Contractor Missed Deadline to File Lawsuit For Repairs to Storm-Damaged Church

A bankruptcy filing did not stop the clock from running on North Carolina’s three-year statutory deadline for filing a lawsuit seeking insurance coverage, a panel of the 4th Circuit Court of Appeals ruled Wednesday.

The appellate court affirmed a decision to dismiss a lawsuit filed by Skyline Restoration Inc. against Church Mutual Insurance Co. The Illinois company was seeking to recover $692,735.90 for mitigation work after the FirstBaptist Church in Lumberton was damaged by Hurricane Matthew, but the appellate panel decided Skyline had filed its suit more than a month too late.

The panel said that while Section 108(a) of the Bankruptcy Code allows a bankruptcy trustee to extend a limitations period, that right does not extend to a creditor seeking to collect an insurance debt under an assignment of rights.

“Regardless of the merits of Skyline’s claims, these claims are time barred under the applicable statute of limitations and Section 108(a) simply does not extend the deadline for an assignee,” the opinion says.

On Oct. 7, 2016, Hurricane Matthew caused extensive damage to both the First Baptist Church and several affordable housing units that it owned through a nonprofit subsidiary. The church filed a claim with Church Mutual shortly after the hurricane and hired Skyline for wind and flood damage remediation work.

Skyline eventually invoiced First Baptist a total of $2.4 million for its work on three church buildings and the affordable housing units the church owned. It filed a lawsuit in federal court in Chicago in November 2017. In 2018, the church filed for Chapter 11 bankruptcy protection.

Bankruptcy court records show that Skyline settled its dispute with the church in January 2020, accepting $173,930.93 in cash, a $50,000 promissory note and six parcels of real estate with an estimated value of $150,000. The church also assigned its rights for insurance coverage by Church Mutual to Skyline.

But Skyline did not file a lawsuit against Church Mutual until Nov. 22, 2019. The company sought to recover the nearly $700,000 that it had invoiced the church for remediation of the church buildings and also sought damages for the insurer’s alleged violations of the Unfair and Deceptive Trade Practices Act.

Church Mutual filed a motion to dismiss the lawsuit because it was filed more than three years after the date of the loss. Skyline argued that the limitations period did not begin until Nov. 28, 2016, which was the date that Church Mutual notified the company that part of its claim was not covered.

U.S. District Judge Terrence W. Boyle in Wilmington ruled that North Carolina statutes required Skyline to file its lawsuit within three years of the loss. The bankruptcy filing did not toll the limitations deadline, the judge decided.

On appeal, the 4th Circuit panel agreed. The opinion says that in North Carolina, breach of contract claims are subject to a three-year statute of limitations. Separate statutes also assign a three-year statute of limitations for property insurance claims, measured from the “inception of the loss.”

While it is true that bankruptcy trustees can add two years to that deadline, that privilege is not afforded to creditors in a bankruptcy proceeding. The opinion says the Bankruptcy Code allows the extension because trustees have a duty to represent the interest of all creditors who are attempting to collect on debts.

Skyline is not representing all creditors, the court said.

“To the contrary, Skyline’s breach of contract claims could not possibly enhance the assets of the bankruptcy estate because it is attempting to recover monetary relief, not as a fiduciary of the bankrupt or for the benefit of the estate, but for itself,” the opinion says. “Therefore, if Skyline, as an assignee of First Baptist, were permitted to use this tolling provision to bring its claims, this would run counter to creditor interests.”

About the photo: Floodwaters from Hurricane Matthew engulf homes and businesses in Lumberton, N.C., Wednesday, Oct. 12, 2016. AP file photo.