May 26, 2023 – Renewable energy is the fastest growing energy source in the United States, doubling its capacity in the last decade. As the renewable energy industry has grown, so has the number and value of insurance claims. According to Willis Towers Watson’s 2023 Renewable Energy Market Review, renewable energy insurance claims exceeded 650 in 2022 and net losses incurred exceeded $800 million.
Limitation of action clauses are a standard part of policies that protect these projects against risks during construction and operation. In the published US cases involving construction, construction and operational all-risk insurance claims for renewable energy projects, claims limitation provisions are one of insurers’ most important defenses.
Two cases involving insurance claims for losses in renewable projects illustrate the importance of considering the following question early in the insurance claim process: What does the Claim Limitation Clause mean for your claim?
A trusted insurance advisor should be consulted to answer critical questions, including: What state law governs policy interpretation?
According to applicable national law:
(1) Is the clause enforceable/valid?
(2) Is the contract period automatically extended?
(3) When does the statute of limitations begin?
(4) Do toll regulations affect the deadline?
(5) Are defenses such as forfeiture and waiver available?
First Solar Electric vs. Zurich American Insurance – Waiver
First Solar Electric v. Zurich American Insurance involved a contractor’s all-risks policy claim by an EPC contractor for damage to a solar project under construction covering more than 2,000 acres in Georgia. The project was damaged during construction by five heavy rain events causing significant water damage in December 2019, February 2020, March 2020 and April 2020.
First Solar timely filed over $13 million in damages with Zurich. Zurich made an initial payment of $600,000 for the rain damage under the policy’s “water damage” provision. In subsequent correspondence, Zurich instead referred to the damage due to the “flood” provision. The insurer was still investigating the claims through March 2021, more than a year after four of the five rain events.
On March 22, 2021, Zurich issued a letter describing the damage as flooding and not water damage, claiming that each of the five rain events was subject to a $2.5 million deductible and refusing to to make additional payments for the damage. After attempting mediation and arbitration, First Solar filed a lawsuit against Zurich on November 11, 2021.
Zurich requested termination based on the policy’s limitation of action clause, which provided:
26. ACTION AGAINST COMPANY
No action or cause of action under this Policy for the recovery of a claim shall be admissible in any court or court of equity unless the insured has fully complied with all of the requirements of the Policy. Any action or proceeding against the Company to recover losses under this policy will not be barred if commenced within twelve (12) months after the EVENT* became known to the named Insured, unless applicable law requires one longer period before.
Zurich argued that the lawsuit was statute-barred because First Solar filed its lawsuit after April 2021, more than a year after the rain events.
Zurich argued that the lawsuit was statute-barred because First Solar filed its lawsuit after April 2021, more than a year after the rain events.
The District Court in the Middle District of Georgia denied Zurich’s motion. Georgia law provides that an insurer waives the time limit requirement if the facts show that the negotiations have led the insured to believe that an agreement can be reached without the need for a lawsuit. The court concluded that the allegations of the initial $600,000 payment, the continuing accounts of the investigation and the ongoing assessment of her position up to March 15, 2021 — more than a year after four of the five rain events – could be positive action measures that constitute a waiver of the time limit.
Flat Ridge 2 Wind Energy vs. Those Underwriters at Lloyd’s – when the statute of limitations begins to run
In the case of Flat Ridge 2 Wind Energy v. Those Underwriters at Lloyd’s, the New York Supreme Court analyzed the following limitation of action provision in a policy providing operational all-risk coverage for a 66,000-acre wind farm in Kansas:
Lawsuit against Underwriters
[N]o Actions or suits under this Policy to make a claim shall be sustained…unless initiated within twelve (12) months of the insured becoming aware of the incident, unless applicable law provides for one longer period before.
A tornado struck in May 2012, causing significant damage and loss to the wind farm, including several insured wind turbines. The project owner timely notified insurers of its claim, which is estimated to exceed $12 million. The adjuster recommended a $3.5 million partial payment of the claim. After receiving the owner’s partial proof of loss, the insurers paid $3.5 million to the project owner on January 24, 2013.
A few weeks later, on February 18, 2013, the insurers contested the balance of the claim and informed the project owner that “no covered damage event occurred at the property.” Over the ensuing period of nearly 12 months, the parties held discussions regarding the insurers’ coverage position, the insurers made a second installment payment for the claim, the parties held a meeting to discuss a possible resolution, and the insurers requested a new payment. Inspection of the property. On February 14, 2014, the project owner sued the underwriters.
The insurers moved to dismiss, arguing that the Project Owner’s action was statute-barred because the “event” referred to in the Limitation of Action clause related to the May 19, 2012 tornado — the incident for which the Project Owner was seeking coverage — and the Project affected the Owner has not filed a lawsuit within 12 months of the tornado.
The court denied the motion, arguing that the phrase “after the event became known” referred to the denial of coverage by the insurers and not the date of the tornado. The court found that the wording of the contract was “vague and general” and did not clearly and precisely link the statute of limitations to the time of the insured risk.
Accordingly, the default rule of New York law was: The time within which an action must be brought is calculated from the time the cause of action arose (when the insurers refused to cover the claim in question, thereby allegedly breaching the insurance contract). . The court concluded that the statute of limitations should be calculated from the date the project owner’s claim against the insurers arose – the date on which the insurers denied coverage (February 18, 2013) – and not from date of the storm.
Ashley Jordan is a regular columnist on insurance law for Reuters Legal News and Westlaw Today.
The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and impartiality under the Trust Principles. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.
Ashley Jordan
Jessica Gopiao
