Rountree v. Encompass: Defining When the Contractual Suit Limitation Period Begins Can Avoid Legal Uncertainty
By: Samuel Lyon
Property insurance policies typically include a contractual suit limitation provision that sets the time within which the insured may file a lawsuit on the claim against the insurer. A recent decision from the U.S. District Court for the Southern District of Georgia demonstrates the importance of carefully defining terms related to the contractual suit limitation period in an insurance policy. In Rountree v. Encompass Home & Auto Insurance Co., [501 F.Supp.3d 1351 (S.D. Ga. 2020)], the court took a novel approach to determining when a loss began for purposes of evaluating the contractual suit limitation period and opened the door for insureds to claim they timely filed suit under the policy.
In Rountree, the insured filed a claim with his insurer, Encompass Home and Auto Insurance Company, to recoup payments stemming from damage allegedly caused by faulty workmanship to his residence, which was constructed in 2012. Id. Specifically, the insured discovered water and roof damage to his home in “early 2017” and incurred over $300,000 in expenses repairing and remediating the defective construction and resultant water damage. Id. at 1353. The insured notified Encompass of the loss on February 6, 2017. Id. Ultimately, Encompass denied the claim, in part based on the insured’s failure to comply with the suit limitation period in his policy. Id. at 1353–54.
The Encompass policy required that suit be brought within two years “after the inception of the loss.” Id. at 1354. However, the Encompass policy did not define at what point the “inception of the loss” began, and as a result, did not define at what point the contractual suit limitation period began to run. Id. at 1356. Encompass argued that the “inception of the loss” meant the date of the defective construction, which occurred in 2012, approximately six years before the insured filed suit. The insured, by contrast, claimed the “inception of the loss” meant the discovery of the damage to the home, which occurred in “early 2017.” Id. Under Encompass’s interpretation, the insured filed suit more than two years after the inception of the loss, which violated the terms of the policy. Under the insured’s theory, his filing of the suit on December 17, 2018, was timely since it was within two years of his discovery of the damage.
As the policy did not define “inception of the loss,” the court looked to other cases interpreting the phrase and found that in cases of discrete or acute loss, such as fire, the “inception of the loss” is the date of the event. However, in cases of latent and progressive damage, such as damage caused by mold, wet rot and water intrusion, the date of a loss’s inception can rarely be readily established as the damage can “fester undetected for years.” The court noted other Georgia courts addressing the issue had declined to definitively state when the “inception” of latent and progressive damage commences. Id.
Ultimately, the court elected to adopt the “delayed discovery” rule. The delayed discovery rule is novel in Georgia but has been adopted by other states including California and Pennsylvania. The delayed discovery rule “treats latent and progressive losses as having occurred on the earlier of either the discovery of the loss or when a reasonable insured would have become aware of it.” Id. at 1356–57. As a result, the court held the insured’s interpretation of the “inception of the loss” was correct, and the loss did not begin until the insured became aware of the damage. Thus, the court held the insured timely filed suit under the policy.
Rountree is notable for two reasons. First, the Rountree Court adopted the “delayed discovery” rule for purposes of determining the date of loss in claims involving latent or progressive damage, such as claims involving ongoing water leaks and/or mold damage. Secondly, Rountree reiterates the importance of clearly defining terms in insurance policies, especially terms contained within the policy conditions. In Rountree, the insurer may have potentially avoided a dispute over the terms of the suit limitation period by defining that the “inception of the loss” was analogous to “the date upon which damage began.”
Attorney Contact Info
Samuel Lyon
samuel.lyon@swiftcurrie.com
404.888.6271