A federal district court in New Jersey, in a Superstorm Sandy coverage case, has ruled thata homeowner’s insurance company’s letter to its insureds amountedto an unequivocal denial of benefits for purposes of the policy’ssuit limitations period, even though it also referenced benefitsthat would be paid, did not use the word “denial,” did notreference the policy’s suit limitations period, and noted that theinsureds could appeal.

The Case

On October 29, 2012, the home owned by Robert and Jamie Ryan at 26Buttonwood Lane in Rumson, New Jersey, was damaged by SuperstormSandy.

The next day, the Ryans notified their homeowner’s insurancecarrier, Liberty MutualFire Insurance Company, that the entire main floor of theirhome had been damaged by Sandy.

On November 15, 2012, an independent adjuster retained byLiberty Mutual inspected the Ryans’ home. A second inspection wasconducted on November 29, 2012.

On November 30, 2012, Liberty Mutual mailed a letter to theRyans (the “benefits letter”) that explained the payment of policybenefits under their homeowner’s policy, and denied the Ryansbenefits for excluded flood damage.

Liberty Mutual determined that the Ryans were owed $4,784.14 fornon-flood-related damage caused by Sandy. It denied benefits forflood damage on the ground that the Ryans’ policy did not coverwater damage, and because Liberty Mutual previously had made apayment to the Ryans for damage to a living room wall during aprevious storm, but inspection revealed that they had not repairedthe wall. The letter stated:

We have completed our investigation ofyour claim.... Based on our investigation into your claim, weregret to inform you that the damage to your home’s flooring,contents in the home and the garage cannot be paid for at this timeas your policy does not afford coverage for water damage related toflood.... With respect to said damage, we have reviewed theadjuster’s report along with the loss settlement of a prior claimunder your Homeowner’s Policy, and as such, it appears repairs tothe living room wall have not been made. Likewise, no documentationhas been received verifying repairs were made to the living roomwall. If said property was repaired or replaced prior to10/29/2012, please advise and send us documentation verifyingsame.... Since payment for damage to living room wall has beenpreviously settled in accordance with the provisions [of thepolicy] but not since repaired or replaced, no payment under thisclaim can be made.

The letter also notified the Ryans that they could contactLiberty Mutual with any questions or additional “information whichmight be used to reconsider our coverage decision.”

Finally, the letter stated that Liberty Mutual had an internalappeals process, and provided contact information for submitting anappeal.

The Ryans received a copy of this letter by email on December10, 2012.

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That day, Ms. Ryan asked Paul Englund, a representative ofLiberty Mutual, for recommendations for a contractor to perform thenecessary repair work on their home, and thanked him in advance for“revisiting” the claim summary. Mr. Englund replied, offering tosend another Liberty Mutual claims adjuster out to the Ryans’ home.The Ryans also were provided with the names and addresses ofrecommended contractors.

Ms. Ryan responded to Mr. Englund, noting concern that nobenefits were paid for the garage, which was both flooded, and“damaged by the storm.” The Ryans apparently never provided LibertyMutual with any additional information regarding benefits fordamage to the garage.

On January 30, 2013, Ms. Ryan asked Liberty Mutual for a paymentletter setting out all homeowners’ benefits paid to the Ryans byLiberty Mutual for Federal EmergencyManagement Agency (“FEMA”) purposes. Liberty Mutual providedthe Ryans with a letter for this purpose.

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This Wednesday, Oct. 31, 2012 file aerial photo shows acollapsed house along the central Jersey Shore coast. (APPhoto/Mike Groll, File)

On March 5, 2013, Ms. Ryan notified Liberty Mutual via telephonethat she was going to send documentation supporting a claim for“additional living expense” homeowner benefits for pettransportation, airfare, food receipts, and “much more.” LibertyMutual advised Ms. Ryan to send the documentation to Liberty Mutualfor review, but it apparently was never sent.

Ms. Ryan contacted Liberty Mutual again on January 24, 2014,notifying the insurer that she would be sending a list of damageditems and invoices relating to the Ryans’ claim, but apparently nodocumentation was provided.

Alleged breach of contract, bad faith, violation of N.J.Consumer Fraud Act

The Ryans filed a lawsuit against Liberty Mutual on October 10,2014 alleging breach of contract, bad faith, and violation of theNew Jersey Consumer Fraud Act.

Liberty Mutual moved to dismiss, based on a provision in itshomeowner’s policy that required that any suit had to be filedwithin one year of the date of the loss.

Liberty Mutual asserted that the limitations period began to runon October 29, 2012, was tolled on October 30 when the Ryanssubmitted their claim, and then began to run again on December 10,2012, the date that it completed its factual investigation and paidthe Ryans the benefits that they were due. The insurer contendedthat the limitations period then ran without further tolling for 12months, until December 10, 2013, after which point the Ryans wereprohibited from bringing suit.

For their part, the Ryans argued that the letter they receivedon December 10, 2012 was not an unequivocal denial sufficient tostop the tolling of the statute of limitations.

The District Court’s Decision

The district court granted the Liberty Mutual motion.

In its decision, it found that the one-year suit limitationsperiod in the Ryans’ homeowner’s policy began to run on October 29,2012 – the date that Sandy damaged their home – and was tolled fromOctober 30, 2012 – the date the Ryans made a claim for homeowner’sinsurance benefits – until the date Liberty Mutual declinedliability.

It then decided that the benefits letter was an unequivocaldenial of coverage, which acted to restart the running of the suitlimitations period.

The district court found that the provision in the benefitsletter stating, “We regret to inform you that the damage to yourhome ... cannot be paid for at this time as your policy does notafford coverage for water damage related to flood,” was “clear anddirect in its denial of benefits. The language [was] as plain as itcould be.” The inclusion of a statement of benefits paid for winddamage did “not obscure” the denial, according to the districtcourt.

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The district court rejected the Ryans’ contention that thebenefits letter was ambiguous in its denial of benefits because theword “denial” did not appear anywhere in the benefits letter.According to the district court, all that was required was“unequivocal denial language.” It found that the statement in thebenefits letter that “we regret to inform you that the damage toyour home ... cannot be paid for at this time as your policy doesnot afford coverage for water damage related to flood,” was“synonymous with denial.” That the actual word “denial” did notappear was immaterial, the district court ruled. “Plain languagewith plain meaning [was] present,” it declared.

Next, the district court ruled that the benefits letter did nothave to refer to the policy’s suit limitation period or otherwisebring that to the Ryans’ attention.

Finally, the district court ruled that the existence of aninternal appeals process also did not prevent the benefits letterfrom acting as an “unequivocal denial.”

Accordingly, it concluded, after December 10, 2013, the Ryanswere barred from bringing suit based on their contractual agreementwith Liberty Mutual.

The case is Ryan v. Liberty Mutual Fire Ins. Co., No.14-6308 (WHW)(CLW) (D.N.J. Jan. 18, 2017).

Steven A. Meyerowitz, Esq., is the directorof FC&S Legal, the editor-in-chief of the InsuranceCoverage Law Report, and the founder and president of MeyerowitzCommunications Inc. He can be reached at [email protected].