One Year Suit Provision Defeats Late Suit
Barry Zalma
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GEICO Marine Insurance Company sued Lee Mandel seeking a declaratory judgment as to the rights and obligations of the parties under two yacht insurance policies. In GEICO Marine Insurance Company v. Lee Mandel, No. 19-CV-3107 (GRB)(AYS), United States District Court, E.D. New York (March 10, 2023) the USDC dealt with the private limitation of action provision of the GEICO policy and the late demand for appraisal.
FACTS
Lee Mandel was the owner of a 52′ SeaRay sedan bridge-model seafaring vessel. GEICO issued Mandel two yacht insurance policies for 2015-16 and 2016-17. Both policies required that: “With respect to any claim or loss to insured property, the action must begin within one year of the date of loss or damage.”
In December 2015, Mandel submitted a claim for damage to the starboard, i.e., right-side, engine. GEICO approved piecemeal repairs of approximately $92,400. In July 2016, Mandel submitted a supplemental claim for damages caused by a crack in the engine cylinder. In August 2016, Mandel submitted a claim for damages to the port, i.e., left-side, engine. Afterward, the starboard engine began emitting blue-white smoke. GEICO inspected the vessel in September and November 2016 to investigate Mandel’s claims.
In December 2016, Mandel removed and replaced the starboard and port engines. In February 2017, GEICO gave Mandel a supplemental and final payment of approximately $17,400 for damage to the starboard engine. GEICO inspected the vessel once again in November 2017. GEICO’s February 2018 report declined to pay Mandel the replacement cost of the engine because the decision to proceed with the replacement of Mr. Mandel’s engines was made at his direction and not in accordance with the previous settlements issued since replacements of both engines and auxiliary components do not represent, as set forth by the policy, a reasonable cost of repair, but instead constituted betterment. Later that month, GEICO paid Mandel approximately $23,200 for damage to the port engine.
Over a year later, in April 2019, Mandel renewed his demand for the cost of replacing the starboard and port engines – approximately $213,500 after payments received – and advised that he would pursue litigation if not paid.
The complaint for declaratory relief asserted three causes of action based on the insurance policies’ exclusions and the one-year limitation for bringing legal action.
THE MOTION FOR SUMMARY JUDGMENT
In December 2019, GEICO moved for partial summary judgment on its third cause of action regarding the policies’ one-year limitation, and on Mandel’s counterclaims for breach of contract and “bad faith.” The Court held that Mandel’s breach of contract counterclaim accrued in February 2018 when GEICO advised Mandel that it declined to pay his demands. Since the breach of contract counterclaim was filed more than a year after liability accrued, it was time-barred under the policies’ one-year time limitation provision.
As to the claim for the breach of the implied covenant of good faith and fair dealing, the Court held that this claim was also time-barred with respect to the allegedly negligent and/or inadequate investigation and failure to promptly conclude its investigation.
DISCUSSION
A prima facie case of bad faith requires showing a “gross disregard” of the insured’s interests. Mandel claimed GEICO initiated this action instead of an appraisal and rejected multiple settlement offers in order to “punish Mr. Mandel for attempting to get the insurance coverage he paid for.” Mandel also argued that GEICO had no reasonable belief that the claims were not covered.
Mandel’s claim for breach of the implied covenant of good faith and fair dealing fails for a panoply of reasons including all of his claims were time-barred by the policies’ one-year time limitation and Mandel did not seek an appraisal within a reasonable time because the one-year deadline for submitting his claim had already passed.
GEICO acted well within its rights by seeking a judicial declaration that it had no legal obligations with respect to the subject vessel’s engines because they were time-barred under the policies. Moreover, an appraisal is not the appropriate remedy because the dispute turns on whether engine replacement constituted an excludable “betterment” under the policies.
Therefore, the Court granted GEICO’s summary judgment on Mandel’s counterclaim for breach of the implied covenant of good faith and fair dealing, and found that GEICO Marine has no further obligations to Mandel under the insurance policies or at law with respect to claims involving the vessel’s starboard and port engines.
ZALMA OPINION
The private limitation of action provisions in most first-party insurance policies have been universally upheld by the courts of the United States and the individual states. They have been enforced because they protect insurers against stale claims and protect the insurer’s right to have an insured promptly fulfill the requirement to prove the loss. Mandel failed to act promptly to protect his rights and even if his claims were well founded his claim against GEICO Marine failed because of his failure to act promptly.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
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Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library.
Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://lnkd.in/gfFKUaTf.
Consider subscribing to my publications at substack at https://lnkd.in/gcZKhG6g
Barry Zalma, Esq., CF is available at http://www.zalma.com and [email protected]
Follow me on LinkedIn: https://lnkd.in/guWk7gfM
Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://lnkd.in/gV9QJYH; Go to Barry Zalma on YouTube- https://lnkd.in/g2hGv88; https://lnkd.in/gWVSBde.
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