Opinion ID: 1356228
Heading Depth: 2
Heading Rank: 5

Heading: Suit Limitation Clauses

Text: The next coverage issue we address involves the suit limitations clauses found in the DIC policies. Such clauses limit the time for Alcoa to file suit for the coverage under the policies. An example of such a clause appears in the Bellefonte policy: SUIT. No suit, action or proceeding for the recovery of any claim under this policy shall be sustainable in any court of law or equity unless the same be commenced within twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim, provided, however, that if by the laws of the state within which this policy is issued such limitation is invalid, then any such claims shall be void unless such action, suit or proceeding be commenced within the shortest limit of time permitted by the laws of such state. Trial Ex. 924, at 2. This is not a statute of limitation imposed by law; it is a contractual undertaking between the parties and the limitation on the time for bringing suit is imposed by the parties to the contract. Lardas v. Underwriters Ins. Co., 426 Pa. 47, 231 A.2d 740, 741-42 (1967). Suit limitation clauses are ubiquitous: Almost all property policies contain a suit limitation clause, i.e., a clause designed to shorten the period of time within which an action on or under the policy may be brought against the insurer by the policyholder. Typically, these time limits are from twelve months to two years. Most states, by statute, implicitly recognize the validity of suit limitation clauses by prohibiting the use of such clauses in actions brought less than twelve months after the loss. Dale L. Kingman, First Party Property Policies and Pollution Coverage, 28 GONZ. L. REV. 449, 493 (1992/93). Suit-limitation clauses may represent a valid and equitable defense when pollution losses are reported on first-party policies that have long since expired. Jerry Provencher, First-Party Claims with an Environmental Twist, 23-SUM BRIEF (ABA) 8, 35 (1994). By statute, Pennsylvania law provides that contractual limitations of suit provisions, which are shorter than the applicable statute of limitations, are valid provided they are not manifestly unreasonable. Caln Village Assocs. v. Home Indem. Co., 75 F.Supp.2d 404, 409 (E.D.Pa.1999) (citing 42 PA. CONS.STAT. ANN. § 5501(a)). Washington insurance law similarly permits suit limitation clauses, provided such limitation shall not be to a period of less than one year from the date of the loss. RCW 48.18.200(1)(c). In effect, these statutes authorize property insurers to contract for repose provisions of fairly short duration. They cut off the long tail on claims so often found in third party coverage. The suit limitation issue in the present case arises because the DIC insurers alleged as an affirmative defense Alcoa had not complied with the suit limitation provision. Alcoa asserts the document containing the suit limitation was not a part of the insurance contract Alcoa made with the DIC insurers, and it should not be bound by the suit limitation provision. The jury found otherwise, and as a result, the trial court dismissed most of Alcoa's claims against the 1977-83 DIC insurers on the basis that Alcoa's action was untimely. The DIC insurers cross-appealed, contending the trial court erroneously selected the time at which the suit limitations periods began to run. The initial question we must address is whether Alcoa is bound by the suit limitations clauses, most of which appeared in policy jackets given to Alcoa's brokers after coverage was placed. In conjunction with its own insurance brokers, Alcoa prepared a long, detailed document specifying the terms and conditions of the coverage it sought. Alcoa's brokers negotiated with various DIC insurers over a period of months until agreement was reached as to the terms and conditions of coverage. An example of this document appears at Trial Ex. 584. The parties refer to this document as the manuscript form. The insurers all accepted the proposed insurance contract and issued binders confirming the existence of insurance. Later, they sent to Alcoa's brokers, but not to Alcoa, what are confusingly referred to in this case as policy jackets. These are not jackets in the sense of file jackets; they are instead the basic insurance policy containing much of what is ordinarily referred to as boilerplate or small print. The insurers assert these are part of the basic insurance contract between them and Alcoa. Alcoa asserts they are not part of the contract because Alcoa never negotiated the terms of the policy jackets and because they never received them (only the brokers received them). Whether the policy jackets are considered part of the agreement between Alcoa and each DIC insurer is important because the suit limitation clause is found in the policy jackets. Stage 1 of the Phase I trial was devoted to the question of whether the policy jackets were part of the DIC policies. Jury Instruction No. 1 summarized the issues for the jury: Plaintiffs, Aluminum Company of America and Northwest Alloys, Inc. (hereinafter Alcoa or plaintiffs) brought this lawsuit seeking a declaration that numerous first-party insurance policies issued to Alcoa provide coverage for environmental cleanup costs at plaintiffs' facilities in Vancouver, Washington, Massena, New York, and Point Comfort, Texas. The insurance policies at issue were known as Difference in Conditions policies and were in effect for various periods between July 1, 1977 and July 1, 1984. The first stage of this trial involves resolution of issues with respect to what documents make up the 1977-1980 policy and the 1980-1983 policies[.] A. The first issue will involve the Lexington Insurance Company policy. The Lexington policy was procured by Alcoa through the broker Fairfield & Ellis, Inc. Lexington delivered its original policy to Fairfield & Ellis, which then delivered the policy to Alcoa. Lexington contends that the policy consisted of a typed manuscript form, a policy jacket containing terms and conditions numbers 1-25, and various endorsements, and that Alcoa received all of these documents through Fairfield & Ellis. Lexington also contends that Alcoa received a complete, signed, daily report and/or agent's record (referred to as a daily) which contained the same twenty-five terms and conditions found in the original policy jacket, although in a different format. Alcoa contends that the manuscript form, cover page, declarations page, and various endorsements constituted the complete Lexington policy and that the page of the policy jacket which contained conditions 6-25 was never received by Alcoa and is, therefore, not part of the policy. Clerk's Papers at 047309. On a Special Verdict Form, the jury answered yes to the following key interrogatory: Did Fairfield & Ellis act as Alcoa's agent for purposes of receipt of the original Lexington policy? Clerk's Papers at 050791. The jury also answered no to another key interrogatory: Was it reasonable for Alcoa (and its agent, if applicable)to believe that conditions 6-25 of the Lexington policy jacket were not to be considered part of the policy? Thus, as a factual matter, the jury concluded the broker was Alcoa's agent for receipt of the policy jackets and Alcoa was unreasonable in not believing the policy jacket (containing the suit limitation clause) was part of its insurance contract with Lexington. The jury also answered the same interrogatories with respect to the policies issued in subsequent years, finding in some cases the broker was not Alcoa's agent for receipt of the policy jackets, but that in all cases for which the broker was the agent, it was unreasonable for the broker not to believe the policy jackets were part of the insurance contract. Alcoa now argues as a matter of law the policy jackets were unilateral attempts to modify the insurance contract, and the manuscript form encompassed its entire contract with the DIC insurers, stating, Neither the quotations nor the proposed policy wording [i.e., the manuscript form] mentioned the policy jackets or their conditions. Br. of Appellants at 25. Alcoa is incorrect. Alcoa's manuscript form specifically referred to another document:  PARAMOUNT CLAUSE: The conditions contained in this form shall supersede those of the basic policy to which this form is attached wherever the same may conflict. Tr. Ex. 584, at 9. Thus, in the document Alcoa itself prepared and submitted to the DIC insurers, Alcoa made reference to the basic policy, i.e., policy jacket, that was to be attached to the manuscript form. From the outset, Alcoa understood there was to be an additional writing, the policy jacket, that was to be a part of the insurance contract. The question of whether it was unreasonable for Alcoa not to believe the policy jackets were included in the policies was properly before the jurors, who found against Alcoa. Alcoa also argues it never actually received the policy jackets because, it asserts, under Pennsylvania law, insurance brokers are not agents for the receipt of policies. Alcoa cites the following provision from Pennsylvania's administrative code: when an insurance company [an entity] gives a policy, either new or renewal, to a broker for delivery to the insured, the broker shall be considered an agent of the entity for delivery of that one policy. 31 PA. ADMIN. CODE § 37.45(c) (1997). The essence of Alcoa's contention appears to be that this regulatory provision forbids brokers from being the agent of an insured for purposes of policy delivery so that Alcoa could not be held to have constructively received the policy jackets. Alcoa reads too much into this regulation. As Alcoa would have it, the Pennsylvania administrative code would make illegal any express contract between an insured and its broker that would have the broker serve as an agent for the delivery of an insurance policy. This would be a palpably absurd result. Pennsylvania law has long recognized the validity of a dual agency relationship involving insurance brokers. In Rossi v. Firemen's Ins. Co., 310 Pa. 242, 165 A. 16, 18 (1932), the Pennsylvania Supreme Court said: Defendant contends, however, that even if there were such an arrangement, Blose could not, as a matter of public policy, act as agent for both parties in the making of a contract of insurance; the necessary effect of this argument being that a contract, such as the one here sued upon, which he undertook to make while acting in such dual capacity, would be voidable. This contention is unsound. Of course, on the principle that no man can serve two masters, an agent cannot act as such for both parties to a transaction where the skill and judgment which he should exercise for the one might conflict with the skill and judgment which he should exercise for the other. Everhart v. Searle, 71 Pa. 256 [1872]; Sarshik v. Fink, 292 Pa. 256, 141 A. 39 [1928]. But this rule has no application where the duties of the agent to the two principals are of such nature that there can be no conflict between his duty of loyalty to the one and his duty of loyalty to the other. Accord John Conlon Coal Co. v. Westchester Fire Ins. Co., 16 F.Supp. 93, 96 (M.D.Pa. 1936), aff'd, 92 F.2d 160, cert. denied, 302 U.S. 751, 58 S.Ct. 271, 82 L.Ed. 581 (1937); Faramelli v. Potomac Ins. Co., 346 Pa. 228, 29 A.2d 674, 676 (1943). With respect to the delivery of the policy jackets, there were no conflicts in the brokers' duty of loyalty; it was in the interest of Alcoa and the insurers for the brokers to deliver the policy jackets. Here, the jury found from the trial evidence there was in fact an agency relationship between Alcoa and its brokers for the delivery of the policy jackets. There is nothing unlawful or contrary to public policy about such an agency relationship. That the Pennsylvania administrative code establishes the brokers as agents of the insurers for delivery of the policy jackets does not obviate the agency relationship between Alcoa and the brokers for delivery of the policy jackets, which the jury found existed as a matter of fact. The regulation describes the relationship between a broker and the insurer as a matter of law. But the regulation does not foreclose other relationships. Here, the brokers were dual agents. The jury's finding was not improper as a matter of law. In its interpretation of the suit limitations clauses, the trial court held the suit limitations began to run from periods other than the inception of the environmental damage. For example, the trial court said, knowledge that the loss or damage for which it now claims insurance has the potential to involve a policy of insurance triggers the suit limitation clock for that policy. Clerk's Papers at 048114. In another order, the trial court held the limitation period commenced only after the insured concluded its costs would exceed the deductible. These determinations are not correct under Pennsylvania law. In Pennsylvania, the suit limitation clause runs from the date the loss insured against occurred. Caln Village, 75 F.Supp.2d at 411. The task for the trial court is to determine when the loss insured against occurred. Id. In Pennsylvania, courts apply an effects analysis to determine when an occurrence happens.... Under an effects analysis, when an occurrence happens is determined by reference to the time when the injurious effects of the occurrence take place.... Accordingly, the time or date the direct physical damage or loss occurs for purposes of the suit limitations clauses at issue here is ascertained by determining when the injurious effects first manifest themselves in a way that would put a reasonable person on notice of injury. Id. Accord Conway v. State Farm Fire & Cas. Co., 1999 WL 545009,  (E.D.Pa.1999) (applying Pennsylvania law): The year [time limit in the suit limitation clause] begins to run on the date of the destructive event, regardless of the date the loss is actually discovered. Thus, the DIC insurers are correct when they assert, [T]he occurrence and the physical loss are one and the same, and those portions of Alcoa's claim that involve losses admitted to have been discovered before December 3, 1991 ... must be dismissed accordingly. Resp't's Revised Br. on Suit Limitation, Allocation, and Fortuity Issues at 38. As a final matter, Alcoa contends the trial court interpreted the suit limitation clauses incorrectly in the Lexington and First State policies, both of which were issued in Massachusetts. The parties agree Massachusetts law controls for the interpretation of these policies. Under Massachusetts law with respect to suit limitations: No company and no officer or agent thereof shall make, issue or deliver any policy of insurance ... containing any condition, stipulation or agreement ... limiting the time for commencing actions against it to a period of less than two years from the time when the cause of action accrues.... Any such condition, stipulation or agreement shall be void. MASS. GEN. LAWS ch. 175, § 22 (West 1997). Based on this statute, the trial court held Alcoa had to bring suit ... within twenty-four months of discovery of the occurrence which gives rise to the claim, as that phrase has been interpreted above. Clerk's Papers at 048109. The trial court had held discovery of the occurrence to mean the discovery of both the occurrence AND the potential or foreseeable existence of a claim under each policy. Id. Because Alcoa did not bring suit until December 1992, long after it had learned of damage to its property in the late 1970s and early 1980s, the suit limitation provision barred it from bringing the present suit. Alcoa disputes the trial court ruling because it claims the phrase cause of action accrues in the Massachusetts statute is equivalent to breach of contract by the insurers. Alcoa is correct. The Supreme Judicial Court of Massachusetts has interpreted the term cause of action accrues to mean the point at which the insured's cause of action against the insurer ripens, i.e., when the insurer denies coverage. See Barton v. Automobile Ins. Co., 309 Mass. 128, 34 N.E.2d 516 (1941). See also Goldsmith v. Reliance Ins. Co., 353 Mass. 99, 228 N.E.2d 704 (1967). Alcoa's claims under these Massachusetts-based policies are therefore not barred by the suit limitation clause. While the trial court did not err in holding Alcoa's brokers were agents for the delivery of the policy jackets, and the policy jackets were part of the insurance contracts, the trial court erred in its treatment of when the repose period of the suit limitations clause commences under Pennsylvania and Massachusetts law. We therefore reverse the trial court's conclusion at Paragraph I(B) of the Amended Order Granting in Part Defendants' Motion for Summary Judgment re: Suit Limitation, filed May 15, 1996, and remand the case for further proceedings consistent with the correct standard under Pennsylvania and Massachusetts law. [14]