12-1470-cv
Executive Plaza, LLC v. Peerless Ins. Co.




                     U NITED S TATES C OURT OF A PPEALS
                          F OR THE S ECOND C IRCUIT

                            August Term 2012

   (Argued:     February 20, 2013           Decided:      May 23, 2013)

                         Docket No. 12-1470-cv

                         _____________________

                          E XECUTIVE P LAZA , LLC,

                                                     Plaintiff-Appellant,
                                     V.


                       P EERLESS I NSURANCE C OMPANY ,

                                                      Defendant-Appellee.
                         _____________________

Before:
              W INTER , C HIN , and D RONEY , Circuit Judges.

                         _____________________

           Appeal from a judgment of the United States

District Court for the Eastern District of New York

(Seybert, J.) dismissing with prejudice plaintiff-

appellant's complaint seeking, pursuant to an insurance

policy, indemnification for property loss caused by fire.

           Q UESTION C ERTIFIED .
                         _____________________

                    D AVID T OLCHIN , Jaroslawicz & Jaros LLC, New
                          York, New York, for Plaintiff-
                          Appellant.

                    S COTT D. S TORM , Mura & Storm, PLLC,
                          Buffalo, New York, for Defendant-
                          Appellee.

                         _____________________

C HIN , Circuit Judge:

          This case asks us to consider the interplay

between two provisions in a fire insurance policy.       One

requires the insured to file suit on the policy within two

years.   The second requires the insured, when seeking

replacement costs, to replace the damaged property before

bringing suit, and to complete the replacement work "as

soon as reasonably possible."       What happens to insured

property that cannot reasonably be replaced within two

years?   As New York case law does not clearly resolve the

question raised by this appeal, we conclude that

certification to the New York State Court of Appeals is

appropriate.




                                  -2-
                          BACKGROUND

A.   The Facts

           The facts relevant to this appeal are not in

dispute.   Plaintiff-appellant Executive Plaza, LLC

("Executive") owns a building insured at all relevant times

by defendant-appellee Peerless Insurance Co. ("Peerless").

The property was insured by a policy providing up to $1

million of coverage (the "Policy").      On February 23, 2007,

a fire destroyed the building.      Executive promptly notified

Peerless of the damage.   Within days, Executive had

retained both an architect and a construction company.         By

July 2007, Peerless had paid Executive the actual cash

value of the property, $757,812.50, less certain

adjustments.

           In the years after the building was originally

erected, zoning laws had changed.      To rebuild, Executive

needed a variance and other forms of consent from local

governmental entities.    Despite first submitting its

application for review in June 2007, a final building

permit was not granted until November 2008, seventeen




                              -3-
months later.    By October 2010, Executive had

"substantially replaced" the property.

          Two Policy provisions are the focus of this

appeal.   First, section E.4 required Executive to file suit

to recover unpaid losses within two years of the fire:

    No one may bring a legal action against us under
    this insurance unless:

          a.    There has been full compliance with all
                of the terms of this insurance; and

          b.    The action is brought within 2 years
                after the date on which the direct
                physical loss or damage occurred.

Second, section E.6 of the Policy provided that Peerless

would pay either the actual cash value or the replacement

cost of the property, up to the policy limit.     It further

provided that an insured could first receive the actual

cash value of the property and then later seek the

replacement cost.     If, however, an insured sought the

replacement cost, section E.6(d)(1)(b) imposed two

additional caveats:

    (b)   We will not pay on a replacement cost basis
          for any loss or damage:

          (i)   Until the lost or damaged property is
                actually repaired or replaced; and

                               -4-
            (ii) Unless the repairs or replacement are
                 made as soon as reasonably possible after
                 the loss or damage.

B.   Procedural History

            On February 23, 2009, before it had completed

rebuilding the property but within the two-year limitations

period, Executive filed suit in New York State Supreme

Court, Nassau County, to recover replacement costs under

the Policy.    Peerless removed the case to the Eastern

District of New York on diversity grounds (the "First

Action").     As construction on the property had not yet been

completed, the district court (Wexler, J.) dismissed the

claim as not yet ripe.     Executive did not appeal this

decision.

            After having substantially replaced the property,

on October 5, 2010, more than two years after the loss,

Executive sent Peerless a demand letter to recover an

additional $242,087.50 (the replacement cost permitted by

the Policy, less what Peerless had already paid).     Peerless

rejected the demand.     Executive filed suit in New York

State Supreme Court, Nassau County, and Peerless again


                               -5-
removed the action to the Eastern District of New York on

diversity grounds (the "Second Action").    The district

court below (Seybert, J.) dismissed the Second Action as

time-barred.   This appeal followed.

                         DISCUSSION

         Peerless argues that "full compliance" with the

terms of the Policy, see Policy § E.4, requires that

Executive both (1) rebuild the property "as soon as

reasonably possible" but also (2) before the two-year

limitations period for filing suit.    By contrast, Executive

contends that it defies logic to require an insured to

fully rebuild an insured property before filing a claim and

to bring suit within two years when rebuilding the property

within two years is not reasonably possible.    For the

reasons that follow, we conclude that certification to the

New York State Court of Appeals is appropriate.    See

Country Wide Ins. Co. v. Nat'l R.R. Passenger Corp. , 407

F.3d 84, 85-86 (2d Cir. 2005).

A.   Applicable Law

         Under Second Circuit Local Rule 27.2, we may

"certify a question of state law to that state's highest

                             -6-
court."   Local R. 27.2(a); see also N.Y. Comp. Codes R. &

Regs. tit. 22, § 500.27(a) (allowing courts to certify

"determinative questions of New York law . . . for which no

controlling precedent of the Court of Appeals exists").

Our decision to certify is made after considering three

questions:

     (1) whether the New York Court of Appeals has
     addressed the issue and, if not, whether the
     decisions of other New York courts permit us to
     predict how the Court of Appeals would resolve it;
     (2) whether the question is of importance to the
     state and may require value judgments and public
     policy choices; and (3) whether the certified
     question is determinative of a claim before us.

Osterweil v. Bartlett, 706 F.3d 139, 142 (2d Cir. 2013)

(quoting Barenboim v. Starbucks Corp., 698 F.3d 104, 109

(2d Cir. 2012)).

B.   Application

          First, we note that the New York State Court of

Appeals has not resolved this question.   It has interpreted

the suit limitations provision alone, see Blitman Const.

Corp. v. Ins. Co. of N. Am., 66 N.Y.2d 820, 822 (1985)

(twelve-month suit limitations clauses was enforceable);

Proc v. Home Ins. Co., 17 N.Y.2d 239, 243-46 (1966)


                             -7-
(holding that limitations period begins to run on date of

fire), but never the replacement cost provision. 1    More

importantly, however, no controlling precedent interprets

the suit limitations clause in light of the replacement

cost provision.

         While we may "predict what the New York Court of

Appeals will do from the decisions of other New York

courts," see Osterweil, 706 F.3d at 143 (quoting Barenboim,

698 F.3d at 109) (internal quotation marks and emphasis

omitted), the few courts to have read the provisions

together have reached different conclusions.     Compare Bakos

v. N.Y. Cent. Mut. Fire Ins. Co., 920 N.Y.S.2d 552, 554

(4th Dep't 2011) (mem.) (denying insurer's motion to

dismiss because replacement cost provision was not



    1
          Based, however, on unanimous authority from the
appellate division, we acknowledge that actual repair of the
property is a condition precedent to recovering on a replacement
cost basis. See, e.g., Todd v. Wayne Coop. Ins. Co., 819
N.Y.S.2d 179, 180 (3d Dep't 2006) ("Under the terms thereof,
replacement cost value cannot be awarded without plaintiff first
actually repairing or replacing the property."); Harrington v.
Amica Mut. Ins. Co., 645 N.Y.S.2d 221, 225 (4th Dep't 1996)
(absent a repair requirement, the replacement cost provision
becomes a "mere wager"); Ferrara v. Ins. Co. of N. Am., 521
N.Y.S.2d 668 (1st Dep't 1987) (mem.) ("unambiguous" replacement
cost provision requires that repairs be made before
indemnification).
                              -8-
circumscribed by a temporal limitation), with Il Cambio,

Inc. v. U.S. Fid. & Guar. Co., 920 N.Y.S.2d 305, 305-06

(1st Dep't 2011) (insured barred from asserting a

replacement cost claim when it had not rebuilt insured

property and because complaint was barred by two-year

limitations period).   Hence, we conclude that the cases

available provide little predictive value as to how the

Court of Appeals would resolve this issue.      Cf. Amerex

Grp., Inc. v. Lexington Ins. Co., 678 F.3d 193, 200 (2d

Cir. 2012) (where precedents can sufficiently support a

determination, we need not certify).

         Second, the question certified implicates

important matters of state law.      These include identifying

the contours of property insurance policies, see Georgitsi

Realty, LLC v. Penn-Star Ins. Co., 702 F.3d 152, 158-59 (2d

Cir. 2012), and the state's "strong interest in supervising

highly regulated industries," Benesowitz v. Metro. Life

Ins. Co., 471 F.3d 348, 352 (2d Cir. 2006); see also Golden

v. Winjohn Taxi Corp., 311 F.3d 513, 524 (2d Cir. 2002)

(interpreting insurance relationships in the highly -

regulated taxicab industry).    Moreover, the policy here

                               -9-
insures against fire-related losses, and the legislature's

codification of a standard fire insurance policy --

creating a floor for fire insurance coverage throughout New

York State -- underscores its concern for coverage in this

field.   N.Y. Ins. Law. § 3404(e), (f)(1)(A); see also Dean

v. Tower Ins. Co. of N.Y., 19 N.Y.3d 704, 709 (2012).

State courts, we believe, are better equipped to consider

the ramifications of these issues.

          Third, the question we certify is purely legal,

and an answer would resolve this appeal.   If the Court of

Appeals were to decide that the suit limitations clause and

the replacement value provision, read together, were

unenforceable as a matter of public policy, then we would

be obliged to remand to the district court to determine

whether Executive rebuilt the insured property "as soon as

reasonably possible."   Policy § E.6(d)(1)(b); cf. Bersani

v. Gen. Accident Fire & Life Assurance Corp., 36 N.Y.2d

457, 460 (1975) (agreements that violate public policy are

unenforceable).   If, however, the Court of Appeals were to

decide that, read together, the provisions raise no such

concerns and unambiguously require that an insured property

                             -10-
be rebuilt within a reasonable time that in no event

exceeds two years, then Executive's claim would be

foreclosed.    Finally, the Court of Appeals may conclude

that the suit limitations clause and the replacement cost

provision, read together, create an ambiguity.    Depending

on whether (and, if so, how) the court resolves the

ambiguity, we would remand for further proceedings in the

district court or decide the appeal, as appropriate.

                           CONCLUSION

         Accordingly, we reserve decision and respectfully

certify the following question to the New York State Court

of Appeals:

    If a fire insurance policy contains

      (1)     a provision allowing reimbursement of
              replacement costs only after the property
              was replaced and requiring the property to
              be replaced "as soon as reasonably possible
              after the loss"; and

      (2)     a provision requiring an insured to bring
              suit within two years after the loss;

    is an insured covered for replacement costs if the
    insured property cannot reasonably be replaced
    within two years?




                              -11-
We invite the New York State Court of Appeals to expand or

reformulate the certified question as it deems appropriate.

This panel retains jurisdiction and will consider any

issues that remain on appeal after the New York State Court

of Appeals has either offered its guidance or declined

certification.

                        CERTIFICATE

         The following question is hereby certified to the

Court of Appeals of the State of New York pursuant to

Second Circuit Local Rule 27.2 and New York Codes, Rules,

and Regulations, Title 22, § 500.27(a), as ordered by the

United States Court of Appeals for the Second Circuit:

    If a fire insurance policy contains

      (1)   a provision allowing reimbursement of
            replacement costs only after the property
            was replaced and requiring the property to
            be replaced "as soon as reasonably possible
            after the loss"; and

      (2)   a provision requiring an insured to bring
            suit within two years after the loss;

    is an insured covered for replacement costs if the
    insured property cannot reasonably be replaced
    within two years?




                            -12-
