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Harris v. United States Liability Insurance Co.

October 12, 1984


Appeal from a judgment of the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, granting appellee's motion to dismiss appellant's diversity suit seeking recovery under an insurance policy. Reversed

Author: Lumbard

Before: FEINBERG, Chief Judge, LUMBARDand NEWMAN, Circuit Judges.

LUMBARD, Circuit Judge:

Lauren Harris, a New York resident, brought suit against United States Liability Insurance Company ("Liability Insurance"), a Pennsylvania corporation, to recover the sum of $40,000 under an insurance policy issued by defendant-appellee. Judge Mishler, Eastern District of New York, dismissed Harris' complaint as barred by a limitations period contained in the policy of insurance. We reverse.

In her complaint, Harris alleges that, on or about October 25, 1982, she suffered the loss of her diamond and platinum ring. Shortly after this date, plaintiff-appellant reported the loss to Liability Insurance, which insured Harris' ring under a policy that provided, inter alia, that no suit on the policy could be brought after a period of one year from discovery of the loss. After the loss was reported, defendant-appellee proceeded to investigate the claim.

As part of its inquiry into the circumstances surrounding the loss of the ring, Liability Insurance requested that Harris and her husband produce federal and state income tax returns for the year in which the ring was bought, as well as for three other specified years. Harris objected to this request and, in March 1983, brought an action in the Supreme Court, Nassau County, seeking, inter alia, a declaratory judgment that she had cooperated with the insurance company in its investigation of her claim and that the demands for production of her personal tax returns was improper. The complaint further requested a temporary restraining order and preliminary injunction to enjoin Liability Insurance from declaring Harris in breach of the terms of the insurance policy. It also demanded "such other, different and further relief and declaration of the rights and legal relations of the parties as to the Court may seem necessary and proper."

The state court granted the temporary restraining order but, prior to a hearing on the preliminary injunction motion, Liability Insurance removed the original action to the district court. The defendant agreed to continue the temporary restraining order so that Harris was not required to produce the demanded tax returns prior to resolution of the issues.

On November 18, 1983, more than one year after Harris allegedly discovered the ring's loss, Judge Mishler dismissed the plaintiff's action. The district court's decision was premised on its determination that Liability Insurance had not disclaimed liability under the policy and, consequently, no real conflict had yet materialized between the parties: "In this case plaintiff does not present a sufficiently justiciable controversy. Therefore, her action for declaratory judgment must be dismissed." No appeal was taken from this determination.

Shortly thereafter, however, Harris, through her attorney, provided Liability Insurance with the tax returns and demanded immediate payment of $40,000. On December 1, 1983, counsel for Liability Insurance notified Harris' attorney that the insurance company intended to decline coverage on the ground that Harris had failed to bring suit on the policy within one year of discovery of the ring's loss. The insurance policy provided, in pertinent part:

11. Suit. No suit, action or proceeding for the recovery of any claim under this policy shall be sustainable in any court of law or equity unless the same be commenced within twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim. . . .

On December 27, 1983, less than one month after entry of the judgment dismissing her original complaint, Harris commenced the present action for recovery under the terms of the insurance policy. On March 13, 1984, Judge Mishler dismissed Harris' complaint as barred by the limitations period in the policy of insurance. The parties are agreed that New York law governs.

The district court rejected Harris' argument that, under N.Y. Civ. Prac. Law ยง 205 (a) (McKinney Supp. 1982-1983), her present action was timely commenced. Section 205 (2) provides, in pertinent part:

New action by plaintiff. If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff . . . may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action.

Judge Mishler ruled that this section was inapplicable because the second suit involved a different cause of action than ...

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