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A federal district court in New Jersey has dismissed a lawsuit filed by the Consolidated Rail Corporation (“Conrail”) seeking insurance coverage for costs it incurred after a train derailment.

The Case

On November 30, 2012, a Conrail train derailed while crossing a bridge that spanned Mantua Creek in Paulsboro, New Jersey. Acting through its insurance broker, Conrail notified its insurers of the derailment on the same day it occurred and sought insurance coverage for the costs that Conrail would incur to repair or replace the damaged bridge.

By letter dated January 29, 2013, Conrail informed the U.S. Coast Guard of its intention to design and construct a new bridge and that Conrail already had taken preliminary steps to that end.

On March 13, 2013, the Coast Guard responded, requiring Conrail to apply for a permit for a “replacement drawbridge.” The Coast Guard issued Conrail's permit on April 24, 2014, and Conrail completed its bridge construction in March 2016.

In December 2016, Conrail provided a proof of loss to Hudson Specialty Insurance Company, one of its excess carriers, indicating, among other things, that the bridge construction cost $13,974,639, or $9,288,328 more than the original construction configuration.

Thereafter, by letter dated March 5, 2017, York Specialized Loss Adjusting, on behalf of Hudson and Conrail's other excess insurers, denied Conrail's claim.

On November 30, 2017, Conrail sued Hudson and the other insurers for breach of contract, declaratory relief, and bad faith.

Asserting that Conrail's claims were “barred by the suit limitation period” in its policy, Hudson moved for summary judgment.

The District Court's Decision

The court, applying New York law, granted the motion, ruling that the suit limitation clause was enforceable against Conrail.

In its decision, the court explained that the suit limitation clause required Conrail to sue Hudson within one year “of the occurrence which gives rise to the claim”—that is, the November 30, 2012 train derailment.

The court was not persuaded by Conrail's contention that the court should not enforce the one-year limitation because Conrail could not have reasonably complied with the one-year time frame. The court found nothing in the policy that imposed requirements that made a timely lawsuit impossible. In particular, the court said that nothing in the policy required Conrail to delay litigation until the Coast Guard had approved a replacement bridge design, until Conrail had completed construction, or until Conrail had submitted proof of loss.

Moreover, the court continued, there was no evidence that Hudson had attempted to deny Conrail coverage at any point because the bridge rebuild had not been completed or because Conrail had failed to submit proof of loss to Hudson.

In fact, the court noted, Conrail did not dispute that it had taken “no action” to protect itself from the expiration of the limitation period by filing any suit or requesting any extension from Hudson. Conrail, the court said, was “more than sophisticated enough to have thought to do so.”

Put simply, the court concluded that the limitation period in the Hudson policy did not impose an impossible-to-meet obligation before Conrail could sue and because Conrail had failed to take any action to protect itself, the one-year limitation was “not unreasonable or unenforceable.”

The case is Consolidated Rail Corp. v. Aspen Specialty Ins. Co., No. 17-12281 (RBK/KMW) (D.N.J. June 10, 2019). Attorneys involved include: For CONSOLIDATED RAIL CORPORATION, Plaintiff, Cross Defendant: LISA J. RODRIGUEZ, Schnader Harrison Segal & Lewis LLP, Cherry Hill, NJ. For ASPEN SPECIALTY INSURANCE COMPANY, LANDMARK AMERICAN INSURANCE COMPANY, Defendants: EDUARDO DEMARCO, LEAD ATTORNEY, Kennedys CMK LLP, Basking Ridge, NJ; JAMES CARTON, IV, CARTON LAW FIRM, MANASQUAN, NJ. For HUDSON SPECIALTY INSURANCE COMPANY, Defendant: CHRISTOPHER R. CARROLL, EDUARDO DEMARCO, LEAD ATTORNEYS, KENNEDYS CMK LLP, BASKING RIDGE, NJ. For LANDMARK AMERICAN INSURANCE COMPANY, ASPEN SPECIALTY INSURANCE COMPANY, Cross Claimants: JAMES CARTON, IV, CARTON LAW FIRM, MANASQUAN, NJ.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at [email protected].