The Eleventh Circuit Court of Appeals recently held that, under Georgia law, an appraisal process tolled a commercial property policy's two-year contractual suit limitation period even for non-covered claims. In Omni Health Solutions, LLC v. Zurich Am. Ins. Co., No. 19-12406, 2021 WL 2025146 (11th Cir. May 21, 2021) (unpublished), the insured filed a property insurance claim with its insurer, reporting hail damage to the roof of its medical facility in Macon, Georgia, and water intrusion. The policy required the insurer to give notice of its intentions with respect to a claim within 30 days of receiving a sworn proof of loss. Following a protracted appraisal process, the insured sued the insurer in Georgia superior court for breach of contract and bad faith. In its first count, the insured contended that the insured breached its policy obligation by failing to timely make a coverage decision.
The insurer removed the suit to the Middle District of Georgia, which granted summary judgment to the insurer on the grounds that the insured's claim was barred by the policy's two-year contractual limitation period. While acknowledging that, under Georgia law, the appraisal process generally tolls an insurance policy's limitation period, the court found it unclear whether all claims related to an insurance policy are tolled by the appraisal process or only those that are affected by or dependent upon the outcome of the appraisal. Ultimately, the district court found that the appraisal process did not toll the breach of contract claim because it was based on extra-contractual damages, not on whether the insurer was required to cover the alleged loss.
The Eleventh Circuit disagreed, holding that the damages sought by the insured were not extra-contractual because they naturally arose from the alleged breach of contract. In particular, the insured asserted that the insurer's delay in reaching a coverage decision caused repair of the insured's property to take longer than it should have and resulted in additional business losses that would not have occurred had the insurer complied with its contractual obligations. Thus, while outside the policy limits for business income loss, the damages sought by the insured naturally flowed from the insurer's alleged breach of contract. The court noted that neither the policy language nor Georgia law limits damages for breach of an insurance contract to covered amounts when the insurer's breach caused the insured to suffer damage beyond that caused by an insured event.
The insurer contended that the insured's delay claim should not toll the contractual limitations period because it was not at issue in the appraisal process, as evidenced by the fact that the insured was seeking business income loss beyond the 13 months awardable under the policy. The court found this argument unpersuasive, for several reasons. First, the policy did not limit the appraisal process to establishing damages for any particular type of claim. Rather, by the express terms of the appraisal provision, the appraisal process established the "amount of loss" suffered by the insured, without regard to coverage limits or liability. The court noted that the appraisal panel was tasked with determining the amount of the insured's loss, not whether the loss was covered. Second, adjudication of the insured's delay claim depended on completion of the appraisal process because the alleged damages overlapped with the loss amount at issue in the appraisal.
Critically, the court pointed out that the appraisal in fact determined the amount of the insured's business income loss sought as damages in its delay claim. This demonstrated that the appraisal process was connected to the insured's claim for damages. Accordingly, the court concluded that the appraisal process tolled the contractual limitation period for the insured's claim for breach of contract for failure to timely make a coverage decision. The court therefore reversed the district court's grant of summary judgment on this claim. Because the insured's bad faith claim depended on the viability of its breach of contract claim, the court also reversed the district court's grant of summary judgment on the insured's bad faith claim.
Based on the Eleventh Circuit's holding in Omni, an insured may rely on an appraisal process to toll a contractual suit limitation period even for claims that are not covered by the policy, or for damages outside the policy limits. As long as the amount of loss determined by the appraisal award overlaps with the amount of damages sought by the insured in its lawsuit, a court will view the appraisal process as sufficiently connected with the lawsuit to toll the contractual suit limitation period. Therefore, when dealing with an appraisal, insurers should be prepared to defend potential lawsuits well beyond the original contractual limitation period set by the policy.
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