It is pretty unusual for me to discuss a property case in Coverage Opinions.  I know the demographics of the readership.  While it includes folks who handle property claims, it’s just not what the vast majority of CO readers are as interested in.

But the decision in Naperville Hotel Partners LLC v. Liberty Mutual Fire Insurance Co., No. 3-22-0440 (Ill. Ct. App. Nov. 1, 2023) caught my attention as particularly interesting and worth addressing here.

At issue was coverage for a hotel for a boatload of rain events between 2016 and 2020 that allegedly caused millions of dollars in damages.  In 2019, the hotel filed claims with Liberty Mutual and Fireman’s Fund.  The Liberty claim involves the issue that led me to discuss the case here.  So I’ll ignore the Fireman’s Fund part of the case.

The Liberty policy was on the risk back in 2017.  The policy included provisions that the insured must “[g]ive us immediate written notice of the loss.”  Another provision required that any legal action based on the coverage had to be brought “within two (2) years after the date on which the physical damage occurred, extended by the number of days between the date you submitted the statement of loss to us and the date we deny the claim in whole or in part.”

Liberty responded to the claim with a reservation of rights letter requesting additional information.  The insurer also cited several exclusions as well as the provision that the insured must give immediate written notice of the loss.

However, the letter did not cite the provision that any legal action based on coverage must be brought within two years after the physical damage occurred.  Liberty ultimately denied coverage, including on the basis that the hotel failed to comply with the two-year suit limitation provision.
  
Coverage litigation ensued and the hotel argued that Liberty waived, and “should be estopped from asserting, its two-year time-limitation provision because (1) it did not include the provision in its June 2019 reservation of rights letter, and (2) its actions during the pendency of the claim indicated its intent to waive the provision.”

It is not unusual to see coverage letters, for property claims, include the language of the policy’s suit limitation provision.  It often appears at the conclusion of the letter.  But what happens if it’s not?  This is the issue that caused me to include this property coverage case here.

The court concluded that Liberty, despite not citing the two-year suit limitation provision in the letter to the insured, did not waive it.

For one thing, the court noted that the hotel did not direct the “court to any statute or regulation that requires an insurance company to include a limitations provision in a reservation of rights” nor was the court “aware of any such statute or regulation that applies in this case.”  
  
As for the cases cited by the hotel, to support its waiver position, the court observed that those involved reservation of rights letters in duty to defend situations.  That, the court concluded, was a different animal: [S]uch cases are ultimately concerned with empowering an insured to ‘intelligently choose between retaining her own counsel, or accepting defense counsel provided by the insurer’.  This is not a case in which the duty to defend is at issue and the plaintiffs have not provided any persuasive argument that cases like Lay and Nwidor should be extended beyond the duty-to-defend context.”