Fourth Circuit Says: Statute of Limitations Runs from Inception of Fire Loss in North Carolina

With a second decision on the issue in as many years, the Fourth Circuit has confirmed that, in North Carolina, policyholders must file lawsuits to recover policy benefits for fire losses within three years of the inception of the loss, rather than within three years of the alleged breach of the policy.

The insured suffered a covered fire loss at an apartment complex in April 2015.  The carrier paid the ACV of the loss, with the policy providing for RCV coverage upon repair or replacement.  The parties then entered appraisal in early 2017, resulting in a supplemental ACV payment by the carrier in October 2019.

In March 2020, the insured sought recoverable depreciation to purchase a replacement property, but the carrier denied the claim in April 2020 on grounds that replacement was not made “as soon as reasonably possible.”  The insured filed suit within months of the denial, alleging that the carrier breached the policy.

On appeal from the dismissal of the insured’s lawsuit as untimely, the appellate court sided with the carrier that the lawsuit was not subject to the statute of limitations for general breach of contract, but to the limitations period in the standard fire insurance provision incorporated into the policy by North Carolina statute.  Thus, rather than running from the alleged breach of the policy (i.e., the denial), the three-year filing period ran from the “inception of the loss.”  As the court also held that appraisals do not toll the statute of limitations in North Carolina, the lawsuit would have been untimely even before the appraisal award and supplemental payment.  

Given the clear message here, carriers may see policyholders, in an effort to avoid the running of the limitations period, file protective lawsuits over disputed fire claims before the parties have determined their positions or have even satisfied loss payment conditions.

Please contact Christy Maple or any member of the Phelps Insurance team if you have questions or need advice or guidance.