Surety Case Law Note: Waiver of Limitations Defense
May 14, 2024
In this Surety Today: The Blog post we consider a Case Law Note addressing the issue of the potential waiver of a limitations defense by among other things continuing to investigate a claim after limitations has expired. The case is:
B.S. INGERSOLL, LLC V. GREAT AM. INS. CO.,
No. CV 22-771, 2023 WL 7544158 (E.D. Pa. Nov. 13, 2023)
This case arises out of a Lease Bond (the “Bond”) that was issued by Great American Insurance Company (“GAIC”) to secure a lease entered into between Plaintiff, B.S. Ingersoll, LLC (“Ingersoll”) and Principal, Medici 1150 N. American Street LLC (“Medici”). Ingersoll filed the case on March 2, 2022, seeking a declaration that GAIC was obligated to pay Plaintiff under the terms of the Bond and Ingersoll also asserted claims against GAIC for breach of contract and bad faith. The later two claims were not addressed in the opinion. In response to the suit, GAIC filed a Motion to Dismiss on the ground that Ingersoll failed to file suit within the limitations period provided in the Bond. The Bond provided that “[n]o action, suit or proceeding either at law or in equity shall be maintained against the Surety unless such action, suit or proceeding is commenced within three (3) months after the termination of this bond.’” The Bond further provided that “[t]his Bond expires on 7/16/2021.” Ingersoll did not commence the lawsuit until March 2, 2022, more than seven months after the Bond expired by its own terms.
In opposition to the Motion to Dismiss, Ingersoll asserted that GAIC had waived the Bond limitations defense. However, the facts as pled in the complaint did not provide sufficient support for Ingersoll’s opposition and the court refused to consider facts outside the complaint because of the procedural posture. Accordingly, the court granted the Motion to Dismiss the complaint, but did so without prejudice, and allowed Ingersoll to file an amended complaint. Ingersoll did file an amended complaint and GAIC again moved to dismiss.
The facts, as alleged in the amended complaint, were these: On November 12, 2018, Ingersoll entered into a lease agreement (“Lease”) with Medici for certain residential real property located in Philadelphia. The Lease required Medici to provide Ingersoll with security for the performance by Medici of all of the obligations, covenants, conditions and agreements under the Lease. GAIC provided the Bond for that security.
On January 14, 2021, Medici defaulted on its obligations under the Lease and filed bankruptcy. In the bankruptcy, the Lease was rejected and the Chapter 7 Trustee. As a result of Medici’s default, Ingersoll alleged that it suffered damages in excess of the penal amount of the Bond. Ingersoll provided timely notice to GAIC of Medici’s default under the Lease and made a claim on the Bond. GAIC responded to the claim on June 17, 2021 by asking Ingersoll for additional information. In its letter, GAIC also stated that if Ingersoll had additional information it would naturally review that information and consider the claim. GAIC concluded the letter by making a request for any additional information that Ingersoll believed would support a claim against the Bond. GAIC also expressly reserved all of its rights.
Counsel for Ingersoll responded to the June 17, 2021 letter on July 26, 2021 (after the date that the Bond expired) and expressed his understanding that GAIC was likely to deny Ingersoll’s claim if Ingersoll could not show the necessary information regarding the Lease. The July 26, letter also set out, at length, Ingersoll’s position that GAIC fundamentally misunderstood the requirements of the Lease and the Bond.
GAIC responded to Ingersoll’s July 26, letter on August 9, 2021 (again after the Bond expiration) noting its disagreement with Ingersoll’s position and stating that GAIC expected Ingersoll to provide it with documents that would show the necessary information. That letter also stated that GAIC would consider any additional information provided by Ingersoll and that GAIC again reserved all of its rights and defenses.
On October 28, 2021 (after limitations had run), Ingersoll responded and repeated its position that GAIC’s focus was misplaced. GAIC responded on December 3, 2021 stating that it is still investigating the claim of Ingersoll and requesting information and stating again that GAIC reserved its rights while investigating the claim. GAIC finally denied Ingersoll’s claim by letter dated February 8, 2022. GAIC stated in its February 8 letter that it denied Ingersoll’s claim on the Bond because Ingersoll failed to provide sufficient information that Bonded obligation ever properly commenced. The February 8 denial letter did not mention the Bond limitations period as the reason why GAIC denied Ingersoll’s claim.
Relevant Pennsylvania Law
The court began its analysis with a discussion of the law of “waiver” under Pennsylvania law noting that it is the voluntary and intentional abandonment or relinquishment of a known right. Davis v. Safeco Ins. Co. of Illinois, Civ. A. No. 19-3871, 2021 WL 3603037, at *3 (E.D. Pa. Aug. 13, 2021) (quoting Prime Medica Assocs. v. Valley Forge Ins. Co., 970 A.2d 1149, 1156 (Pa. Super. Ct. 2009)). The court further noted that “[a] limitation or condition in a policy of insurance, intended for the benefit of the corporation, may be waived by it; and the fact of waiver is a question for the jury.” Bonnert v. Pennsylvania Ins. Co., 18 A. 552, 552 (Pa. 1889) (citation omitted).
Under Pennsylvania law, “contractual limitations on the time to commence suit,” such as the Bond limitations period, are generally considered to be valid and enforceable “where the specified time within which suit was to be brought [is] not unreasonable.” Commonwealth v. TransAmerica Ins. Co., 341 A.2d 74, 77 (Pa. 1975) (citations omitted). However, the court hastened to add that “a provision of this nature may be extended or waived where the actions of the insurer lead[ ] the insured to believe the limitation period will not be relied upon.” Id. Consequently, “ ‘[i]f in the course of the negotiations the company gave the plaintiff reasonable grounds for believing that the time limit would be extended or that such provision would not be strictly enforced, it could not subsequently insist on its strict enforcement without giving him a reasonable time thereafter to bring his action.’ ” Id. (quoting McMeekin v. Prudential Ins. Co., 36 A.2d 430, 432 (Pa. 1944)). Such a waiver need not be expressed but may be inferred from the acts of the insurers evidencing a recognition of liability, or even from their denial of obligation exclusively for other reasons. Indeed, the court cited to the Pennsylvania Supreme Court which has held that “any act which tends to mislead the plaintiff, while parties are dealing on friendly terms, to avoid litigation, will be held to be evidence of a waiver of such limitation.’ ” Id. at 78 (quoting Howard Ins. Co. v. Hocking, 18 A. 614, 615 (Pa. 1889)). In the Transamerica case, because the insurer continued their investigation beyond the limitations period, the court held that it reasonably conveyed to the insured that the limitation clause would not be strictly enforced.
Court’s Decision
In this case, the court noted that the amended complaint clearly alleges, and the attached correspondence fully corroborates, that (1) Ingersoll submitted a timely claim to GAIC; (2) until February 8, 2022, the parties continued to discuss the claim through telephone calls and written correspondence; (3) GAIC sent an email to Ingersoll on December 10, 2021, after the expiration of the Bond limitations, stating that it was still investigating Ingersoll’s claim and asking Ingersoll to provide more documentation in support of its position; (4) GAIC’s denial letter of February 8 did not mention the Bond limitations period as a basis for denying Ingersoll’s claim. Accordingly, based on the allegations and Pennsylvania law, the court held that the amended complaint and its exhibits plausibly alleged that GAIC led Ingersoll to believe that it would not rely on the Bond limitations period and that GAIC therefore waived the Bond limitations.
GAIC argued that the correspondence made clear that Ingersoll was well aware that GAIC was likely to deny Ingersoll’s claim on the Bond, such that Ingersoll should have instituted this action prior to the expiration of the Bond limitations. However, the court countered that GAIC did not actually deny Ingersoll’s claim until February 8, 2022 and the correspondence further showed that GAIC repeatedly informed Ingersoll that it would consider whatever information Ingersoll provided to it and Ingersoll alleged that it provided GAIC with documentation regarding the relevant issues. In addition, the court pointed to correspondence showing that GAIC informed Ingersoll on December 3, 2021, after the Bond limitations period had expired, that it was continuing its investigation of Ingersoll’s claim. Thus, the court held that even accepting GAIC’s assertion that Ingersoll could have filed this action before the Bond limitations expired, the amended complaint and its exhibits plausibly alleged that GAIC gave Ingersoll reasonable ground for believing that the time limit would be extended or that such provision would not be strictly enforced. The court further noted that the amended complaint, together with its exhibits, plausibly alleged that GAIC had acknowledged its potential liability if Ingersoll was able to provide adequate documentation, that Ingersoll provided certain documentation, and that GAIC eventually denied Ingersoll’s claim on a basis wholly unrelated to the Bond limitations period.
Finally, GAIC argued that the court should have rejected Ingersoll’s waiver defense because GAIC consistently reserved all of its rights under the Bond in all of its communications. The court stated that it did not discount GAIC’s repeated reservation of rights, but noted that it must view the “standard reservation of rights language” in its full context. “Considering the totality of the parties’ correspondence, which included GAIC’s singular focus on the date on which Ingersoll delivered the Property to GAIC and its failure to cite the Bond Limitations Period as the reason for denial after that limitations period had expired, and viewing the correspondence in the light most favorable to Ingersoll, we do not find that GAIC’s reservation of rights is determinative at this stage of the proceedings.”
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.