THE 180 DAYS* RULE, WHAT’S THE HURRY?
*The time period can differ between policies from 180 days to 2 years or more (concept is the same)
Many homeowners’ policies contain language similar to this:
“The Company will not pay for any loss or damage on a replacement cost basis until the property is repaired, rebuilt or replaced by the Named Insured, and then only if such repair, rebuilding or replacement is made within *365 days after the loss or damage occurs. If the property is not repaired, rebuilt or replaced within 365 days after the loss or damage occurs, the value of the property will be determined at Actual Cash Value.”
Two Possible Defenses: Insurer’s Refusal to Pay Recoverable Depreciation
Insurer Must Show Prejudice
In PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630, 636 (Tex. 2008), the Texas Supreme Court reaffirmed that “[c]onditions are not favored in the law.” According to the court, “when another reasonable reading that would avoid a forfeiture is available, [a court] must construe contract language as a covenant rather than a condition.” Id. The Supreme Court’s holding is consistent with long-standing Texas insurance law—courts should construe insurance policies so as to avoid a forfeiture of coverage. See Coker v. Travel Ins. Co., 533 S.W.2d 400, 401 (Tex. Civ. App.—Dallas 1976, no writ); see also Vernon v. Aetna Ins. Co., 301 F.2d 86, 90 (5th Cir. 1962) (Texas law) (noting that when examining an insurance contract, it is to be construed most strongly against a forfeiture).
When coverage for property damage is at issue, late notice voids coverage only if the insurer establishes that the delay prejudiced the insurer’s position.” PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630, 636-37 (Tex. 2008) (rehearing denied); Coastal Refining & Marketing, Inc. v. U.S. Fidelity and Guar. Co., 218 S.W.3d 279, 289-90 (Tex. App.—Houston [14th Dist.]2007, pet. denied).
While PAJ, Inc did not involve a recoverable depreciation fact pattern, the court’s reasoning– avoiding forfeiture unless the insurer establishes late notice prejudiced the insurer’s position, should be applicable to the 180 day rule (or similar time frame) as the underlying principles are identical. Both situations involve the insurer claiming breach of a condition results in forfeiture. It has been my experience that an insurance carrier has a difficult time establishing prejudice when repairs are made after the 180 day (or similar time period) requirement when a claim has been inspected by the carrier previously and the only issue is the payment of recoverable depreciation.
Estoppel: Insurer’s Actions Prejudiced Insured
In Kabir Marina Grand Hotel, Ltd. v Landmark American Insurance Co., (S.D. Texas, Jan. 18, 2022), the court held, citing the Texas Supreme Court’s holding in Ulico Casualty Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 781, “if an insurer’s actions prejudice its insured, the insurer may be estopped from denying benefits that would be payable under its policy as if the risk had been covered . . .” Further, “when a promisor wrongfully prevents a condition from occurring that condition is excused.” Id. (citing Mendoza v COMSAT Corp., 201 F.3d 626, 631 (5th Cir. 2000). The court also found Dickler v CIGNA Property & Casualty Co., 957 F.2d 1088, 1096 (3d Cir. 1992) persuasive on the issue. (Cigna denied the claim preventing rebuilding. Cigna was faulted for the delay and the court extend the time period to rebuild and collect RCV).
Note: Both PAJ, Inc. and Kabir Marina Grand Hotel, Ltd operate to avoid forfeiture of a policy benefit which is different from seeking to create coverage when none exists by the terms of the policy–which Texas law does not allow.
Disclaimer
This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this article or any of the e-mail links contained within the site do not create an attorney-client relationship between Thomas W. Hamrick and the user or browser. The opinions expressed in this article are the opinions of the individual author and may not reflect the opinions of other lawyers.
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