by Stephen Burnett
A practitioner pursuing a property damage claim under a first-party property policy must navigate several deadlines. A myriad of different coverages and policy forms exist, so every claim presents a practitioner with unique policy language establishing different deadlines. While nothing eliminates the need to read the specific policy language, a practitioner should be alert to a number of deadlines and conditions that appear in many property policies in one form or fashion. And many of these deadlines expire mere weeks after the loss, making it crucial to act immediately after a potentially covered loss occurs. If these deadlines are not met, an insured may be unable to recover some or all of its damages.
An insured’s policy-mandated duties in the event of a loss include a requirement that the insured give “prompt notice” and provide a description of the loss or damage “as soon as possible.” When a client seeks assistance with a property damage claim, the first question to ask is, “Have you notified the insurance carrier?” If the answer is no, providing notice should be the lawyer’s first task.
In addition to “prompt notice,” property policies routinely require an insured to provide a sworn proof of loss statement within 60 or 90 days of an insurer’s request. Insureds may have further duties, such as notifying the police if a crime was committed, taking reasonable steps to protect the property from further damage, and resuming business operations as quickly as possible. Even after an insurer pays a claim, an insured’s duties may continue because some property policies permit an insurer to cancel a policy if the insured has not started or contracted for repairs within 30 days of the initial payment of loss.
Many commercial lines policies provide “Additional Coverages” that extend coverage for different types of circumstances or damages and that may come with their own deadlines. For example, a policy may cover pollution cleanup, but only if reported to the insurer within a certain time period after the loss.
Perhaps no deadline varies from policy to policy as much as the deadline to make a claim for “replacement costs.” The baseline coverage under most property policies is “actual cash value,” i.e., the property’s value after considering depreciation. The cost to repair and replace the property is typically higher than “actual cash value.” Property policies often, though not always, permit an insured to seek the higher “replacement costs” provided the insured meets certain conditions. Whereas some policies condition the payment of “replacement costs” on the actual repairs having been made “as soon as reasonably possible” after the loss, others more specifically require repairs be made within a year after the loss. The “replacement costs” deadline in still other policies runs not from the date of loss but from the date the insurer paid the “actual cash value” portion of the loss.
Property policies usually provide the insured and insurer a right to demand an independent appraisal if the parties cannot agree on the amount of a loss. Many policies provide deadlines for when to select an appraiser once the appraisal process has been invoked, but policies typically do not establish a precise deadline to invoke the appraisal process. Either party can waive their right to an appraisal if it failed to invoke the appraisal process within a reasonable time after the parties reached impasse and if the delay prejudiced the other party. Texas courts caution, however, that proving prejudice will be difficult since both parties enjoy the same right to demand appraisal.
Courts may also enforce a prejudice requirement if an insured breaches other policy provisions and conditions. But a first-party property insurer may often have a strong argument that prejudice exists in many circumstances (with the exception of the aforementioned appraisal process). Moreover, courts distinguish between what is a policy condition where prejudice may be required such as the “prompt notice” requirement, and what is a fundamental aspect of coverage that does not require prejudice, such as a bar against certain types of damages to buildings that have been vacant for more than 60 days.
Finally, a practitioner should note that some policies effectively reduce the limitations period by which an insured can bring suit against an insurer.
The first rule in any insurance coverage dispute is always, “Read the policy.” But that is never truer than when dealing with a first-party property policy replete with trap doors at every turn through which an unsuspecting insured may fall.
Stephen Burnett is a member at Schubert & Evans, P.C. and can be reached at firstname.lastname@example.org.