main image

Posts Tagged ‘Contract Construction’

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

October 6th, 2014 Choice-of-Law Provisions, Claims Handling, Contract Interpretation, New York Court of Appeals, New York State Courts, Nuts & Bolts: Reinsurance, Reinsurance Arbitration, Reinsurance Claims, Retrospectively-Rated Premium Contracts, State Courts, Statute of Limitations Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

 Part IV.B

 Why is Hahn Automotive v. American Zurich Ins. Co. Important?


Now that we’ve taken a closer look at Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012), let’s step back a bit and consider what it means both in general and in the reinsurance-claim-statute-of-limitations scheme of things.

As will be explained in this Part VI.B, Part VI.C, and Part VI.D, Hahn:

  1. Creates a new general rule, which effectively extends to a larger universe of contracts a statute of limitations accrual principle that it had applied only to certain specific types of contracts, including contracts of indemnity;
  2. Demonstrates that, outside the limited context of express conditions, breach-of-contract statute-of-limitations accrual is not exclusively a matter of party intent;
  3. Suggests that the New York Court of Appeals, if faced with an accrual question where the obligee’s demand is an express condition to the obligor’s liability, would probably not permit accrual to be delayed for more than a relatively brief period measured from the date on which the obligee was legally entitled to demand payment;
  4. All but forecloses an argument that a court may justify a delay in the statute of limitations by deeming a demand requirement to be an implied condition;
  5. Creates an analytic framework for determining breach-of-contract statute-of-limitations accrual questions that is at least as well-suited to excess-of-loss reinsurance contracts as it is to retrospective premium contracts;
  6.  Will likely be applied to reinsurance contract statute-of-limitations questions, that cedents or reinsurers may in the past have assumed would be governed by Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996); and
  7. If so applied to a situation where, as in Stronghold: (a) the reinsurance contract does not unambiguously condition the reinsurers’ liability on claims presentation; and (b) the cedent settled the underlying insurance claims more than six-years before commencing their action, will, all else equal, likely require a finding that the cedent’s claims are time-barred.

Hahn therefore has some important claims management implications for both cedents and reinsurers, which we’ll discuss in Part IV.E.

But there is, as no doubt many readers have discerned, a proverbial “elephant in the room:” arbitration. Arbitration agreements are exceedingly common in reinsurance contracts, particularly in treaties. In Part V., we’ll discuss the profound effect that the choice between judicial and arbitral resolution of a controversy can have on statute of limitations questions, and how that choice bears on cedent and reinsurer time-bar strategy.

Finally, there is another very important—and all too frequently overlooked— consideration that we would arguably be remiss not to discuss: choice-of-law. Reinsurance disputes, like so many of their other commercial counterparts, frequently cross state and national borders, raising horizontal choice-of-law issues. But in many (indeed, probably most U.S.) jurisdictions, including New York, choice-of-law rules that determine what substantive rules of decision apply (i.e., what rules of decision apply to merits-related issues) do not determine what statute-of-limitations rules apply, and that may be true (as it ordinarily is in New York) even where parties agree that the law of State X governs their agreement.

In New York, that issue is ordinarily determined by New York’s borrowing statute, New York Civ. Prac. L. § 202, many other states have similar (although not necessarily identical) borrowing statutes and at least a few other states may either simply follow the traditional rule that forum law governs statute of limitations or apply substantive choice-of-law rules to determine the applicable statute of limitations. Part VI will thus address choice-of-law questions pertinent to the statute of limitations, focusing on New York’s borrowing statute, and discuss how choice-of-law issues affect time-bar strategy. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

September 19th, 2014 Claims Handling, Contract Interpretation, Insurance Contracts, Late Notice, New York Court of Appeals, New York State Courts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Retrospectively-Rated Premium Contracts, Statute of Limitations, United States Court of Appeals for the Second Circuit Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

Part IV.A

Hahn Automotive v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012): Unless Parties Unambiguously Condition Obligor’s Duty to Perform on Demand for Payment, Statute of Limitations Begins to Run as Soon as Obligee is Legally Entitled to Demand Payment

If you’ve been following this multi-part post from inception, then you know that we think the New York Court of Appeals’ 2012 decision in Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012) strongly suggests that, if faced today with facts materially identical to those in Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996), New York’s highest court would hold that the cedent’s claims were time-barred because: (a) the notice provisions in the reinsurance contracts did not unambiguously condition the reinsurers’ obligation to pay on presentation of claims and demands for payment; and (b) the cedent was legally entitled to present and demand payment for each of its reinsurance claims more than six years before the cedent commenced its action. This Part IV.A discusses what transpired in Hahn, and Part IV.B will analyze Hahn’s likely effect on excess-of-loss reinsurance-claim statute-of-limitations accrual.

Hahn Facts and Procedural History

Hahn was a dispute between an auto parts distributor (the “Insured”), and its two insurers, both members of the Zurich Insurance Group (the “Insurers”).

During each annual period between September 1992 and September 2003, the Insurers provided general liability, auto liability and workers’ compensation coverage to the Insured. The insurance was priced using three types of alternative-risk-finance rating plans embodied in: (a) retrospective premium agreements (the “Retro Premium Agreements”); (b) adjustable deductible policies (the “Adjustable Deductible Policies”); and (c) deductible policies (the “Deductible Policies”). The Insurers also entered into certain claims services contracts (the “Claims Services Contracts”) under which the Insurers provided claims-handling services on a fixed-fee-per-claimant basis. Continue Reading »

First Circuit Considers Whether an Arbitration Clause is Mandatory or Optional: PowerShare, Inc. v. Syntel, Inc.

March 5th, 2010 Arbitrability, Stay of Litigation, United States Court of Appeals for the First Circuit 1 Comment »

Not all arbitration agreements are mandatory.  Strange as it may seem, some are optional. 

In PowerShare, Inc. v. Syntel, Inc., ___ F.3d ___, No. 09-1625, slip op. (1st Cir. Mar. 1, 2010) the Court addressed a claim that the following arbitration clause was optional:

 All disputes, controversies and claims directly or indirectly arising out of or in relation to this Agreement or the validity, interpretation, performance, breach, enforceability of the Agreement (collectively referred to as “Dispute”) shall be resolved amicably between Syntel and PowerShare at an operational level in consultation with the top management of both companies.  If any such Dispute cannot be resolved, as stated above, the same shall be settled in accordance with the principles and procedures of the American Arbitration Association and per the decision of an accredited arbitrator acceptable to both parties.  Nothing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.

A dispute arose under the parties’ contract, and PowerShare commenced an action in the Federal District  Court in Massachusetts.  Syntel moved for a stay under Federal Arbitration Act Section 3.  PowerShare said the arbitration agreement was optional, a Magistrate Judge denied the motion for a stay, and the District Court affirmed the Magistrate Judge’s order.  

The key question before the First Circuit  was whether the Magistrate Judge’s finding that the clause was optional was contrary to law.  The First Circuit reversed, finding that the arbitration clause was mandatory.   (The First Circuit also answered a question about the standard of review under which a district court should review a Magistrate Judge’s decision on a motion to stay litigation under Section 3 of the Federal Arbitration Act, but we need not dwell on that.)   

The crux of the Magistrate Judge’s order, and PowerShare’s position on appeal,  was the last sentence of the arbitration clause:  “[n]othing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.”  The Magistrate Judge read that as preserving a party’s right to seek a jury trial in the event of a dispute — notwithstanding anything to the contrary in the arbitration clause —  because a jury trial is a “remedy” “under law.” 

But the First Circuit disagreed.  According to the First Circuit, the parties’ choice-of-law clause required application of the laws of the United States, which the parties agreed brought into play federal common and statutory law.  Under federal common law, “courts must be guided by commonsense rules of contract construction,” and one of those rules is that “an interpretation which gives effect to all the terms of a contract is preferable to one that harps on isolated provisions, heedless of context.”  (citations and quotation omitted) 

The Court reasoned that interpreting the third sentence as making arbitration optional would be to negate the mandatory nature of the second sentence:  

 [PowerShare’s].  .  .  interpretation cannot be reconciled with the unvarnished language of Paragraph 18’s second sentence.  That sentence states explicitly that disputes between the parties “shall” be settled through arbitration.  The word “shall” denotes obligation, not choice; therefore, accepting PowerShare’s interpretation of the third sentence would drain the second sentence of its essential meaning.  Put bluntly, the word “shall” in the second sentence would be rendered nugatory were we to read the arbitration provision as creating nothing more than an option.  That PowerShare’s interpretation of Paragraph 18 would negate the obvious meaning of the second sentence is a powerful argument against accepting that interpretation.  (citations and quotations omitted). 

The Court concluded that the only “plausible interpretation” of the arbitration clause that gave effect to the “plain meaning” of the second sentence  was that “the second sentence mandates arbitration and the third sentence furnishes the arbitrator with broad legal and equitable powers should either party seek special kinds of relief (say, an injunction).”  

The Court based its decision solely on contract interpretation principles without deciding whether the federal presumption of arbitrability applied.  The presumption of arbitrability requires ambiguities concerning the “scope” of an arbitration clause to be resolved in favor of arbitration.  PowerShare argued that the presumption did not apply where, as here, the question was not the scope of an arbitration clause, but whether a mandatory arbitration clause existed in the first place.

ReliaStar Life Insurance Co. v. EMC National Life Co.: Critical Analysis of an Important Reinsurance Arbitration Decision

April 28th, 2009 Arbitrability, Authority of Arbitrators, Awards, Life Reinsurance, New York Court of Appeals, United States Court of Appeals for the Second Circuit 3 Comments »


We recently reported on ReliaStar Life Ins. Co. v. EMC National Life Co., ___ F.3d ___, ___ (2009) (Raggi, J.) (blogged here), in which the United States Court of Appeals for the Second Circuit held that an arbitration panel was authorized to award under the bad faith exception to the American Rule attorney and arbitrator fees to a ceding company in a case where the parties had agreed that “[e]ach party shall bear the expense of its own arbitrator.  .  .  and related outside attorneys’ fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.”  This post takes a critical look at ReliaStar.  

The Second Circuit is one of the most influential and respected  Circuit Courts of Appeal in the United States, yet on occasion even this prestigious court renders a decision that is open to question.  ReliaStar is one of those decisions.  The majority opinion lost sight of what the parties agreed about the arbitrators’ power to award attorney fees.  Rather than adhere to the plain meaning of the parties’ agreement as required by New York  law, the Court construed an unambiguous limitation on arbitral authority to mean something other than what it said. 

No doubt that the Court believed that its decision would encourage resort to arbitration by construing arbitral authority broadly.  But the Court would have done a far better job encouraging resort to arbitration had it simply enforced the parties’ agreement as written.  One of the most attractive features of arbitration is that parties get to dictate how they want their dispute decided, including, among other things, how best to allocate the costs, fees and expenses of deciding it.   But that feature falls by the wayside if courts cannot be relied upon to enforce arbitration agreements as written.  Continue Reading »