Executive Plaza, LLC, Appellant,v.Peerless Insurance Company, Respondent.BriefN.Y.January 6, 2014against Court of Appeals STATE OF NEW YORK FRANKLIN COURT PRES, INC.—212-594-7902 (328-13) Reproduced on Recycled Paper MARK L. FRIEDMAN, ESQ. WILKOFSKY, FRIEDMAN, KAREL & CUMMINS 299 Broadway, Suite 1700 New York, New York 10007 (212) 285-0510 Attorneys for Amicus Curiae The New York Public Adjusters Association Plaintiff-Appellant, PEERLESS INSURANCE COMPANY, CTQ-2013-00005 EXECUTIVE PLAZA, LLC, Defendant-Respondent. AMICUS CURIAE BRIEF OF THE NEW YORK PUBLIC ADJUSTERS ASSOCIATION IN SUP- PORT OF PLAINTIFF-APPELLANT EXECUTIVE PLAZA, LLC, DISCLOSURE STATEMENT OF NEW YORK PUBLIC ADJUSTERS ASSOCIATION PURSUANT TO 22 NYCRR 500.1(1) Pursuant to Rule § 500.1(f) of the Rules of Practice of the Court of Appeals, Amicus Curiae The New York Public Adjusters Association, Inc., advises the Court that it is incorporated in the State of New York and has no corporate parents, subsidiaries or affiliates. TABLE OF CONTENTS Page TABLE OF AUTHORITIES......................................................................... 1 PRELIMINARY STATEMENT.................................................................... 1 QUESTION PRESENTED............................................................................ 6 STATEMENT OF FACTS... ........................................................................... 7 POINT I. PLAINTIFF'S CLAIM FOR THE REPLACEMENT COST HOLDBACK IS GOVERNED BY THE SIX YEAR STATUTE OF LIMITATIONS APPLICABLE TO GENERAL CONTRACT ACTIONS..................... 8 POINT II. EXECUTIVE'S SECOND LAWSUIT IS TIMELY AS IT RELATES BACK TO THE FIRST..................................................................... 10 POINT III. PUBLIC POLICY MITIGATES AGAINST A POLICYHOLDER BEING DENIED POLICY BENEFITS WHICH WERE BARGAINED FOR......... 13 POINT IV. PEERLESS' POSITION EXEMPLIFIES ILLUSORY COVERAGE ............................................... 17 POINT V. THE INHERENT AMBIGUITY IN PEERLESS' POLICY IS MANIFEST ................................................... 22 POINT VI: THE BAKOS DECISION IS DIRECTLY ON POINT AND SUPPORTIVE OF EXECUTIVE'S POSITION...................................................................... 26 CONCLUSION.............................................................................................. 27 TABLE OF AUTHORITIES Cases Page( s) Bakos v. NY., Cent. Mutual Fire Ins. Co., 83 A.D.3d 1485 (4th Dept, 2011)............................................................... 26-28 Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, (2003)........................................................................... 24 Bi-Economy Market v. Harleysville Ins. Co., 10 N.Y.3rd 187, 194 (2008).................................................................... 13-14 Bonde v. Illinois Farmers Ins. Co., No. C7-95-1957, 1996 WL 422504, at *2 (Minn. Ct. App. July 30, 1996)............................................................... 19 Brockway-Smith Co. v. Greene, 179 A.D.2d 922, 923, 578 N.Y.S.2d 700, 701 (3d Dept, 1992).............. 21 City of Poughkeepsie v. Black, 130 A.D.2d 541 (2nd Dept, 1987).............................................................. 9 Cornellius v. American Casualty Co., 389 F.2d 641 (2d Cir. 1968).................................................................... 25 Ditch v. Hartford Fire Ins. Co., 149 A.D.2d 957.(4th Dept, 1988)............................................................ 8 DRK LLC v. Burlington Ins. Co., 74 A.D.3d 693.(1 st Dept, 2010).............................................................. 26 Everhome Mort. v. Charter Oak Ins. Co., 2012 WL868961 *9 (EDNY, 2012)........................................................ 12 Federal Ins. Co. v. IBM, 18 N.Y.3d 642, 650 (2012).................................................................... 24 1 Felix Contracting Corp, v. Oakridge Land and Prop. Corp., 106 A.D.2d 488,489,483 N.Y.S.2d 28,29 (2d Dept, 1984) .......................................................................... .. Fifty States Management Corp. v. Pierce Auto Parts Inc., 46 N.Y.2d 573 (1979) ........................................................................... . Guadagno v. Colonial Cooperative Ins. Co., 101 A.D.2d 947, and 145 A.D.2d 804 (3fd Dept, 1984 and 1988) ........ II Cambio Inc. v. Us. Fidelity and Guar. Co., 82 A.D.3d 650 (2011) .......................................................................... . In Re Ambassador Group, 738 F. Supp 57 is misplaced. (A 622) (EDNY 1990) ........................ .. Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116, 119 (Minn. Ct. App. 1995) .................................... . Loring v. Continental Cas. Co., 56 N.Y.2d 848 (1982) ......................................................................... . Lyon v. Hersey, 103 N. Y. 264 (3 S.R. 174; 8 N.E. 518) (1886) .................................. . Main v. Cambridge Mutual Fire Ins. Co., 1995 WL 575137 *4 (Mass App Div 1995) ...................................... . McCarthy v. Volkswagon of America, 55 N.Y.2d 543 (1982) .......................................................................... . Moshiko Inc. v. Seiger & Smith Inc., 137 A.D.2d 170 (First Dept, 1988.) ..................................................... . Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42 (1956) ................................................................................ . 11 21 15 9 26,27 24 18 15 15 22 10 25 26 Nationwide Mutual Ins. Co. v. Davis, 195 A.D.2d 561,562,600 N.Y.S.2d 482,482 (2d Dept, 1993)............. 18 New Dance Group Studio v. St. Paul Fire & Marine Ins. Co., 1995 WL 434314 * 1 (SDNY 1995)...................................................... 10 Painewebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996)........................................................ 23 Palmieri v. Allstate Ins. Co., 445 F.3d 179 (2d Cir. 2006)................................................................. 22 Pendleton v. City o/New York, 44 A.D.3d 733, 736, 843 N.Y.S.2d 648 (2007).................................... 13 Reisman v. Coleman, 193 A.D.2d 659 (2d Dept, 1993)........................................................... 23 Slayko v. Security Mutual Ins. Co. 183 Misc.2d 688,693, 705 N.Y.S.2d 528, 532 (Sup. Ct. St. Lawrence Cnty. 2000), rev'd on other grounds, 98 N.Y.2d 289, 774 N.E.2d 208, 746 N.Y.S.2d 444 (2002)............... 18 Stateo/New Yorkv. Home Indem. Co., 66 N.Y.2d 669, 671 (1985)................................................................... 23 Tamco v. Fed. Ins. Co., 216 F. Supp. 767 (Dist. Court, ND Ill, 1963)......................................... 21 Tank v. State Farm Fire and Cas. Co., 715 P.2d 1133 (Wash. 1986).................................................................. 14 Thomas J. Lipton, Inc. v. Liberty Mut. Ins. Co., 34 N.Y.2d 356,361,314 N.E.2d 37, 357 N,Y.S.2d 705, 708 (1974)............................................................. 18 111 United States Fid. & Guar. Co. v. Annunziata, 67 N.Y.2d 229, 232 (1986)................................................................. 23 Vastola v. Maer, 48 A.D.2d 561, 370 NYS 2d 955 (2nd Dept, 1975) ........................... 10 White v. Cant 'I Cas. Co., 9 N.Y.3d 264, 267 (2007).................................................................. 23 Woods v. General Accident Ins. Co. 292 A.D.2d 802 (4th Dept, 2002)......................................................... 23 OTHER AUTHORITIES: 4 Williston on Contracts, 3d ed, S 626 ............................................ 4 11 NYCRR §216.3 ............................................................................ 14 CPLR 203 (f)..................................................................................... 6 CPLR 213 ......................................................................................... 6 CPLR 213 (2).................................................................................... 8 FRCP 15(C) (1)................................................................................ 12 IV PRELIMINARY STATEMENT The New York Public Adjusters Association, Inc. (hereinafter the "ASSOCIATION") was formed over 40 years ago with its principal goal of educating, training and informing its members of all applicable laws, rules and regulations relating to the representation of policyholders in claims against their own insurers. Public Adjusters are licensed by the State of New York after a rigorous examination, said licenses being renewed every two years. The Association engages in educational seminars and other activities for continuing education purposes that promote the greater understanding of insurance issues and policyholders' rights. The New York Public Adjusters Association's activities include organizing meetings, distributing written materials, holding classes which result in required continuing education credits for the public adjusters, and responding to requests for information from individuals, elected officials and governmental agencies. In addition the Association lobbies the New York State Legislature in Albany on behalf of policyholders and public adjusters. Amicus Curiae has a vital interest in seeing that both public adjusters and policyholders are treated fairly and equitably under the terms of the insurance policy contract and that each side obtains its rightful "benefit of the bargain" under insurance policies issued in New York State. The New York Public Adjusters 1 Association seeks to assist and educate the public, the courts and the legislature on policyholders' insurance rights and supports efforts to have them enforced consistently throughout the country. The Association and its members are the day to day "front-line" counter-parts to the insurance company adjusters and are the first to realize attempts by carriers to abridge the rights of their policyholders. The Association, on behalf of all its members and the thousands of policyholders it represents, has a vital interest in preserving policyholders' rights to assert a claim for recovery of replacement cost depreciation holdback as provided for under the majority of policies providing replacement cost coverage in this state. The Association is concerned about the far-reaching effects of lower court decisions which would restrict the ability of policyholders to obtain replacement cost depreciation holdback when reasonable repair efforts necessarily carry past the policy's contractual suit limitation clause resulting in the draconian forfeiture of benefits paid for by these policyholders. The Association is further concerned that a reasonable person reading the provisions of the type of policy in question here would undoubtedly believe that the two year limitation period recited in their policy would not act to shorten the "reasonable" period of time for repair or replacement also contained in the said policy. 2 The Association requests this Court to answer the question certified by the United States Court of Appeals, Second Circuit, in the affirmative, to wit: Yes, an insured is covered for replacement costs if incurred after the expiration of the two year suit limitation period as long as the repairs/replacement were accomplished "as soon as reasonably possible after the loss." It is respectfully submitted that if the certified question is answered in the negative, plaintiff and other policyholders across this state will have purchased purely illusory coverage resulting in no opportunity to obtain the benefit of the bargain that they paid for despite fully complying with the loss settlement provisions. It is crucial that the policyholders who the New York Public Adjusters Association represent have a legal avenue to obtain their compensation for replacement cost monies expended out of pocket. These policyholders have the right to reasonably expect the coverage that the policy promised. In its Preliminary Statement Peerless sets up a straw man by claiming that to answer the certified question " ... the Court must determine whether New York public policy prohibits application of a two-year suit limitation to insurance claims for replacement cost coverage." (Defendant-Respondent Briefp.1) It then spends the remainder of its brief knocking down this straw man 3 claiming any other outcome would amount to rewriting of the policy. (Id. at 2,4,5,16,17,23,25,42). However, no such wholesale reform is necessary to ensure that Peerless' policyholders obtain the benefits they were promised for a premium, in the spirit of good faith and fair dealings required by this Court in all contract actions. Peerless looks at its contractual limitation provision in a vacuum without regard to its effects on its policyholder or its interplay with other incurred-expense time limitations contained in its policy. By offering replacement cost coverage and then reneging, Peerless acts like a confidence man, patting you on the back with one hand and picking your pocket with the other. The insuring public of this State deserve more. The carrier also preliminarily posits that Executive Plaza could have qualified for replacement cost payments ifit purchased another building to lease out or a policy with a longer suit limitation period. (Respondent's Briefp.6, FN). These disingenuous suggestions are firmly rooted in fantasy. Perhaps Peerless is unaware that the contract it issues is one of adhesion, non-negotiable as a general rule. (4 Williston on Contracts, 3d ed, S 626 at pgs. 855-57). Policies with longer suit limitation periods are as common as policies with zero premium. Additionally, Peerless' concerns about insureds sitting back for years before 4 filing suit for replacement costs is equally irrational. An insured who engages in such conduct is not only delaying the arrival of an infusion of much-needed cash but is also likely to run afoul of the "reasonable" language it still must abide by. 5 QUESTION PRESENTED: 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? Amicus Curiae respectfully submits that the question certified must be answered in the affirmative for the following reasons: (1) A suit to recover replacement costs after the underlying claim has already been settled is not a suit "under the policy" but one "on the settlement" and is governed by the six year statute contained within CPLR 203(f). (2) Executive's "second" lawsuit is timely as all events, transactions and occurrences "relate back" to its original concedely timely first suit under CPLR 213. (3) To answer in the negative would mean an insured has paid for purely illusory coverage which is functionally incapable of being realized. (4) The two competing policy provisions can be read together in harmony without foreclosing replacement cost claims after the expiration of two years from the date of loss. 6 STATEMENT OF FACTS The New York Public Adjusters Association adopts the Statement of Facts of the policyholder, Executive Plaza, LLC., individually and all others similarly situated, as set forth in its brief submitted to the Court. (See Brief For Plaintiff- Appellant filed August 21,2013). 7 POINT I PLAINTIFF-APPELLANT'S CLAIM FOR THE REPLACEMENT COST HOLDBACK IS GOVERNED BY THE SIX YEAR STATUTE OF LIMITATION APPLICABLE TO GENERAL CONTRACT ACTIONS There is no dispute that Executive Plaza and Peerless Insurance Company agreed to settle the case at bar as early as July, 2007, the parameters of which were memorialized in the Sworn Statement in Proof of Loss and agreed to by Peerless. (A 114,214-216) All parties considered the case to be settled as of July 17,2007, when all terms were locked into place regarding the actual cash value ("ACV") claim and the Replacement Cost holdback. (A 115) Any action brought by Executive thereafter would not be a suit under the policy but would constitute a suit on the agreed-upon settlement and subject to its own six year statute of limitation applicable to contract actions under CPLR 213(2). Two decisions from the Appellate Division, Third and Fourth Departments, support this outcome. In Ditch v. Hartford Fire Ins. Co., 149 A.D.2d 957 (4th Dept, 1988), a policyholder commenced an action to recover the depreciation holdback after he completed repairs to his residence and the carrier reneged on its prior agreement to make such holdback payment when repairs were made. Repairs in Ditch were completed at least 4 years after the fire but the Appellate Division, finding that this 8 was not a claim "brought under the policy" but rather a distinct new action, held it is not barred by the two-year suit limitations clause. Executive's claim at bar is distinct from a claim under the policy as well. All terms and conditions had been previously agreed upon between the parties and Executive was well within the six year statute of limitation for breach of contract actions in order to claim its holdback. Plaintiff's acceptance of the defendant's ACV payment with a promise of a further payment upon completion of repairs constitutes a separate settlement agreement. See also City of Poughkeepsie v. Black, 130 A.D.2d 541 (2nd Dept, 1987). Similarly, in Guadagno v. Colonial Cooperative Ins. Co., 101 A.D.2d 947 (3fd Dept, 1984) and 145 A.D.2d 804 (3fd Dept, 1988) (companion case), a policyholder had settled a portion of her case with the carrier insuring her property. In denying Colonial's motion for summary judgment, the Court held that plaintiff's first cause of action seeking to recover on a claim under defendant's policy was properly dismissed due to the expiration of the policy's two year policy limitation. However, the second cause of action seeking to enforce a settlement agreement and not the terms of the policy itself should continue under the six year statute of limitation for breach of contract actions. The initial complaint, filed before Judge Wexler in the Eastern District, 9 clearly sets forth facts sufficient to constitute a settlement agreement between the parties and should have been afforded the six year statute of limitation applicable to all settlement agreements under CPLR 213(2). (A 287) The utilization of adjusters by each side, extended negotiations and the submission of a Sworn Statement in Proof of Loss constitutes a "formalized settlement" even though the "holdback" portion is to be paid upon the completion of work. New Dance Group Studio v. St. Paul Fire & Marine Ins. Co., 1995 WL 434314 *1 (SDNY 1995). As such, this settlement agreement transforms any disputes arising thereunder from an action under the policy into a separate action under the settlement agreement with its attendant six year limitation period. POINT II EXECUTIVE'S SECOND LAWSUIT IS TIMELY AS IT RELATES BACK TO THE FIRST "The purpose of the statute of limitation is to force a plaintiff to bring his claim within a reasonable time set out by the Legislation so that a defendant will have a timely notice of a clairri against him and so that stale claims and the uncertainty they produce will be prevented". Vastola v. Maer, 48 A.D.2d 561,564 (2nd Dept, 1975) "They reflect the legislative judgment that individuals should be protected from stale claims." McCarthy v. Volkswagon of America, 55 N.Y.2d 543, 548 (1982). 10 Peerless can make no cogent argument that it was not explicitly on notice of Executive's claims the moment they were formalized via the filing of a Proof of Loss precisely setting forth the dollar amounts of the actual cash value and the depreciation holdback. That understanding was crystalized when Executive's initial Verified Complaint was timely filed in February 2009. Ongoing discussions and correspondence concerning the implementation of the holdback portion of the claim continued well past the two year anniversary of the fire. (A 320) In fact, Peerless was closely monitoring the progress of the repairs on the property far past the two year anniversary. (A 119) Under no interpretation could the claim of Executive be considered "stale" at the time the first lawsuit was commenced. At that date, Peerless knew precisely that the holdback claim was ongoing and was on full notice as to the extent of its parameters. Never once did Executive imply it was abandoning such claim. By the time the second lawsuit was interposed, the ongoing holdback process was completed. That is the only essential difference between the first and second lawsuit. The second lawsuit is therefore timely because all of its facts relate back to the first. The actual controversy was highlighted in ,-r24 of the first Complaint which states: 11 "Peerless has reimbursed plaintiff for a portion of the construction cost but is still withholding payment. .. pending completion of construction." (A 287) The second complaint is almost verbatim of the first complaint, adding only that the building repairs have been substantially completed. Under the above facts, applying either Federal or State statute of limitation rules, the claims in Executive's Complaint relate back to its initial Complaint and are timely. "Under federal law, if a claim arises under state law, or if the court borrows a state statute of limitation, relation back is determined by whichever procedural rule gives the most favorable result to the plaintiff." Everhome Mort. v. Charter Oak Ins. Co., 2012 WL 868961 *9 (EDNY, 2012). FRCP 15(c)(1)(B) permits amendment when it "asserts a claim or defense that arose out of the conduct, transactions or occurrence set out---or attempted to be set out - in the original pleading." CPLR 203(f) permits claims in amended pleadings to be considered timely "unless the original pleading does not give notice of the transactions, occurrences or series to be proved pursuant to the amended pleading." Under either statute, the second Complaint amounts to nothing more than a timely amendment of the first Complaint as all transactions in both pleadings are virtually identical. Moreover, Peerless can claim no prejudice as it cannot assert that 12 Plaintiff-Appellant's claim ever grew stale at any point because it was always being closely monitored by Executive at all relevant times. "The sine qua non of the relation-back doctrine is notice. Where the allegations of the original Complaint gave the defendant's notice of the facts and occurrences giving rise to the new cause of action, the new cause of action may be asserted." Pendleton v. City of New York, 44 A.D.3d 733, 736. (2nd Dept, 2007) POINT III PUBLIC POLICY MITIGATES AGAINST A POLICYHOLDER BEING DENIED POLICY BENEFITS WHICH WERE BARGAINED FOR Peerless spends a full point speaking about how the two year contractual suit limitation is not against New York Public Policy, however this is not the issue. The interplay and ambiguity between this clause and the loss settlement provision is the issue. Peerless has cited not one case within its Public Policy point that addresses this interplay. The Second Circuit certification decision is quite concerned with New York's Public Policy when reading the two conflicting policy provisions together. The New York Public Adjusters Association shares those concerns. This Court has recently re-enforced the concept that all policies issued in this state contain a "covenant of good-faith and fair dealing." Bi-Economy Market, Inc. v. Harleysville 13 Ins. Co., 10 N.Y.3rd 187, 194 (2008). Claims under such policies are intended to place the insured in as good a position as it would have been had the contract been carried out. ld. Thus, the public policy of this state would undoubtedly frown upon a carrier juxtaposing two inapposite provisions in the same policy and then utilizing the confusion it created by its own drafting to deny its policyholder the rights to recover the Replacement Cost coverage that they bought and paid for. Failing to do so undercuts the very purpose of the insuring agreement, to wit: the prompt and honest evaluation of claims. ld. l Thus insurers are required to act "in good conscience and fair dealing requir[ing] that the [insurer] pursue a course which is not advantageous to itself while disadvantageous to its policyholder." Tank v. State Farm Fire and Cas. Co., 715 P.2d 1133, 1139 (Wash. 1986). That is exactly what Peerless is doing when it interprets its ambiguous provisions in a manner to deprive its policyholders of coverage. Under the carrier's interpretation of its policy, it could issue the actual cash value payment a day before the second anniversary of the loss and take the position that its insured must repair or replace within 24 hours to comply with its suit limitation provision. Such abuse is lPeerless' policy interpretation also violates New York's insurance regulation barring misrepresentation of policy provisions found in 11 NYCRR §216.3. 14 not condoned or contemplated by the case law and statutes defining the Public Policy of this state. When addressing matters concerning insurance companies, this Court defines a violation of public policy as one which is violative of "any statutory mandate or prohibition or any regulation of the Superintendent of Insurance." Loring v. Continental Cas. Co., 56 N.Y.2d 848 (1982). By construing its policies in a manner which deprives its policyholders of a benefit duly bargained for, Peerless does just that. As early as 1886, this Court ensured that parties to a contract were not cavalierly deprived of their rights thereunder: "In the construction of all contracts under which forfeitures are claimed, it is the duty to interpret them strictly in order to avoid such a result, for a forfeiture is not favored in the law." Lyon v. Hersey, 58 Sickels, 264, 270 (1886). "Equity will often intervene to prevent a substantial forfeiture occasioned by a trivial or technical breach." Fifty States Management Corp. v. Pierce Auto Parts Inc., 46 N.Y.2d 573,576-77 (1979). There can be no more technical breach ofa policy than one where the carrier is on full and timely notice of all details of a claim and then attempts to assert a limitations provision which runs completely counter to other specific and untimed policy provisions. 15 This is especially so where other areas of the same policy requiring an insured to incur a cost or expense before obtaining compensation are specifically addressed giving guidance to the insured. For example, when Peerless provides its additional "Ordinance or Law" coverage, it does so on a replacement cost basis and warns the insured that these incurred expenses must wait until the property is actually repaired or restored "".as soon as reasonably possible after the loss or damage, not to exceed two years." (A 145) The same provision further warns the insured that this two year period may be extended, presumably at the request of an insured who realizes such an extension may be needed due to this warning. No such warning is given by Peerless concerning the essentially similar incurred-expense provisions of the Replacement Cost clause, thus leading any reasonable businessman to conclude that the policy suit limitation period does not apply to repairs or replacement taking place later than two years after the loss, as long as they were done as soon "as reasonably possible." The fact that these two clauses of the Policy exist as written is overwhelming evidence of Peerless' intent to permit repairs under the loss settlement clause to continue beyond the policy limitation period as long as they are accomplished as soon as reasonably possible. Similarly, the policyholder is placed on ample notice in the same policy that "Time Element" claims are on an incurred or "actua110ss" basis and only covers "12 16 consecutive months" after the loss. (A 139) Furthermore, the insured is also told that the expiration of the policy itself will not cut short these time element claims. (A 164) Thus, in every other incurred-loss situation insured by this policy, Peerless has made its intent clearly expressed by the very specific words it employed concerning various time limitations periods. The lack of such language in the "Loss Settlement" provision strongly mitigates in favor of Executive being permitted to accomplish its replacement tasks in a reasonable period of time, unfettered by the suit limitation provision. (See also, "Newly Acquired Locations", "Civil Authority", "Debris Removal", Pollutant Clean-up" and "Preservation of Property" coverages, all of which employ various time limitations clearly specified and placing an insured on notice of their import.) (A 140, 141, 142, 145 and 151). POINT IV PEERLESS' POSITION EXEMPLIFIES ILLUSORY COVERAGE Peerless' position creates illusory coverage by denying payment of replacement costs unless the policyholder can meet Peerless' conflicting requirements of rebuilding within a reasonable time and also within the two year statute of limitation requirement in the policy. Insurance coverage is illusory "where 17 part of [an insurance] premium is specifically allocated to a particular type or period of coverage and that coverage turns out to be functionally nonexistent." Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116, 119 (Minn. Ct. App. 1995); see Thomas 1. Lipton, Inc. v. Liberty Mut, Ins, Co., 34 N.Y.2d 356, 361, (1974) ("To say that the ... damage[s] claimed ... do not fall within such coverage would appear to exclude what, as a practical matter, would usually be some of the largest foreseeable elements of such damage[s] [and] ... would render the coverage nearly illusory. "). Indeed, as stated by the court in Slayko v. Security Mutual Insurance Co., 183 Misc.2d 688, 693, (Sup. Ct. St. Lawrence Cnty. 2000) (internal citations omitted), rev'd on other grounds, 98 N.Y.2d 289, (2002): "Illusory, or nearly so, coverage is not favored at law. Construction of a clause so broad that it would appear to exclude what, as a practical matter, would be some of the largest foreseeable elements of damages would render the coverage nearly illusory ... [to] construe an insuring clause as incapable of affording coverage for perils reasonably intended, by virtue of exclusionary language, is illogical." In Nationwide Mutual Insurance Co. v. Davis, 195 A.D.2d 561,562, (2d Dept, 1993), the policyholder was involved in an automobile accident, received the $10,000 coverage limit from the tortfeasor's insurance company, and then sought underinsurance coverage from her own insurance company. Her insurance company 18 argued that it was allowed to offset the $10,000 recovery from the tortfeasor against the $10,000 limit of plaintiffs underinsurance coverage. Id. at 562. The Court disagreed, stating that allowing the reduction would render coverage illusory "by stripping the policyholder of underinsurance benefits which were paid for as part of the policy." Id. at 562. Similarly here, Peerless' improper interpretation of its policy requiring the policyholder to completely rebuild both within a reasonable time and prior to the two year anniversary of the loss, essentially strips the policyholder of the right to replacement costs which were paid for as part of the policy. Given all the possible instances of delay and uncertainty inherent in the rebuilding process, it is virtually impossible to completely rebuild within this time frame in general and absolutely impossible in the case at bar. This interpretation allows Peerless to delay its actual cash value payment until late in the two year limitation period. Even without such delay, it was not possible to rebuild at bar. Indeed, this reality was not lost on the court in Bonde v. Illinois Farmers Insurance Co., No. C7-95-1957, 1996 WL 422504, at *2 (Minn. Ct. App. July 30, 1996). In Bonde, the Minnesota Court of Appeals was presented with an insurance policy that contained a provision requiring repairs within the 180-days of the actual cash value payment and stated that: 19 "We have studied on review both the doctrines of impossibility and voidness and find merit in the general proposition that an insurer that relies strictly on a ISO-day clause is vulnerable to these arguments in an appropriate case. There is merit in an impossibility argument where an insured demonstrates that the failure of full payment rendered it infeasible to repair or replace within ISO days. Likewise, it is imaginable on larger claims that the clause could be void as routinely frustrating. In fact, in defending the ISO-day clause, the insurer, on appeal, relies on its proposed openness to a case where repairs start but are not finished within ISO days or the insured requests an extension of the ISO-day limit." Id. at *2 (emphasis added). Ultimately, the court held that plaintiffs failure to make any repairs despite receiving some reimbursement foreclosed his impossibility argument. Id. at *3. Nevertheless, the Court was clear that it could envision other circumstances where it would be impossible for the policyholder to comply with the ISO-day provision in the carrier's policy. Peerless is aware that its interpretation renders coverage illusory in that in many cases of catastrophic loss, the policyholder will not be able to accomplish repairs before the expiration of two years even if done as soon as reasonably possible. This is especially so when it is Peerless that controls when it decides to release the actual cash value payment. When rebuilding their homes, policyholders are at the mercy of delays in the building permit process, delays inherent in the 20 construction process, and their own lack of financial ability to fund construction. As discussed below, all of these factors, in addition to other unforeseen setbacks, make it functionally impossible for policyholders to comply with the requirements contained in Peerless' policy and obtain replacement costs. Obtaining a city or town permit to begin new construction or repair or to improve an existing building can often be the most time-consuming, arduous aspect of the construction process. Indeed, lawsuits often are filed between contracting parties for delay damages or breach of contract resulting from one party's failure to obtain the necessary permits before construction. See, e.g., Brockway-Smith Co. v. Greene, 179 A.D.2d 922, 923, (3d Dept, 1992); Felix Contracting Corp. v. Oakridge Land and Prop. Corp., 106 A.D.2d 488,489, (2d Dept, 1984) (finding that plaintiff suffered additional damages due to delay from defendant's failure to obtain required building permits). Courts in other jurisdictions have recognized that the time period for accomplishing repairs in order to obtain the depreciation holdback necessarily must be permitted to pierce the suit limitations provision in these policies. In Tamco v. Federal Ins. Co, 216 F. Supp. 767 (Dist. Court, ND Ill, 1963), the carrier refused to release the depreciation holdback asserting the policy's one year suit limitation clause and further claimed there was no actual controversy that would permit 21 resolution of the declaratory judgment action. The Court rejected both contentions holding that the suit limitation provision did not operate to forfeit the holdback claim " ... because it could be implied that such an omission might be explained by the necessities of the situation ... ". Id. at 774. The Court also noted that the one year suit limitation was not repeated in the depreciation endorsement. The court gave plaintiff a year to accomplish the replacement for holdback purposes even though the fire had occurred at least five years earlier, also noticing that defendant was not prejudiced by the delay.2 Other insurers have made their intentions clear by the use of language such as in Main v. Cambridge Mut. Fire Ins. Co., 1995 WL 575137 *4 (Mass App. Div. 1995). "We will pay replacement costs if the damaged building is repaired or replaced by you ... within a reasonable amount of time but not more than two years from the date of loss." (Emphasis added) POINT V THE INHERENT AMBIGUITY IN PEERLESS'POLICY IS MANIFEST At a minimum, the offending policy language is ambiguous entitling plaintiffs 2At bar, defendant's claims of prejudice are equally without merit, as the parameters of the depreciation had already been agreed to and Peerless was already monitoring plaintiff s rebuilding progress. 22 --------------_._------------------------- to the reading which favors their interests. See Palmieri v. Allstate Ins. Co., 445 F.3d 179, 192 (holding numerous provisions of the policy were ambiguous). The test for ambiguity is whether the language of the contract is "susceptible of two reasonable interpretations." State of New York v. Home Indem. Co., 66 N.Y.2d 669, 671 (1985). "Any ambiguity must be construed in favor of the insured and against the insurer"; White v. Cont'l Cas. Co., 9 N.Y.3d 264, 267 (2007); United States Fid. & Guar. Co. v. Annunziata, 67 N.Y.2d 229,232 (1986). The purpose of the rule is to protect the party who did not author the language from an unintended or unfair result. Painewebber Inc.~ v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996). When clauses or endorsements in insurance policies conflict, they must be construed in favor of the policyholder if they are "reasonably susceptible to two different constructions." Reisman v. Coleman, 193 A.D.2d 659 (2d Dept, 1993). Moreover, Peerless bears the burden of establishing that its constructions is not only reasonable but that it is the only fair construction. Woods v. General Accident Ins., 292 A.D.2d 802 (4th Dept, 2002). Here defendant failed to meet its burden as the various clauses in its policy evince a clear intent to limit incurred-expense coverages, such as Ordinance and Law coverage, to two years from the anniversary of the loss while the clause at issue in this case evinces no such intent. Thus not only is the carrier's interpretation of its own language confusing and misleading, it 23 can hardly be said that it is the only fair construction. A reasonable businessman would not read these conflicting provisions and understand that an insurance company can select any date it wishes to pay its insured the actual cash value on a claim and then force the insured to accomplish these repairs before the suit limitation period runs out, even if the insured acted with absolute haste and dispatch. Thus Peerless' interpretation strains credulity much less constitutes the only fair construction. As this Court reads insurance policies in light of "common speech and reasonable expectations of a businessperson", Executive should prevail. Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 383 (2003). A reviewing Court must decide ... " ... whether the provision, as written, is sufficiently clear and precise such that there is no room for [reasonable] disagreement about the scope of coverage. Federal Ins. Co. v. IBM, 18 N.Y.3d 642, 650 (2012). The Belt decision went on to hold that the average policyholder's reasonable expectations control and only if the language is sufficiently clear and precise such that there is no room for reasonable disagreement about the scope of coverage ... " would the disputed language be considered unambiguous. ld. at 650. Judge Seybert's reliance on In Re Ambassador Group, 738 F. Supp. 57 (EDNY 1990) is misplaced. (A 622) The Ambassador decision relied on the case of 24 Moshiko Inc. v. Seiger & Smith Inc., 137 A.D.2d 170 (1 st Dept, 1988.) In Moshiko, an insured brought a claim under a named perils policy when the loss did not arise from any of the specified calamities. The lower Court improperly held that a liability portion of the policy could also act as first-party coverage due to an ambiguity. Thus the language Judge Seybert quoted concerning a policyholder "contracting for coverage that was of little use to it at the time of the loss ... ", has absolutely no applicability to the facts at bar. We are not dealing here with coverage questions. Coverage for this loss has been conceded by Peerless. We are dealing with two conflicting time limitations contained within the same policy acting as a mechanism for defendant to limit its exposure. The other case relied upon by the District Court, Cornellius v. American Cas. Co., 389 F.2d 641 (2d Cir. 1968), interprets Vermont law in a setting far removed from the facts at bar. In both of the aforementioned decisions, there is no conflict between two policy provisions relating to time limits in the same policy that would assist a Court in determining the issue in this case. Judge Seybert's concerns about Executive's interpretation rendering the contractual suit limitations clause meaningless are unavailing. The only way to interpret both the suit limitations clause and the loss settlement clause in harmony without doing violence to the entire contract and in concert with the concept of 25 good faith and fair dealing is to enforce the two year provision for all actions brought under the policy except those incurred-expenses which may necessarily carry-over past the two year anniversary of the loss. Moreover, a specific provision in a contract such as the "as soon as reasonably possible" language in the "loss settlement" clause governs over a general provision, such as the policy suit limitation. Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42,47 (1956). DRK LLC v. Burlington Ins. Co., 74 A.D.3d 693, (1 st Dept, 2010) POINT VI THE BAKOS DECISION IS DIRECTLY ON POINT AND SUPPORTIVE OF EXECUTIVE'S POSITION Peerless' Point concerning the applicability of the Bakos and 11 Cambio decisions is off-base. In Bakos v. N.Y. Cent. Mut. Fire Ins. Co., 83 A.D.3d 1485, (4th Dept, 2011), the Appellate Court was dealing with precisely the issue that is presented at bar. Moreover, the same loss settlement provision present in our case appeared in Bakos, leading the Court to resolve the conflict by stating " ... the plain language of the loss settlement provision of the policy does not impose any time 3 Assuming but not conceding such an action is one "under" the policy; (See Point I) 26 limit on reconstruction of the home." This constitutes a clear, unmistakable expression of the law as viewed by the highest intermediate Court to opine on the precise issue in this case. Peerless' citation of II Cambio Inc. v. U.S. Fidelity and Guaranty Co., 82 A.D.3d 650 (2011) offers no such guidance. There is nothing in the II Cambio decision that even mentions a loss settlement provision, much less one that allows a policyholder a reasonable time to repair or reconstruct. Further, there is no indication that the II Cambio court ever considered the interplay between the two conflicting provisions present at bar. In fact, it was undisputed in II Cambio that the policyholder never rebuilt its restaurant while at bar, the rebuilding process was accomplished " ... as soon as reasonably possible." The rationale in Bakos should prevail. CONCLUSION Executive's claim is entitled to a six year statute applicable to a suit on the contract of settlement, not one under the policy, thus rendering its lawsuits timely under all circumstances. Executive's first lawsuit was concededly timely. Its second lawsuit was also timely as it related back to the first lawsuit. Executives interpretation of its conflicting policy provisions violates New 27 York public policy and results in the policyholder receiving illusory coverage. The policy provisions are manifestly ambiguous and can only be harmonized without violating concepts of good faith and fair dealing by resolving the conflict in favor of plaintiff-appellant. The Bakos decision provides the best expression of New York's position in interpreting the conflicting clauses. The question certified by the Second Circuit should be answered in the affirmative. 20132\13J167.L4 28 ReSj}fU:1Y SUbm~tt~ M'!~. Friedman, sq. Wilkofsky, Friedman Karel & Cummins Attorneys for Amicus Curiae In Support of Plaintiff-Appellant 299 Broadway, Suite 1700 New York, New York 10007 (212) 285-0510