Executive Plaza, LLC, Appellant,v.Peerless Insurance Company, Respondent.

Brief

N.Y.January 6, 2014

CTQ-2013-00005 Court of Appeals STATE OF NEW YORK EXECUTIVE PLAZA, LLC, Plaintiff-Appellant, against PEERLESS INSURANCE COMPANY, Defendant-Respondent. >> >> BRIEF FOR PLAINTIFF-APPELLANT JAROSLAWICZ & JAROS LLC Attorneys for Plaintiff-Appellant 225 Broadway, 24th Floor New York, New York 10007 212-227-2780 dtolchin@lawjaros.com On Question Certified by the United States Court of Appeals for the Second Circuit (USCOA Docket No. 12-1470-cv) To Be Argued By: David Jaroslawicz Time Requested: 30 Minutes On the brief: David Tolchin David Jaroslawicz Date Completed: August 21, 2013 CORPORATE DISCLOSURE STATEMENT Plaintiff EXECUTIVE PLAZA LLC is a New York limited liability company located in Nassau County. It has two members, Paul Sohayegh and Behrouz Oheb, each with an equal ownership share. STATUS OF RELATED LITIGATION This first-party benefits fire insurance action, originally commenced in Supreme Court, Nassau County, was removed by the defendant to the United States District Court for the Eastern District of New York (“EDNY”) on the basis of diversity of citizenship, 28 U.S.C. § 1332. By Memorandum and Order dated March 13, 2012, the EDNY (Joanna Seybert, D.J.) dismissed the complaint based on the ground of statute of limitations (A609)1, and a final judgment was entered on March 19, 2012 (A624). Plaintiff appealed from the final judgment to the United States Court of Appeals for the Second Circuit (“Second Circuit”). This appeal is before this Court on a certified question from the Second Circuit. See Executive Plaza, LLC v. Peerless Ins. Co., 717 F.3d 114 (2d Cir. 2013) (A626-A637). 1 Such references are to pages of the Appendix. - ii - STATEMENT OF JURISDICTION This Court has jurisdiction to entertain this appeal and to review the questions raised. By order dated June 25, 2013, the Court accepted the certified question from the Second Circuit, pursuant to this Court’s Rules of Practice, 22 NYCRR § 500.27. - iii - Table of Contents CORPORATE DISCLOSURE STATEMENT ........................................................i STATUS OF RELATED LITIGATION ..................................................................i STATEMENT OF JURISDICTION ...................................................................... ii TABLE OF AUTHORITIES .................................................................................. vi PRELIMINARY STATEMENT .............................................................................. 1 QUESTIONS PRESENTED .................................................................................... 5 STATEMENT OF FACTS ....................................................................................... 6 Determining the Value of the Loss Under the Policy ................... 6 Plaintiff Rebuilds As Soon As Reasonably Possible ................... 12 Plaintiff Commences Action 1 ........................................................ 16 Plaintiff Commences This Action .................................................. 20 ARGUMENT POINT I THE POLICY HAS NO STATED TIME LIMIT ON RECONSTRUCTION, OTHER THAN THAT IT MUST BE COMPLETED “AS SOON AS REASONABLY POSSIBLE” ................. 22 POINT II AS THE INSURED HAS NO RIGHT TO PAYMENT UNTIL THE REPLACEMENT IS COMPLETED, ITS CLAIM FOR REIMBURSEMENT OF REPLACEMENT COSTS ACCRUES WHEN THAT CONDITION HAS BEEN MET, NOT BEFORE ........................................................................................................ 29 - iv - POINT III THE INHERENT POLICY CONTRADICTION MUST BE RESOLVED IN FAVOR OF THE PLAINTIFF INSURED .................... 37 1. Ambiguity Must Be Resolved In Favor of The Insured, Not the Carrier .................................................................. 38 2. Completing The Replacement Within Two Years Is Not A Condition Precedent To A Replacement Cost Claim .................................................................................................. 40 3. The Time To Make A Claim For Reimbursement Of Replacement Costs Is Governed By The Special Provision Of Policy § E.6.D.1, Not The General Provision Of Policy § E.4 ................................................................. 41 4. The 180-Day Notice Rule Is Superfluous If An Insured Has Only Two Years To Complete Repairs ................... 42 POINT IV ANY ARGUMENT THAT PLAINTIFF AGREED NOT TO SUE IS VOID AS AGAINST PUBLIC POLICY ...................................... 43 POINT V NO ORDINARY BUSINESS OWNER WOULD REASONABLY BELIEVE THE BUILDING HAD TO BE REBUILT ENTIRELY WITHIN TWO YEARS OF THE FIRE OR LOSE INSURANCE COVERAGE, NO MATTER HOW DEVASTATING THE FIRE WAS ............................................................. 44 - v - POINT VI A POLICY THAT REQUIRES THE INSURED TO DO THE IMPOSSIBLE OFFERS TERMS LESS FAVORABLE THAN THE STANDARD FIRE POLICY AND IS NOT REASONABLE ............................................................................................ 46 The Standard Fire Policy Notwithstanding, Our Policy Is Reasonably Construed To Impose No Deadline For The Completion Of Repairs ............................................................ 50 CONCLUSION ...................................................................................................... 54 - vi - Table of Authorities Cases 1303 Webster Ave. Realty Corp. v. Great Am. Surplus Lines Ins. Co., 63 N.Y.2d 227 (1984) ............................................................................................... 48 Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390 (1983) .............. 39 Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169 (1986) .................................. 31-32 American Bldg. Supply Corp. v. Petrocelli Group, Inc., 19 N.Y.S.2d 730 (2012)...................................................................................... 29 Bakos v. New York Cent. Mut. Fire Ins. Co., 83 A.D.3d 1485 (4th Dep’t 2011) .............................................................................................. 22-23, 25 Bakos v. New York Cent. Mut. Fire Ins. Co., 86 A.D.3d 933 (4th Dep’t 2011) .......................................................................................................... 22 Bersani v. Gen. Acc. Fire & Life Assurance Corp., 36 N.Y.2d 457 (1975) ........... 44 Blanco v. American Tel. & Tel. Co., 90 N.Y.2d 757 (1997) ................................... 32 Breed v. Insurance Co. of N. Am., 46 N.Y.2d 351 (1978) ...................................... 39 Cary v. Koerner, 200 N.Y. 253 (1910) .................................................................... 31 City of N.Y. v. State of N.Y. 40 N.Y.2d 659 (1976) ............................................... 31 Cragg v. Allstate Indem. Corp., 17 N.Y.3d 118 (2011) ......................................... 45 Dean v. Tower Ins. Co. of N.Y., 19 N.Y.3d 704 (2012) ......................................... 39 Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399 (1993) .......................... 29 Executive Plaza, LLC v. Peerless Ins. Co., 717 F.3d 114 (2d Cir. 2013)..................i Gaidon v. Guardian Life Ins., 96 N.Y.2d 201 (2001) ............................................. 31 - vii - Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012) .............................................................................. 30, 33-34 Il Cambio, Inc. v. U.S. Fid. & Guar. Co., 920 N.Y.S.2d 305 (1st Dep’t 2011) .................................................................... 25 Israel v. Chabra, 12 N.Y.3d 158 (2009) .................................................................. 41 John J. Kassner & Co. v. N.Y., 46 N.Y.2d 544 (1979) ..................................... 31, 50 Lane v. Security Mut. Ins. Co., 96 N.Y.2d 1 (2001) .............................................. 47 Martin v. Edwards Labs., 60 N.Y.2d 417 (1983) ............................................... 4, 37 MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640 (2009) ...................... 30 Miller v. Continental Ins. Co., 40 N.Y.2d 675 (1976) ..................................... 24, 39 Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42 (1956) .......................................... 41 Northville Indus. Corp. v. National Union Fire Ins. Co., 89 N.Y.2d 621 (1997) .......................................................................................... 47 Palmieri v. Allstate Ins. Co., 445 F.3d 179 (2d Cir. 2009) .............................. 26-27 Stainless, Inc. v. Employers Fire Ins. Co., 69 A.D.2d 27 (1st Dep’t 1979) .... 23-24 State Farm Mut. Auto. Ins. Co. v. Langan, 16 N.Y.3d 349 (2011) ....................... 45 Steen v. Niagara Fire Ins. Co., 89 N.Y. 315 (1882) .......................................... 35-36 TAG 380, LLC v. ComMet 380, Inc., 10 N.Y.3d 507 (2008) ................................ 48 Thomas J. Lipton, Inc. v. Liberty Mut. Ins. Co., 34 N.Y.2d 356 (1974) .......... 39, 44 Vigilant Ins. Co. of Am. v. Housing Auth. of El Paso, TX, 87 N.Y.2d 36 (1995) ............................................................................ 4, 31-32, 37 Woodhams v. Allstate Fire & Cas. Co., 453 Fed. Appx. 108 (2d Cir. 2012) (summary order) .................................... 25 - viii - Statutes and Other Authority 22 NYCRR § 500.27 ................................................................................................ ii 28 U.S.C. § 1332 .........................................................................................................i CPLR 203(a) ................................................................................................. 2, 29-30 INSURANCE LAW § 3404(a) ..................................................................................... 47 INSURANCE LAW § 3404(e) .................................................................... 48-49, 51-52 INSURANCE LAW § 3404(f)(1)(A) ........................................................................... 47 JOSEPH HELLER, CATCH-22 (1961) ......................................................................... 40 NEW YORK COURT OF APPEALS No. 210 EXECUTIVE PLAZA LLC, Plaintiff-Appellant, -v- PEERLESS INSURANCE COMPANY, Defendant-Respondent. CTQ-2013-00005 BRIEF FOR PLAINTIFF-APPELLANT PRELIMINARY STATEMENT Section E.6.d.1 of the fire insurance policy written by the defendant-respondent (A137-A196, “Policy”) contains a “replacement costs” provision. It provides that after fire-damaged property is repaired or replaced the defendant will reimburse the insured for the costs actually expended to repair or replace the property so long as the repair or replacement is completed “as soon as reasonably possible” (A160, Policy § E.6.d.1.b).2 Unlike other policies, and unlike another specific provision found elsewhere in this Policy (see A145, Policy § A.5.e.4.b), the replacement costs provision of this Policy does not place a time limit for an insured to complete repairs. Accordingly, a claim for reimbursement of 2 The Policy sections referenced most frequently in this Brief appear at A158-A160. - 2 - replacement costs accrues upon the date the replacement is completed, and from that date the applicable statute of limitations begins to run. See CPLR 203(a). Because the plaintiff-insured completed the replacement building as soon as reasonably possible3 and sued within five months thereafter—let alone six years or even two years—this action was timely commenced. Relying on a different provision of the Policy, section E.4, defendant has taken the self-serving and contradictory position that a cause of action for reimbursement of replacement costs must also be commenced within an outside limit of two years after the fire, and that the repairs or replacement must be completed both “as soon as reasonably possible” and before commencing suit—even in cases where it is not reasonably possible for an insured to complete the repairs or replacement within two years. The inherent contradiction in defendant’s position is plain: a policy cannot require action to be taken as soon as reasonably possible and 3 For purposes of this appeal, because the plaintiff is entitled to every favorable factual inference, the Court must accept as true that the repairs were completed as soon as reasonably possible which, by the way, they were. - 3 - at the same time require the same action to be taken faster than is reasonably possible (i.e., completing repairs within two years when it is not reasonably possible to do so). The contradiction in defendant’s interpretation of the Policy emerges when completing repairs as soon as reasonably possible takes longer than two years. The ambiguity must be resolved against the defendant, the drafter of the Policy. If it was defendant’s intention in drafting Policy § E.6.d.1.b (A160) to cover an insured only for those replacements that are completed within two years, the defendant failed to make that intention clear, as it did in Policy § A.5.e.4.b (A145). Here, the defendant has played a distasteful game of Gotcha! To protect its rights, plaintiff actually sued the defendant within two years after the fire and upon defendant’s motion its action was dismissed, without prejudice, as premature because the replacement had not yet been completed. The plaintiff sued again (this action) upon completion of the replacement, and again upon defendant’s motion the action was dismissed, this time for being untimely, even though the plaintiff had at all times acted expeditiously to complete the replacement. If the plaintiff cannot enforce its contractual right under the Policy to recover replacement costs in court, then the Policy provides - 4 - illusory coverage after two years. An insured “should not be deprived of [its] claim before [it] has had a reasonable chance to assert it.” See Martin v. Edwards Labs., 60 N.Y.2d 417, 425 (1983); see also Vigilant Ins. Co. of Am. v. Housing Auth. of El Paso, TX, 87 N.Y.2d 36, 43-44 (1995). Accordingly, the Court should answer the certified question in the affirmative. - 5 - QUESTION PRESENTED The Court has accepted the following certified question from the Second Circuit: If a fire insurance policy contains (1) a provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced “as soon as reasonably possible after the loss”; and (2) a provision requiring an insured to bring suit within two years after the loss; is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years? Answer: Plaintiff-Appellant respectfully submits that the question must be answered in the affirmative. - 6 - STATEMENT OF FACTS Plaintiff-Appellant Executive Plaza LLC (“plaintiff”) brought this action for a judgment declaring that Defendant-Respondent Peerless Insurance Company (“defendant”) is contractually obligated to pay plaintiff first-party benefits on a replacement cost basis on the commercial general liability insurance policy (A137-A196) it issued in New York for the loss of plaintiff’s property destroyed by accidental fire on February 23, 2007 (A198, 202). The property was insured up to $1 million. The Policy covered plaintiff’s concrete-foundation two-story office building located at 4584 Austin Blvd., Island Park, New York, for the time period of September 25, 2006 through September 25, 2007 (A131). Notably, the building had been erected before significant changes in local zoning laws were instituted (A382). Determining the Value of the Loss Under the Policy Plaintiff immediately reported the fire and, three days later, on February 26, 2007, filed a standard NYFC-1 Fire Claim Form (A126). Defendant duly acknowledged notice of the fire, assigned a claim number, and undertook to investigate by, among other things, hiring an independent claims adjuster, investigators to ascertain the cause of the fire, - 7 - and a real estate appraiser to determine the actual cash value of the property (A114). Defendant determined that a covered loss event had occurred and estimated that replacing the building would cost $1,087,500 (A205). The Policy provided as follows: 6. Loss Payment In the event of loss or damage covered by this policy: a. At our option, we will either: (1) Pay the value of lost or damaged property; (2) Pay the cost of repairing or replacing the lost or damaged property; (3) Take all or any part of the property at an agreed or appraised value; or (4) Repair, rebuild or replace the property with other property of like kind and quality. b. We will give notice of our intentions within 30 days after we receive the sworn proof of loss. (Policy § E.6). Rather than pay the $1,087,500 estimated cost to replace the property (Option 2), purchase the property (Option 3), or undertake to repair, rebuild, or replace the property itself (Option 4), defendant opted to exercise its right to pay the “value” of the damaged property under Option 1 (“Pay the value of lost or damaged property”), valuing the loss on an “actual cash value basis” (see Policy § E.6.d.1.a). - 8 - To determine the actual cash value, the parties retained adjusters, as contemplated in Policy § E.2 (A158), to appraise and estimate the value of the building on the day of the fire (A111). While that process was proceeding, defendant made an advance payment to plaintiff of $250,000 on March 8, 2007 (A201). The parties eventually settled on $757,812.50 as the actual cash value of the property (A114, 211, 226). After taking credit for the advance, a $1000 deductible, a $4,230 payment for boarding up the building, and a $35,000 fee paid to plaintiff’s public adjuster, defendant paid the rest of the “actual cash value portion of [plaintiff’s] building/dwelling loss” on July 23, 2007, leaving a remainder of at least $242,187.50 on the policy limit (A114, 226). The actual cash value payment was made and accepted subject to the plaintiff’s additional right to “make a claim” for replacement costs after the property is replaced (Policy § E.6.d.1). Under Policy § E.6.d.1, the right to “make a claim” for replacement costs becomes available to the insured by giving notice to defendant within 180 days that it intends to rebuild and seek reimbursement of amounts expended in the reconstruction of the property. Policy § E.6.d provides: d. *** [W]e will determine the value of Covered Property as follows: - 9 - (1) At replacement cost without deduction for depreciation, subject to the following: (a) You may make a claim for loss or damage covered by this insurance on an actual cash value basis instead of on a replacement cost basis. In the event you elect to have loss or damage settled on an actual cash value basis, you may still make a claim on a replacement cost basis if you notify us of your intent to do so within 180 days after the loss or damage. (A160, Policy § E.6.d.1.a) (Emphasis added). The amount the defendant must pay in replacement costs cannot be determined until the property is completely rebuilt. This is so because the amount the defendant must pay is the lesser of either the estimated cost to replace the property (Policy § E.6.c.i), or the amount actually spent by the insured to replace it (Policy § E.6.c.ii). Accordingly, the only way to determine whether the estimate is less than the amount actually spent is to complete repairs and compare the two numbers. The Policy sensibly does not prescribe a specific time limit for the completion of the replacement property. The unpredictability and vicissitudes inherent in any construction project—cold winters, wet summers, hurricanes, let alone awaiting approval of building permit applications, and appealing a wrongful denial of a permit, if necessary, to name a few—can add months, or even years to a construction project - 10 - through no fault of the insured. In drafting the Policy, the defendant doubtless made the business decision that setting a rigid and arbitrary due date for an insured to finish construction—regardless of the size of the property or the delays reasonably to be encountered—would be unattractive and would drive away customers. Rather, the Policy prescribes a pliable deadline that requires only that the property must be replaced “as soon as reasonably possible”: (b) We will not pay on a replacement cost basis for any loss or damage: (i) Until the lost or damaged property is actually repaired or replaced; and (ii) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage. (A160, Policy § E.6.d.1.b) (Emphasis added). The pliable deadline protects the carrier and the insured both. The insured may not be dilatory; but neither may the insured be impetuous—such as by paying contractors extra to work hastily, or by encouraging shoddy workmanship by setting unreasonably short completion dates for subcontractors—and then expect reimbursement from the carrier for such ill-conceived extravagances. Mostly, though, it regulates how long the insured has to make the repairs or replacement. - 11 - Acknowledging notice of plaintiff’s intent to seek reimbursement of replacement costs,4 defendant’s cover letter, dated July 23, 2007, stated: In order to collect the balance of $242,187.50, we will need copies of all contracts, invoices, cancelled checks (front and back) and other pertinent documentation verifying the completion of repairs. If necessary, we will make arrangements to re-inspect your property prior to authorizing payment. In order to collect the entire holdback,5 you must document expenditures equal to or in excess of $1,000,000, the replacement cost loss. Should you document expenses which exceed the actual cash value payment but do not exceed the replacement cost loss, you will be entitled to recover only that portion for which you have submitted receipts. (A226) (Emphasis added). No alleged two year deadline for completion of repairs was stated in the letter, just as none is specified in the Policy. 4 Defendant does not dispute that plaintiff timely notified defendant of its intention to seek reimbursement costs. 5 The word “holdback” appears nowhere in the Policy and is not defined. As used here, it refers to the balance left on the policy limits. - 12 - Plaintiff Rebuilds As Soon As Reasonably Possible Within two weeks after the fire, on March 8, 2007, plaintiff retained architect Henry Monteverde to prepare architectural drawings and obtain the necessary building permits (A381, 390). At the same time, plaintiff also contacted Edward Khalil of Euro-Tech Construction Corp. (“Euro-Tech”), to obtain an estimate for the reconstruction of the building (A390). On April 17, 2007, plaintiff paid Euro-Tech $30,000 to begin demolition, conduct an asbestos investigation, disconnect sewer lines, and other work (A387). The destroyed building, which had been erected prior to current zoning laws in Island Park, had no parking area, and because the site was an interior lot, a replacement building of “comparable material and quality” and “use” (A160, Policy § E.6.d.1.c) could not accommodate parking (A382 ¶ 7). Under the new zoning laws, however, new buildings were required to have a rear yard of 10 feet, could not exceed 30 feet in height, and required one parking space per 300 square feet of floor area—in this case, 24 parking spaces (A382 ¶ 6). As the new building could not possibly comply with these zoning specifications, Mr. Monteverde completed and filed two sets of preliminary design drawings for the new building, surveys, and an application with the Department of Buildings of - 13 - the Incorporated Village of Island Park (“Village DOB”) for zoning review (A382), intending thereafter to seek a variance. Such issues could be alleviated in this manner (A382 ¶ 11; A383). The Village DOB initially denied a permit for the proposed building on June 27, 2007, for lack of parking and because the elevation was three feet too high (A382-383). Mr. Monteverde promptly applied for a zoning variance and appeared before a public hearing on the application on July 25, 2007 (A383). As plaintiff had every confidence that a variance would be granted (A382), on August 1, 2007—mere days after receiving the lump sum payment from the defendant—plaintiff entered into a fixed rate contract with Euro-Tech for $1,182,000 (A387), and paid Euro-Tech $220,000 to mobilize its workforce to commence work on the new building immediately (A390). Plaintiff provided the defendant with copies of the invoices and checks (A256-260). Construction, however, could not get started until the permits were obtained. After negotiating to lease parking spaces from the Village at the railway station adjacent to the building, plaintiff was finally granted the variance by the Village DOB on October 27, 2007 (A383). On December 12, 2007, Mr. Monteverde filed two sets of construction drawings for the foundation of the new building for review by - 14 - the Village DOB (A383). Five days later, the Village indicated in a letter that before permits could issue, the Nassau County Department of Public Works (“County DPW”) had to approve the foundation and storm water drainage plan (A384, 404). On December 19, 2007, Mr. Monteverde filed an application with the County DPW, but the County DPW retained the application for over six months, until finally approving it on June 23, 2008 (A384, 404). Plaintiff then had to wait another month for the Village to issue a building permit for the foundation and drainage of the new building, which permit issued on July 14, 2008 (A384, 404). On or about August 14, 2008, Euro-Tech was finally permitted to commence work on the foundation, and defendant was so notified (A264). Because of a high water table at the site of the building, the foundation work was exceptionally difficult, as it required the installation of approximately 74 screw-in metal piles (A387 ¶ 9). In addition, also due to the high water table, drywells could not be used, and instead an entire underground storm water system was required (A387 ¶ 10). Moreover, because the building could not have a basement due to the high water table, the plumbing and electrical systems had to be installed beneath the foundation, as well as an elevator shaft (A388 ¶ 12). Nevertheless, - 15 - construction of the sub-foundation and foundation progressed smoothly, and was completed by May 2009 (A388). At the same time as the foundation work was proceeding, Mr. Monteverde completed the more detailed construction drawings for the remainder of the building and filed them with the Village DOB (A384). On November 28, 2008, the Village DOB issued a full building permit permitting the rest of the construction to proceed (A384). The time frames involved in obtaining these permits are “ordinary and customary” and hardly unreasonable (A384 ¶ 26). After the construction was well under way, on January 26, 2009, less than month before the two-year anniversary of the fire, defendant wrote a self-serving and inaccurate letter to plaintiff as follows: We have not received any documentation from you for the replacement of your building. . . . Your policy affords replacement cost coverage if replacement is done in a reasonable amount of time. Please forward any documentation for the replacement of your building as soon as possible. Your policy also has a 2 year suit limitation. (A266) (Emphasis added). - 16 - The letter went on to quote sections E.4 and E.6 of the Policy (A266-267).6 Section E.4 of the Policy states: No one may bring a legal action against us under this insurance unless: a. There has been full compliance with all of the terms of this insurance; and b. The action is brought within 2 years after the date on which the direct physical loss or damage occurred. (Policy § E.4). Thus with less than 30 days remaining until the two year anniversary of the fire, defendant for the first time claimed there was a two year limit. Plaintiff Commences Action 1 Alerted by the defendant’s January 26, 2009 letter for the first time that the defendant might be claiming a two year statute of limitations period, on February 23, 2009—within two years of the fire—to protect its rights plaintiff commenced an action in Supreme Court, Nassau County, by filing a Summons and Complaint under Index No. 3209/09 (A283-A288) seeking a declaratory judgment that it “has complied with the terms of the 6 This letter was factually incorrect. Defendant had received copies of the checks paid to Euro-Tech (A256-60), and responded in writing (A262). Defendant also received the update about the issuance of the permit and the commencement of the foundation work (A264). - 17 - Policy, and proceeded with all reasonable diligence to complete construction of the replacement building, and that Peerless has a continuing obligation to pay . . . as construction continues to progress” (A287 ¶ 28). Defendant removed the action to the EDNY (A300), where it was assigned Case No. 09-CV-1976 (LDW) before Judge Leonard D. Wexler (“Action 1”). After plaintiff filed its lawsuit on February 23, 2009, the defendant, on March 1, 2009, wrote a denial letter, stating: Peerless Insurance Company has been advised that you are requesting reimbursement for amounts paid in relation to the replacement cost coverage under your building coverage. [Text of Policy §§ E.6. a, b & c, and E.4] As the claim was not submitted timely, we regret7 that we must disclaim liability and deny coverage for the amounts requested under the replacement cost coverage. As the two-year contractual suit limitation has expired, the claim, in its entirety, is no longer enforceable. (A270). This factually incorrect letter demonstrated the carrier’s bad faith, as an action had been commenced within two years of the fire. The defendant moved to dismiss Action 1, arguing, among other things, that it was not obligated to pay until the property is actually 7 The word “regret” is somewhat disingenuous. - 18 - repaired or replaced (A333); that plaintiff had not yet completed and paid for the repairs (A337); that, therefore, the federal court lacked subject matter jurisdiction because the controversy was not ripe (A339); and that: Moreover, as two years from the date of the loss has already elapsed, the plaintiff is precluded from commencing any further action against Peerless with respect to this claim. (A344). As to that last point, Judge Wexler rejected the defendant’s argument and, on February 8, 2010, dismissed the action without prejudice, finding three years after the fire that the plaintiff could still bring a timely claim; but for the time being the claim was not ripe because the replacement building had not yet been completed: Specifically, no case or controversy yet exists because Executive has not yet complied with the clear and unambiguous Policy requirement that the damaged property be completely repaired or replaced before making a claim to be reimbursed for the actual replacement cost. The failure to comply with this contractual condition precedent makes any claim for breach of the insurance contract unripe. . . . Once repairs are complete, Executive can make its claim for full payment of the Policy. Peerless can then either make payment, or raise the issues of reasonableness and timeliness in support of a decision of - 19 - non-payment. At that point, there will be a real controversy for the court to decide. That controversy does not, however, exist at this juncture. (A450) (Emphasis added). Thus Judge Wexler at defendant’s request dismissed Action 1 (A450), without prejudice, and a non-final judgment was entered on March 1, 2010. Judge Wexler did not simply stay the action until the replacement building was completed. At the time Action 1 was commenced, construction was continuing smoothly. The concrete shell of the building, flooring and roof of the new building were completed (A492), and plaintiff continued on with reconstruction as Judge Wexler outlined. Thus, even while Action 1 was pending, and after its dismissal, plaintiff diligently continued working to complete construction “as soon as reasonably possible.” Plaintiff made regular payments to the contractors as the work progressed, and completed repairs by October 5, 2010, having expended out-of-pocket a total in excess of $1 million in replacement costs (A519-546). Having completed the replacement building, “as soon as reasonably possible,” plaintiff formally demanded payment of the - 20 - $242,187.50, plus incidentals, pursuant to Policy §§ E.6.a.2 & E.6.d.1.b (A462). On October 12, 2010, defendant again refused to pay, this time asserting that an action was not commenced within two years of the fire and that “the repairs or replacement [were] not made as soon as reasonably possible after the loss or damage.” (A464-466). Plaintiff Commences This Action Its claim for replacements costs having now matured, plaintiff commenced this (second) action in Supreme Court, Nassau County, on March 7, 2011 (A467), no more than five months after completing the replacement building. Defendant again removed the action to the EDNY, where this time it was assigned Case No. 11-CV-1716 (JS) before a different District Judge, Joanna Seybert (A485) (“Action 2”). In response to defendant’s subsequent post-answer motion to dismiss (A5), plaintiff established, among other things, that it had replaced the building “as soon as reasonably possible” and was not required to complete repairs and sue within two years (A488-518). Judge Seybert nevertheless dismissed the action as untimely because it was not commenced within two years of the fire, interpreting the - 21 - Policy and any inherent ambiguity in the Policy in favor of the defendant, rather than the insured (A618). Plaintiff appealed to the Second Circuit, which certified the question at bar (A626-A637). Unsure how this Court would determine “[w]hat happens to insured property that cannot reasonably be replaced within two years” (A627), the Second Circuit noted that this Court has not resolved this question. It has interpreted the suit limitations provision alone, see Blitman Const. Corp. v. Ins. Co. of N. Am., 66 N.Y.2d 820, 822 (1985) (twelve-month suit limitations clauses was enforceable); Proc v. Home Ins. Co., 17 N.Y.2d 239, 243-46 (1966) (holding that limitations period begins to run on date of fire), but never the replacement cost provision. More importantly, however, no controlling precedent interprets the suit limitations clause in light of the replacement cost provision. . . . [T]he few courts to have read the provisions together have reached different conclusions. Compare Bakos v. N.Y. Cent. Mut. Fire Ins. Co., 920 N.Y.S.2d 552, 554 (4th Dep’t 2011) (mem.) (denying insurer’s motion to dismiss because replacement cost provision was not circumscribed by a temporal limitation), with Il Cambio, Inc. v. U.S. Fid. & Guar. Co., 920 N.Y.S.2d 305, 305-06 (1st Dep’t 2011) (insured barred from asserting a replacement cost claim when it had not rebuilt insured property and because complaint was barred by two-year limitations period). (A633-A634) (footnote omitted). - 22 - ARGUMENT POINT I THE POLICY HAS NO STATED TIME LIMIT ON RECONSTRUCTION, OTHER THAN THAT IT MUST BE COMPLETED “AS SOON AS REASONABLY POSSIBLE” Policy § E.4 notwithstanding, defendant’s obligation to pay for replacement costs under Policy § E.6.d.1 does not expire two years after the fire. In stating, “We will not pay . . . until the . . . property is . . . actually repaired or replaced . . . and unless the repairs . . . are made as soon as reasonably possible,” the defendant specifically promises to pay when the property is repaired, so long as the repairs are made as soon as reasonably possible, with no specific time limit (Policy § E.6.d.1.b). Bakos v. New York Cent. Mut. Fire Ins. Co., 83 A.D.3d 1485 (4th Dep’t 2011), rearg. denied, 86 A.D.3d 933 (4th Dep’t 2011), is a fire insurance case directly on point where the insured was unable to complete repairs within two years after a fire. As in our case, the Bakos policy stated that: [D]efendant “will pay no more than the actual cash value of the damage until actual repair or replacement is complete”. Another provision in the policy state[d] that “[n]o action can be brought against [defendant] unless there has been full compliance with all of the terms under - 23 - [the Conditions] Section . . . of [the] policy and the action is started within two years after the date of loss”. Bakos, 83 A.D.3d at 1486 (Emphasis added; ellipsis in original). The defendant in Bakos moved to dismiss, contending that “the contractual two-year limitations period expired before plaintiff completed all of the repairs to his home.” Id. The court held: We reject that contention. “[U]nambiguous provisions of an insurance contract must be given their plain and ordinary meaning” (White v. Continental Cas. Co., 9 N.Y.3d 264, 267, 878 N.E.2d 1019, 848 N.Y.S.2d 603 [2007]) and, here, the plain language of the Loss Settlement provision of the policy does not impose any time limit on the reconstruction of the home. Contrary to defendant’s contention, the contractual provision imposing a two-year limitation on legal action does not impose a time limit on reconstruction. Id., 83 A.D.3d at 1486-87 (Emphasis added). Like the policy in Bakos, our Policy similarly does not impose a time limit on reconstruction; it merely requires that the repairs must be made “as soon as reasonably possible.” (Policy § E.6.d.1.b.ii). If defendant in our case intended that repairs must be completed within two years of the fire, as it now contends, it could have stated that clearly at Policy § E.6.d.1.b. As the drafter of the Policy, “it is the - 24 - insurance company which has the responsibility of making its intention clearly known.” Stainless, Inc. v. Employers Fire Ins. Co., 69 A.D.2d 27, 33 (1st Dep’t 1979); see also Miller v. Continental Ins. Co., 40 N.Y.2d 675, 678 (1976). Indeed, in a nearly identically-worded clause found elsewhere in the Policy, which provision is not at issue, the defendant explicitly limits to two years a type of additional coverage (not sought herein). Under the “Ordinance or Law” section, providing additional coverage for the increased costs where an ordinance or law requires the insured to demolish the undamaged parts of a building in addition to the damaged parts, the Policy states: § A.5.e.4. We will not pay the increased costs of construction under this coverage: (a) Until the property is actually repaired or replaced, at the same location or elsewhere; and (b) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage, not to exceed two years. (A145, Policy § A.5.e.4) (Emphasis added). The fact that the defendant knew how to draft the five underscored words when it wanted to, and did not draft them into Policy § - 25 - E.6.d.1.b, establishes that the defendant did not intend to impose a two year deadline on reconstruction, or it could so be reasonably construed. Nor does Policy § E.6.d.1.b articulate any other firm time limit, such as contained in other policies. See, e.g., Woodhams v. Allstate Fire & Cas. Co., 453 Fed. Appx. 108, 112 (2d Cir. 2012) (summary order) (holding that policy stating that it will reimburse insured for replacement costs, provided the insured replaces the destroyed property “within 180 days of the actual cash value payment” sets forth an enforceable time limitation). Because Policy § E.6.d.1.b.i provides that the defendant will pay when the damaged property is replaced, and does not set an explicit time limit on reconstruction, the plaintiff’s action was timely. See Bakos, 83 A.D.3d at 1486-87. The First Department’s decision in Il Cambio, Inc. v. U.S. Fid. & Guar. Co., 920 N.Y.S.2d 305, 305-06 (1st Dep’t 2011), mentioned in the Second Circuit’s certification order (A633-A634), does not compel a different finding. The decision does not recite the applicable replacement cost provision. Assuming that the policy had an “as soon as reasonably possible” clause, the plaintiff had apparently conceded that since no effort was made to rebuild in four years, it could not satisfy the “as soon as reasonably possible” requirement. Without rebuilding the property, the - 26 - only claim left against the defendant carrier was for the cash value, and the action on that claim was not commenced within two years. Id. If it were the defendant’s intent to require a replacement building to be completed within two years no matter what, it should have said so directly, without requiring the insured to divine that conclusion though a convoluted interpretation process. See Palmieri v. Allstate Ins. Co., 445 F.3d 179 (2d Cir. 2009) (Sotomayor, C.J.). Palmieri is a Second Circuit case applying New York law to a flood insurance policy with an analogous replacement cost issue. In Palmieri, Allstate argued that Paragraph 6 of its policy’s “Replacement Cost Provisions” required the insured (Palmieri) to make a claim for replacement costs within 180 days of the flood, and that Palmieri missed that deadline. Id., 445 F.3d at 189-192. Paragraph 6 stated: “You may elect to disregard this condition in making claim hereunder, but such election shall not prejudice your right to make further claim within 180 days after loss for any additional liability brought about by these provisions.” Id. Whatever Allstate intended, the language of the policy did not set a deadline of 180 days from the flood to make a claim for replacement costs. Id. In fact, “[t]he magistrate judge found that the policy did not - 27 - provide a time limit for making repairs and that Palmieri’s pursuit of the claim after repairs were completed, even five years after the flooding, was ‘consistent with a reasonable understanding of his right’s [sic] under the policy.’” Id. On appeal, the Second Circuit agreed and held, in addition, that it would be “unreasonable” to expect insureds to deduce that they must make claims within 180 days of the loss, especially because the implication of that interpretation is that the policy denied replacement costs to anyone who could not complete reconstruction of his or her house within six months of the flood. Under Paragraph 4, these replacement costs can be claimed only after replacement is completed, so if the costs must be claimed within 180 days, the repairs must also have been completed within 180 days. No one reasonably reading the contract would expect to find such a drastic limitation of his or her rights buried in such a cryptic paragraph. Id., 445 F.3d at 192 (Emphasis added). As in Palmieri, an insured reading the replacement cost provision in our Policy should not be expected to piece together a jigsaw puzzle from elsewhere in the policy to deduce that if there is a loss the insurance company might claim that repairs must be completed within two years because: 1) the defendant will not pay what the Policy requires it to - 28 - pay unless it is sued; 2) the defendant cannot be sued unless repairs are completed; 3) and any suit must be brought within two years. If the defendant’s goal was clarity, the defendant could have easily clarified Policy § E.6.d.1.b with the simple addition of the five words, “not to exceed two years,” as it did in the same Policy, at § A.5.e.4.b (A145). The Policy does not say in large letters, easy to read, “NO MATTER WHAT YOU SPEND REBUILDING, YOU WILL GET NOTHING BACK IF YOU DO NOT COMPLETE CONSTRUCTION WITHIN TWO YEARS AFTER A FIRE.” No one would make the decision, within 180 days after a fire, to rebuild knowing that if reconstruction might wind up taking a month, a week, or a day, or a year, more than two years, no reimbursement at all will be paid, no matter how diligent reconstruction is pursued. Such a policy would encourage blight, as it would tend to put small business owners, “Mom & Pops”, out of business, since any small business whose building and only source of income just burned down would be hard-pressed to come up with $250,000 in fresh money to rebuild—out-of-pocket or by line of credit—especially when reimbursement is not guaranteed upon completion of the building. To avoid this sort of risk is why insurance is purchased in the first place. - 29 - The suggestion that plaintiff bargained for and intended to obtain replacement coverage which, in case of a massive fire, would require plaintiff to decide within 180 days whether it could rebuild in les than two years; and which policy expected plaintiff to expend hundreds of thousands of dollars out-of-pocket; but which would pay nothing if the plaintiff simply guessed wrong and/or through no fault of its own could not complete the new building in time due to circumstances beyond its control, is not reasonable. As this Court has observed, obtaining insurance that the insured could never use “hardly makes sense”. See American Bldg. Supply Corp. v. Petrocelli Group, Inc., 19 N.Y.S.2d 730, 736 (2012). POINT II AS THE INSURED HAS NO RIGHT TO PAYMENT UNTIL THE REPLACEMENT IS COMPLETED, ITS CLAIM FOR REIMBURSEMENT OF REPLACEMENT COSTS ACCRUES WHEN THAT CONDITION HAS BEEN MET, NOT BEFORE Statutes of limitation begin to run when a cause of action accrues. See Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993); see also CPLR 203(a) (“The time within which an action must be commenced, except as otherwise expressly prescribed, shall be computed - 30 - from the time the cause of action accrued to the time the claim is interposed.”). Policy § E.6.d.1.b, which states “We will not pay . . . until the . . . property is actually repaired or replaced . . .”, expressly conditions payment on the completion of the repair or replacement. See MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009) (stating that the use of terms like “if,” “unless” and “until” constitute “unmistakable language of condition”) (internal quotation marks and citation omitted); see also Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765, 771-72 (2012) (discussing MHR Capital Partners LP). Indeed, Judge Wexler dismissed Action 1, commenced within two years of the fire, because defendant claimed it was brought too soon, and that the plaintiff had no enforceable claim until the replacement building is completed (A450) (“Once repairs are complete, [plaintiff] can make its claim for full payment of the Policy.”). The Second Circuit similarly observed in its certification order that “actual repair of the property is a condition precedent to recover[y]” (A633, n.1). Accordingly, when the plaintiff completed the replacement building as soon as reasonably possible, on October 5, 2010, its claim accrued on that date. - 31 - This conclusion comports with more than a century of precedent from this Court which establishes that an action does not accrue until “the plaintiff first [becomes] enabled to maintain the particular action in question.” Cary v. Koerner, 200 N.Y. 253 (1910); see also Vigilant Ins. Co. of Am. v. Hous. Auth. of El Paso, TX, 87 N.Y.2d at 43 (“An action accrues . . . when all of the facts necessary to sustain the cause of action have occurred, so that a party could obtain relief in court.”); John J. Kassner & Co. v. New York, 46 N.Y.2d 544, 550 (1979) (“[W]hen the right to final payment is subject to a condition, the obligation to pay arises and the cause of action accrues, only when the condition has been fulfilled.”); City of N.Y. v. State of N.Y. 40 N.Y.2d 659, 668 (1976) (“[A] claimant’s cause of action does not accrue until it possesses the legal right to be paid and to enforce its right to payment in court.”); Gaidon v. Guardian Life Ins., 96 N.Y.2d 201 (2001) (“[A] cause of action accrues . . . when all of the factual circumstances necessary to establish a right of action have occurred, so that the plaintiff would be entitled to relief.”). In Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169, 175 (1986), the Court held that an insurer’s right to foreclose a lien that by its terms can only be enforced against “any recovery” obtained by the insured accrues only when the insured has actually obtained the funds; and “since . . . the - 32 - insurer’s suit to foreclose the lien was commenced within three years of that date, it was timely. . . .” Id. Similarly, in the context of a products liability claim for repetitive stress injuries, the Court held that a claim accrues against a manufacturer upon the onset of symptoms or the last use of the injury- producing device, whichever is earlier—decidedly not at the time the product was first delivered to the plaintiff-consumer, as the defendant had argued. See Blanco v. American Tel. & Tel. Co., 90 N.Y.2d 757, 774 (1997). The Court understood that “Plaintiffs suffering from a [repetitive stress injury] have no reason to complain of their condition until a symptom actually manifests itself, and cannot be faulted for failing to exercise their legal rights prior to that time.” Id. In Vigilant Ins. Co. of Am. v. Housing Auth. of El Paso, TX, 87 N.Y.2d 36 (1995), the subrogee of a bondholder and a transfer agent brought a declaratory judgment action against the issuing authority, alleging various claims arising from a failure to pay amounts due on certain bonds. Defining the accrual dates for each of the various claims, the Court held that: the claim for the failure to pay on the bonds accrued the day after the bonds’ maturity date, not before; the claims for conversion and for breach of contract against the transfer agent accrued when the - 33 - transfer agent placed a stop order on the bonds after they were allegedly stolen; and the claims for coupon interest accrued on the date each coupon became due. Id. This Court most recently addressed the accrual issue in Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d at 770-71, a factually distinguishable case, where the defendant Zurich, an insurance company, argued that its counterclaim for unbilled premiums and deductible going back more than six years did not accrue until it sent invoices to the plaintiff. The Court observed: As a general principle, the statute of limitations begins to run when a cause of action accrues (see CPLR 203[a]), that is, “when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court” (Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169, 175, 501 N.Y.S.2d 313, 492 N.E.2d 386 [1986]). In contract actions, we have recognized that a claim generally accrues at the time of the breach (see Ely– Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402, 599 N.Y.S.2d 501, 615 N.E.2d 985 [1993]). And, we have explained further that “when the right to final payment is subject to a condition, the obligation to pay arises and the cause of action accrues, only when the condition has been fulfilled” (John J. Kassner & Co. v. City of New York, 46 N.Y.2d 544, 550, 415 N.Y.S.2d 785, 389 N.E.2d 99 [1979]). - 34 - A consistent line of Appellate Division precedent holds that, where “the claim is for payment of a sum of money allegedly owed pursuant to a contract, the cause of action accrues when the [party making the claim] possesses a legal right to demand payment” (Minskoff Grant Realty & Mgt. Corp. v. 211 Mgr. Corp., 71 A.D.3d 843, 845, 897 N.Y.S.2d 485 [2d Dept. 2010]; see also Kuo v. Wall St. Mtge. Bankers, Ltd., 65 A.D.3d 1089, 1090, 885 N.Y.S.2d 520 [2d Dept. 2009]; Swift v. New York Med. Coll., 25 A.D.3d 686, 687, 808 N.Y.S.2d 731 [2d Dept. 2006]; Kingsley Arms, Inc. v. Copake–Taconic Hills Cent. School Dist., 9 A.D.3d 696, 698, 780 N.Y.S.2d 805 [3d Dept. 2004], lv. dismissed 3 N.Y.3d 767, 788 N.Y.S.2d 670, 821 N.E.2d 975 [2004]; Albany Specia lties v. Shenendehowa Cent. School Dist., 307 A.D.2d 514, 516, 763 N.Y.S.2d 128 [3d Dept. 2003]). In other words, the statute of limitations in these cases was triggered when the party that was owed money had the right to demand payment, not when it actually made the demand. Id., 18 N.Y.3d at 770-71. This precedent ultimately led the Hahn Court to reject Zurich’s argument that accrual occurred when it invoiced the insured for payment, as “Zurich [could not] point to any contract language unambiguously conditioning its right to payment on its own demand”. Id., at 771-72. A claim accrues “when the party that [is] owed money ha[s] the right to demand payment, not when it actually [makes] the demand.” Id. at 771. - 35 - In our case, the language in the defendant’s Policy unambiguously conditions plaintiff’s right to payment upon its completion of the replacement (Policy § E.6.d.1.b). Since plaintiff had no right to demand payment until October 5, 2010, at the earliest, the date the replacement building was completed, that is the date of accrual. Plaintiff could not extend the accrual date indefinitely by failing to make repairs, since plaintiff was also required to comply with the unambiguous condition that it must complete the replacement “as soon as reasonably possible” (Policy § E.6.d.1.b.ii). Indeed, in drafting the contract, it was the defendant that dictated when plaintiff could obtain reimbursement for its replacement costs—not upon the fire, but upon the completion of the replacement after the fire, which must be completed as soon as reasonably possible (Policy § E.6.d.1.b). The plaintiff’s alleged delay in commencing suit until the completion of the replacement building was therefore caused by the defendant, the drafter of that mandatory condition. As this Court held in Steen v. Niagara Fire Ins. Co., 89 N.Y. 315 (1882), in eerily prescient language that provides insightful guidance for the resolution of our dispute: The delay . . . [was] caused by the insurer, and until by the terms of the policy a cause of action accrues, the period of limitation against its enforcement should not, in - 36 - the absence of plain and unequivocal words requiring such a construction, be deemed to commence. . . . [N]ot only was the remedy postponed, but the liability even did not exist at the time of the fire, nor until it was fixed and ascertained according to the provision of the policy. Having thus made the doing of certain things, and a fixed lapse of time, thereafter, conditions precedent to the bringing of an action, the parties must be deemed to have contracted in reference to a time when the insured, except for that contract, might be in condition to bring an action. Under any other construction, the two conditions are inconsistent with each other. Id., 89 N.Y. at 323. In our case, the plaintiff fully complied with the terms and conditions of the Policy, timely notified the defendant that it intended to seek replacement costs under Policy § E.6.d.1.a, retained contractors, drew up plans, obtained building permits, demolished the fire-destroyed building down the sub-foundation, and completed the full construction of the replacement building—and did it all by October 5, 2010, which was “as soon as reasonably possible” (Policy § E.6.d.1.b). Accordingly, this action was timely commenced on March 7, 2011, merely five months after the claim accrued upon the completion of the replacement building, albeit more than two years after the fire. - 37 - If the Court were to find otherwise, the plaintiff would be left in the lurch. In other words, the Court would be finding that the plaintiff, who complied with the unambiguous Policy condition in completing the replacement as soon as reasonably possible, never had a reasonable opportunity to assert its claim. Such a result would violate public policy and the Court’s precedents, since “[a] defendant’s interest in defending a claim must be balanced with a plaintiff’s interest in not being deprived of a claim before a reasonable chance to assert it arises.” Vigilant Ins. Co. of Am. 87 N.Y.2d at 43-44 (citing Martin v. Edwards Labs., 60 N.Y.2d at 425). POINT III THE INHERENT POLICY CONTRADICTION MUST BE RESOLVED IN FAVOR OF THE PLAINTIFF INSURED Policy § E.6.d.1.b, promising payment of replacement costs when the replacement is completed, if completed as soon as reasonably possible, contradicts Policy § E.4, if they are read together. On the one hand, Policy § E.4 provides that there must be “full compliance with all the terms of this insurance” (Policy § E.4.a) and that an action must be brought within two years of the fire (Policy § E.4.b); on the other hand, an insured who is striving to comply fully with “all the terms of this insurance” must - 38 - complete repairs “as soon as reasonably possible” (Policy § E.6.d.1.b.ii). But if it takes longer than two years to comply fully with Policy § E.6.d.1.b.ii, then compliance with Policy § E.4.b is impossible. The two provisions thus contradict each other in such cases. Where acting as soon as possible takes less than two years, the contraction does not manifest itself and is immaterial. However, the contradiction becomes material where the coverage is needed the most—as here, where an entire building must be demolished and rebuilt from the foundation up, taking more than two years through no fault of the insured. The self-serving solution urged by the defendant is to conclude that where an insured cannot complete the replacement within two years of a fire, it can never make a claim for replacement costs; in other words, the defendant would resolve the ambiguity in favor of itself, not the insured, even though that would mean that Policy § E.6.d.1 provides only illusory coverage after two years. Defendant’s solution is erroneous for several reasons. 1. Ambiguity Must Be Resolved In Favor of The Insured, Not the Carrier According to the defendant, Policy § E.4 requires “full compliance” with Policy § E.6.d.1.b; and Policy § E.6.d.1.b obligates the - 39 - insured to complete the replacement “as soon as reasonably possible.” Contrary to the defendant’s view, the Policy cannot also require an insured to complete repairs within two years where, as in our case, the repairs cannot be completed at the mandatory pace within two years. Adopting the defendant’s view, the Policy would send a conflicting, mixed message that is, in a word, ambiguous. It is fundamental that ambiguities in an insurance policy must be construed against the insurer. Thomas J. Lipton, Inc. v. Liberty Mut. Ins. Co., 34 N.Y.2d 356, 361 (1974); Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390, 398 (1983) (ambiguity in policy must be construed against defendant); Breed v. Insurance Co. of N. Am., 46 N.Y.2d 351, 353 (1978); Miller v. Continental Ins. Co., 40 N.Y.2d at 678 (“[P]olicies of insurance, drawn as they ordinarily are by the insurer, are to be liberally construed in favor of the insured.”); see also Dean v. Tower Ins. Co. of N.Y., 19 N.Y.3d 704, 708 (2012) (defendant must establish that plaintiff is not reasonably entitled to coverage in the particular case). Accordingly, the Court should resolve the ambiguity against the defendant and find that the plaintiff’s time to “make a claim” under Policy § E.6.d.1 accrued on October 5, 2010, the date on which the replacement building was completed. - 40 - 2. Completing the Replacement Within Two Years Is Not A Condition Precedent to A Replacement Cost Claim The completion of the replacement building within two years is not a condition precedent to a claim for reimbursement of replacement costs under Policy § E.6.d.1. The only conditions precedent to such a claim are that the insured must notify the carrier within 180 days after the fire of its intent to rebuild (Policy § E.6.d.1.a) and then complete construction as soon as reasonably possible (Policy § E.6.d.1.b). If completion within two years of the fire were a condition precedent, it would render meaningless and illusory the provision which gives the insured the unfettered right and obligation to complete construction “as soon as reasonably possible.” And since working at the mandatory pace can take more than two years, the defendant’s construction of the contract would render this otherwise clear direction to the insured meaningless. In other words, the two year clause in Policy § E.6.d.1.b cannot be a “condition precedent” to suit where the Policy requires that the suit must be brought before a building can be reconstructed, and the insured, like Yossarian, is left in a “Catch-22”. - 41 - 3. The Time To Make A Claim For Reimbursement of Replacement Costs Is Governed By The Special Provision of Policy § E.6.d.1, Not The General Provision of Policy § E.4 As this Court has recognized, when two provisions in a contract contradict each other, the one to follow is the one that is the more specific. See Israel v. Chabra, 12 N.Y.3d 158 n.3 (2009): The better and apparent majority rule for resolving irreconcilable differences between contract clauses is to enforce the clause relatively more important or principal to the contract. This rule is tempered by the corollary that the more specific clause controls the more general (11 Lord, Williston on Contracts § 32:15, at 507-510 [4th ed]). Id.; see also Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 46 (1956) (where there is “an inconsistency between a specific provision and a general provision of a contract . . . , the specific provision controls.”). Applying this formulation to our case, Policy § E.4 generally applies to the Policy as a whole, while Policy § E.6.d.1.b applies in a particular situation involving a unique replacement cost claim procedure with its own timing clause. Where the two sections conflict, Policy § E.6.d.1.b must supersede, not the other way around. The provision says “as soon as reasonably possible,” not within two years of the fire, which the defendant could have specified directly in - 42 - the text of Policy § E.6.d.1.b but did not make clear. The defendant had no trouble making its intention clear at Policy § A.5.e.4.b, where it added the words “not to exceed to years” to that nearly identical provision. Moreover, from the point of view of the contractual scheme, it makes much more sense to limit the cost based procedure to two years, because that valuation is based on appraisals and estimations. In contrast, replacement costs cannot be determined until the repairs or replacement are actually made, which could take longer than two years. After all, the defendant expressly promises the insured: “[Y]ou may still make a claim on a replacement cost basis if you notify us of your intent to do so within 180 days after the loss or damage” (Policy § E.6.d.1.a). 4. The 180-day Notice Rule is Superfluous if An Insured Has Only Two Years to Complete Repairs The Policy contemplates that not all repairs can be completed within two years because it includes the proviso that repairs must be made “as soon as reasonably possible.” If it were not understood that some repairs could reasonably take longer than two years, the Policy would not expressly provide an avenue for such claims. At the very least, the two conditions read together with the 180-day notice condition create - 43 - ambiguity which must be construed against the drafter. See Dean v. Tower Ins. Co. of N.Y., 19 N.Y.3d 704 (2012); Breed v. Insurance Co. of N. Am., 46 N.Y.2d 351, 353 (1978). Having received such 180-day notice, the defendant is able to put aside reserves, and monitor the progress of the construction to see how it is proceeding. If an insured has two years to complete repairs, and no more, the 180-day notice provision would serve no purpose. However, if the 180-day notice provision is not superfluous, and if Policy § E.6.d.1 does not provide illusory coverage, the only harmonious interpretation that would give meaning to “all” of the Policy’s provisions is that the insured has all the time it reasonably needs to complete repairs, and may then sue if the insurance company does not pay. POINT IV ANY ARGUMENT THAT PLAINTIFF AGREED NOT TO SUE IS VOID AS AGAINST PUBLIC POLICY Policy § E.4 cannot be read to limit the right to “make a claim” for replacement costs if “as soon as reasonably possible” turns out to be more than two years, for then a claim bargained for by the parties and written into the Policy could never be made. - 44 - Any argument that in purchasing the insurance, plaintiff agreed that in case of fire it would not bring an action unless it rebuilt the building in an impossibly short amount of time is tantamount to an argument that the plaintiff agreed not to sue the defendant under the Policy. Such an agreement is void as against public policy. See Bersani v. General Acc. Fire & Life Assurance Corp., 36 N.Y.2d 457, 460 (1975) (“purported agreement that the insureds would not pursue a claim which would arise under the policy, standing alone, or engrafted upon the terms of the standard policy, was and is against public policy” and hence void). POINT V NO ORDINARY BUSINESS OWNER WOULD REASONABLY BELIEVE THE BUILDING HAD TO BE REBUILT ENTIRELY WITHIN TWO YEARS OF THE FIRE OR LOSE INSURANCE COVERAGE, NO MATTER HOW DEVASTATING THE FIRE WAS An ordinary commercial property owner applying for insurance and reading the language of Policy § E.6.d.1 would not reasonably think it means that in case of a fire, the entire building must be rebuilt within two years in order to be entitled to reimbursement of replacement costs. See Tomas J. Lipton, Inc., at 361. Indeed, only a forced misreading of the Policy could lead to this understanding. - 45 - It is reminiscent of the obvious injustice illustrated in the classic Vaudevillian bit where the door-to-door insurance salesman sells “fire and theft” policies, and later denies a homeowner’s theft claim because the burglary did not take place during a fire. Gotcha! Strictly construing the “as soon as reasonably possible” clause, read in harmony with the rest of the Policy, in light of the reasonable expectations of an average insured, and as applied to this case, the Policy is at best ambiguous, and does not expressly limit the insured to two years from the fire to sue for reimbursement of replacement costs. See Cragg v. Allstate Indem. Corp., 17 N.Y.3d 118, 122 (2011) (“Insurance contracts must be interpreted according to common speech and consistent with the reasonable expectation of the average insured”); State Farm Mut. Auto. Ins. Co. v. Langan, 16 N.Y.3d 349, 354-55 (2011) (insurance policy should be “interpreted according to how it would be understood by the average person”); Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390, 398 (1983). - 46 - POINT VI A POLICY THAT REQUIRES THE INSURED TO DO THE IMPOSSIBLE OFFERS TERMS LESS FAVORABLE THAN THE STANDARD FIRE POLICY AND IS NOT REASONABLE When plaintiff argued to Judge Seybert that reading the Policy as barring plaintiff’s claim would render part of Policy § E.6.d.1.b meaningless and illusory, Judge Seybert ruled: [T]his interpretation does not render the condition precedent--that “the repairs or replacement [be] made as soon as reasonably possible after the loss or damage” [Policy § E.6.d.1.b]--meaningless as it is possible to have repairs that were made within two years of the date of the loss but were not made “as soon as reasonably possible.” In other words, Defendant can refuse to reimburse Plaintiff for the Replacement Cost of repairs that were made within two years of the date of the loss if those repairs were not made “as soon as reasonably possible.” (A622) (Emphasis added). Judge Seybert’s reasoning addressed less than half the issue. It only considered the hypothetical situation where an insured completes repairs within two years but could reasonably have done it faster. It did not address our situation, where the insured completes repairs as fast as it reasonably can but requires more than two years in which to do it—the very certified question now before the Court. - 47 - Judge Seybert disregarded the clause’s interplay with Policy § E.6.d.1.b.i, which promises that the insured will be paid when the repair or replacement is completed—and thus failed to read the Policy in a way that gives meaning to all of its terms. See Northville Indus. Corp. v. National Union Fire Ins. Co., 89 N.Y.2d 621, 633 (1997) (a court must strive to give “meaning . . . to every sentence, clause, and word of a contract of insurance”). Properly reading the two conditions of Policy § E.6.d.1.b together, the Policy promises that defendant will pay when the repairs are completed, whenever that will be, so long as the repairs are made as soon as reasonably possible. Moreover, Judge Seybert’s conclusion that a fire insurance carrier may refuse to reimburse the hypothetical insured for repairs completed within two years, though not “as soon as reasonably possible,” is inconsistent because if the insured has two years to commence an action, that time cannot be reduced by its failure to act with alacrity in that time. It would also violate the “standard fire insurance policy in the state of New York, codified at Insurance Law § 3404 (“Standard Fire Policy”). The Standard Fire Policy sets forth the minimum standards that fire policy must meet in New York. See INSURANCE LAW §§ 3404(a), 3404(f)(1)(A); Lane v. Security Mut. Ins. Co., 96 N.Y.2d 1 (2001). A fire policy cannot be read to impose a term less favorable to the insured than - 48 - contained in the Standard Fire Policy. See TAG 380, LLC v. ComMet 380, Inc., 10 N.Y.3d 507 (2008); 1303 Webster Ave. Realty Corp. v. Great Am. Surplus Lines Ins. Co., 63 N.Y.2d 227, 231 (1984). Under the Standard Fire Policy, the most restriction a policy may legally impose on the insured is the following: The insured shall give immediate written notice to this Company of any loss, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed; and within sixty days after the loss, unless such time is extended in writing by this Company, the insured shall render to this Company a proof of loss, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if required, verified plans and specifications of any Requirements in case loss occurs. - 49 - building, fixtures or machinery destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to any person designated by this Company all that remains of any property herein described, and submit to examinations under oath by any person named by this Company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices and other vouchers, or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by this Company or its representative, and shall permit extracts and copies thereof to be made. INSURANCE LAW § 3404(e) (Lines 90-122).8 Inasmuch as requiring repairs to be completed “as soon as reasonably possible” would impose a specific time constraint which is not among the statutorily permitted restrictions, the Policy would impose a term less favorable to the hypothetical insured than the Standard Fire Policy. Of course, even assuming, arguendo, a fire insurance carrier has the right to deny any replacement costs claim in a hypothetical case where the repair or replacement is not completed as soon as reasonably possible, 8 Policy § E.3 has a similar list of requirements, which it denominates “Duties in the Event of Loss or Damage” (Policy § E.3). Defendant does not allege that plaintiff failed to comply with any of the Policy § E.3 duties, and complied with Policy § E.6.d.1 as well. - 50 - it is entirely irrelevant, since in our case the plaintiff completed the replacement as soon as reasonably possible. In addition, a policy that requires an insured to finish building as soon as reasonably possible, and within two years, where it is not reasonably possible to complete repairs at that mandatory pace within two years, imposes a condition that is less favorable to the insured than permitted by the Standard Fire Policy, since it would require the insured to do the impossible. A policy that requires an insured to do the impossible is not reasonable as matter of law. Parties may only agree to shorter limitations periods “provided [those shorter periods] are reasonable.” John J. Kassner & Co., Inc. v. City of N.Y., 46 N.Y.2d at 550-51. The Standard Fire Policy Notwithstanding, Our Policy Is Reasonably Construed To Impose No Deadline For The Completion of Repairs While the Standard Fire Policy permits the defendant to limit suits for claims made under the Standard Fire Policy to 24 months, that limitation does not apply to the plaintiff’s replacement cost claim under our Policy. The defendant’s Policy offers terms that are more beneficial to the plaintiff than those contained in the Standard Fire Policy, but they are - 51 - only effective where the plaintiff may actually bring a replacement cost claim when repair or replacement is completed. The Standard Fire Policy does not require that replacements be completed “as soon as reasonably possible”; that requirement was engrafted into our Policy by the defendant. Nor does the Standard Fire Policy require that repairs actually be completed at all. The Standard Fire Policy contemplates valuing losses prospectively only, before repairs are made, based on appraisals and estimates, and provides that the carrier must pay only the lesser of the cash value or replacement costs, not both. The following is an excerpt from the Standard Fire Policy; the reference to replacement costs has been underlined: The form of the standard fire insurance policy of the state of New York . . . shall be as follows: FIRST PAGE OF STANDARD FIRE POLICY No. ............ In Consideration of the Provisions and Stipulations herein or added hereto and of .......................................... Dollars Premium this Company, for the term of ........, from the ........ day of ........, 19.. to the ........ day of ........, 19.. at noon, Standard Time, at location of property involved, does insure ......................... and legal representatives, TO THE LESSER AMOUNT OF EITHER: - 52 - 1) THE ACTUAL CASH VALUE OF THE PROPERTY AT THE TIME OF THE LOSS, OR 2) THE AMOUNT WHICH IT WOULD COST TO REPAIR OR REPLACE THE PROPERTY WITH MATERIAL OF LIKE KIND AND QUALITY WITHIN A REASONABLE TIME AFTER SUCH LOSS, WITHOUT ALLOWANCE FOR ANY INCREASED COST OF REPAIR OR RECONSTRUCTION BY REASON OF ANY ORDINANCE OR LAW REGULATING CONSTRUCTION OR REPAIR, AND WITHOUT COMPENSATION FOR LOSS RESULTING FROM INTERRUPTION OF BUSINESS OR MANUFACTURE, OR 3) TO AN AMOUNT NOT EXCEEDING ................ DOLLARS, BUT IN ANY EVENT FOR NO MORE THAN THE INTEREST OF THE INSURED, AGAINST ALL DIRECT LOSS BY FIRE . . . . INSURANCE LAW § 3404(e) (at p. FIRST) (Uppercase lettering in original; underscore added). In contrast to the forward-looking approach of the Standard Fire Policy, our Policy allows claims for both cash value and replacement costs, but does not permit replacement costs to be valued prospectively. Rather, the insured must make a claim for replacement costs only after the repairs are actually completed (Policy § E.6.d). A two-year limitation makes sense when losses are determined prospectively, since estimates can obviously be made before any actual - 53 - repairs are completed. It makes no sense where replacement cost cannot be determined until after the replacement is completed. Because actually completing the replacement takes an indeterminate amount of time, our Policy sensibly does not impose an outside time limit on reconstruction and a subsequent claim for reimbursement of the associated replacement costs. The Policy merely requires that the insured complete the repairs “as soon as reasonably possible” (Policy § E.6.d.1.b). Of course, the insured is not free to make repairs whenever it wants, and thereby open the defendant to indeterminate liability under the Policy. The insured must complete the replacement “as soon as reasonably possible”. As Judge Wexler observed: “Once repairs are complete, Executive can make its claim for full payment of the Policy. Peerless can then either make payment, or raise the issues of reasonableness and timeliness in support of a decision of non-payment.” (A450). - 54 - CONCLUSION The bright-line rule going forward should be what it has always been: If a defendant insurance carrier wishes to limit its exposure to a possible claim, it must state that limitation plainly and unambiguously in its policy so that the purchaser of that policy knows what is covered, what is not covered, and what the time limits are, and can seek to purchase a different policy if it does not suit the insured’s needs. A carrier should not be permitted to trap the most hard-hit small business owner-insureds, who have lost their entire building and livelihood to a devastating fire, in an impossible squeeze: they are promised reimbursement if they rebuild as soon as reasonably possible, but when they diligently rebuild at that mandatory pace, actually paying out- of-pocket more than $1 million in construction costs, they are denied access to the courthouse to enforce their contractual right to reimbursement simply because it takes more than two years to finish the building through no fault of their own. Accordingly, for the reasons set forth above, the Court should answer the certified question in the affirmative. Dated: August 21, 2013 - 55 - Respectfully submitted, JAROSLAWICZ & JAROS LLC Attorneys for Plaintiff-Appellant 225 Broadway, 24th Floor New York, New York 10007 (212) 227-2780 dtolchin@lawjaros.com by: David Tolchin David Jaroslawicz