I posted a blog earlier this week, Kentucky Allows Property Insurers To Shorten The Statute of Limitations—Even If You Do Not Know That A Loss Occurred. I received an email from an outstanding lawyer and colleague, Brandon McWherter. He sent me a case decided last month by a separate federal court in Kentucky that ruled favorably on a statute of limitations issue in Kentucky.1

The case opinion cited the loss and denial facts as follows:

From February 26, 2017 to February 26, 2018, Plaintiff’s premises was insured by Ohio Security. From February 26, 2019 to February 26, 2020, the premises was insured by State Auto. On June 17, 2019, a hailstorm event struck the premises, causing substantial damage. Plaintiff promptly reported the damage to State Auto. State Auto hired EES Group, Inc. to investigate Plaintiff’s claim. On June 19, 2020, EES issued a report confirming that the premises suffered hail damage but asserting that the damage occurred before the State Auto Policy term. Plaintiff disputes this finding. State Auto denied Plaintiff’s claim based on this report.

Based on this denial, Plaintiff made a claim to Ohio Security for damage to the premises which occurred in a hailstorm on April 5, 2017. Ohio Security hired Haag Engineering to investigate Plaintiff’s claim. On December 21, 2020, Haag ‘issued a report confirming that the Insured Premises had been damaged by hail but claiming that damage was not caused by hailstones and/or the hailstones were not large enough to tear the roof membrane.’ The Complaint alleges that on January 11, 2021, Ohio Security acknowledged the hail damage, but denied Plaintiff’s claim because the damage was not caused by hailstones, the hailstones that did fall were not large enough to tear the roof membrane, exclusions applied, interior damage was not from a covered cause of loss, and Plaintiff failed to timely report the loss.

This is now a common claims scenario for those involved with hailstorm losses representing policyholders. The insurance company called out for the most recent hailstorm says another storm caused the loss. The previous insurance company insuring during the prior hailstorm hires an expert. The expert says that the damage could not be from the prior hailstorm, and there is not enough damage to make a claim greater than the deductible. This scenario is so common that everybody adjusting hailstorm losses should expect to encounter the “must be some other hailstorm loss” defense.

Suit was filed against both insurers, and Ohio Security raised the statute of limitations defense. The trial court quoted the subject clause:

No one may bring a legal action against us under this Coverage Part unless there has been full compliance with all of the terms of this Coverage Part and the action is brought within 2 years after the date on which the direct physical loss or damage occurred.

The court summarized the arguments of both parties:

Ohio Security argues that the hail damage complained of occurred on April 5, 2017 and that the suit was not filed until May 3, 2021. As a result, Ohio Security argues that Plaintiff contract claim is time-barred because it failed to file suit within two years of the damage as required by the insurance policies’ suit limitation condition. Plaintiff argues that the two-year contractual limitation in the policy contravenes a statute, Ky. Rev. Stat. § 304.10-370, and that it is otherwise unreasonable.

Following up on the argument made by the policyholder, the court noted:

A limitation provision ‘may nonetheless be unenforceable if it did not allow the [plaintiff] a reasonable time to sue.’… Plaintiff argues that the provision did not allow the plaintiff a reasonable time to sue because ‘the Estate had no time to sue’ once the claim had been denied. Defendant responds that ‘[p]laintiff’s alleged failure to discover the ‘catastrophic’ hail damage to plaintiff’s buildings for over two years after a ‘severe storm event’ does not render the suit limitation clause unreasonable.

The Court’s analysis of whether Plaintiff had a reasonable time to sue is heavily dependent upon the facts in this particular case….

According to Plaintiff’s complaint, ‘Plaintiff promptly reported the Ohio Security Loss to Ohio Security upon discovery of the damage.’ The Court must accept this fact as true at this stage of the proceeding….This case can be distinguished from Smith in that, unlike in Smith, the insurance claim is for hail damage, which is not as readily apparent as the fire damage in Smith. Federal courts applying Kentucky law have recognized that contractual limitations which leave no time for suit due to no fault of the plaintiff are unreasonable.

The court denied the motion to dismiss. It does not mean that the policyholder will beat the statute of limitations because the court will entertain more facts as the case progresses. Still, it is a “win” and a great argument by Brandon McWhirter.

Thought For The Day

The fishermen know that the sea is dangerous and the storm terrible, but they have never found these dangers sufficient reason for remaining ashore.
—Vincent Van Gogh
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1 Estate of Flora Mattingly v. State Auto Prop. & Cas. Ins. Co., No 3:21-cv-00274 (W.D. Ky. Mar. 11, 2022).