King's Gym Complex, Inc. v. Philadelphia Indem. Ins. Co.
(2nd Cir. US Ct. Apps., decided 9/15/2008)
When running up against a policy's two-year suit limitations period, may an insured sue its insurer before making a claim? The Second Circuit, United States Court of Appeals, says no.
King's Gym Complex sued its commercial property insurer in federal court for business income loss coverage before actually filing a claim with the company. The complaint asserted a breach of contract cause of action. Philadelphia Indemnity moved to dismiss the complaint based on the court's lack of subject matter jurisdiction, contending that there was no justiciable controversy for the court to adjudicate.
In AFFIRMING the District Court's granting of Philadelphia's motion, the Second Circuit Court of Appeals agreed with the lower court's reasoning that since King's Gym had not submitted a business loss claim to Philadelphia prior to suing, Philadelphia could not have breached its duty under the policy to honor such a claim, and King's Gym could not assert a claim in federal court based upon such an alleged breach. The Second Circuit also rejected King's Gym's argument that it should be allowed to maintain a suit, even though no justiciable controversy yet existed because otherwise it would be time-barred.
King's Gym argued that the policy did not require it to file a claim before suing, and Philadelphia had not requested that it file a proof of loss on its business income loss claim. The Second Circuit also rejected this argument, holding:
As to the question of its filing a business loss claim with Philadelphia, King's Gym argues that the policy does not explicitly require it to "file a claim" before filing suit against Philadelphia unless Philadelphia had previously requested King's Gym to submit a proof of loss, which Philadelphia did not do. Although the language of the policy between King's Gym and Philadelphia is unclear regarding precisely what conduct by the insured constitutes a filing of a business loss claim, we need not address the question of whether King's Gym did so in this case. King's Gym conceded -- both before the District Court and in its brief to this Court -- that it had not suffered any business loss prior to its filing suit against Philadelphia. The policy obligates Philadelphia to pay for the 'actual loss of Business Income' the insured sustains as a result of a covered loss, and there is no evidence in the record that Philadelphia ever denied or declined to follow up on an actual loss of business income claim by King's Gym. Indeed, the record demonstrates that Philadelphia repeatedly tried to contact King's Gym and, prior to King's Gym's complaint, notified it that it considered the claim inactive." The District Court correctly concluded that there existed before it no dispute ripe for adjudication, and the District Court properly granted Philadelphia's motion to dismiss King's Gym's claims for lack of subject matter jurisdiction.The same argument of lack of a justiciable controversy and subject matter jurisdiction can be made in a situation where an insured does not submit its replacement cost holdback claim prior to the two-year loss anniversary but nonetheless commences suit to "protect the statute", i.e., to sue within the policy's two-year suit limitations period. My office has successfully moved to dismiss a number of such suits on this basis. See No Replacement of Property Within 2 Years Results in Dismissal of RC Holdback Suit.
This decision is unpublished. Pursuant to Federal Rules of Appellate Procedure Rule 32.1, parties may cite to this opinion, but must provide a copy of it with their papers.