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Second Circuit Rules That Business Expense Claims Are Barred By Suit Limitation Clause

08.06.18

(Article from Insurance Law Alert, July/August 2018)

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The Second Circuit ruled that a two-year suit limitations clause in a property policy is unambiguous and enforceable as to the property owner’s business income and extra expense claims.  Classic Laundry & Linen Corp. v. Travelers Cas. Ins. Co. of Am., 2018 WL 3147429 (2d Cir. June 26, 2018).

Travelers insured Classic Laundry under a first-party policy that covers property damage and business income loss or incurred extra expense resulting from a covered loss.  The policy’s limitation clause provides that a legal action must be “brought within 2 years after the date on which the direct physical loss or damage occurred.” 

When a fire damaged the covered property, Travelers paid for the damage, but denied coverage for business income and extra expense based on Classic Laundry’s failure to timely return a sworn statement of loss.  Nearly three years later, Classic Laundry sued Travelers.  A New York federal district court dismissed the suit as untimely based on the suit limitations clause.  The Second Circuit affirmed.

The Second Circuit ruled that the policy unambiguously requires a suit based on any claims for coverage – including lost income and extra expense -- to be brought within two years of the loss-causing event.  The court rejected Classic Laundry’s assertion that the suit limitations clause applies only to property damage claims because business income and expense claims are often not ascertainable within a two-year period.  The court deemed the two-year period reasonable and enforceable as to all loss under the policies.