insurer did not have an obligation to defend the photographer against the suit filed by the injured wedding guest.

In a previous post, we advised against relying on the ambiguity of the term “aircraft” to avoid application of the aircraft exclusion in the standard CGL policy. The ambiguity argument has become all the more dangerous as courts like this one decide that a drone is an “aircraft.”

Reliance on a CGL policy becomes more problematic because many CGL policies explicitly exclude coverage for drones. For example, Commercial General Liability Form CG 21 09 06 15 excludes coverage for an “unmanned aircraft,” which is defined as an aircraft that is not designed, built, or modified to be directly controlled by person on or in the aircraft.

CGL policies can provide liability coverage for drone operations by endorsement. Commercial General Liability Form 24 50 06 15 provides coverage for an unmanned aircraft. Coverage A provides coverage for bodily injury and property damage, while Coverage B provides coverage for personal and advertising injury. You may purchase either coverage or both.

A CGL policy does not provide property coverage for the drone or its cargo; it provides liability coverage only. Commercial Property Form 04 14 12 16 protects drones that you own, rent or lease if you have a contractual obligation to provide insurance. This endorsement is appropriate for a drone if you are not transporting cargo. If you choose to endorse your standard policy with this form, carefully describe your operation in its entirety in the schedule to procure complete coverage. Commercial Inland Marine Form IH 00 61 01 16 is a separate form that covers cargo, but its coverage is limited because it lacks business interruption coverage.

A specialty drone policy generally provides liability coverage for drone operations, as well as property coverage for the drone itself. Because specialty policies are customizable, you can select what coverage you want. Both annual policies and on-demand policies are available. On-demand policies provide time-limited coverage for specific operations, while annual policies provide coverage throughout the policy period. Insurance companies offering specialized drone policies tout their comprehensive coverage for those companies that regularly utilize drones. Both new entrants into the insurance market as well as traditional aviation insurance companies are rushing to provide this coverage, thus expanding coverage options for drone operators.

For more information on drone coverage, please view our webinar.