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Posts Tagged ‘Delay in Claims Presentation’

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

November 5th, 2014 Claims Handling, Contract Interpretation, Insurance Contracts, Late Notice, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Retrospectively-Rated Premium Contracts, 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.C.1

Why Hahn Automotive v. American Zurich Ins. Co. is an Important Statute-of-Limitations Accrual Case

(Cont’d)

 

  Introduction

Part IV of our New York reinsurance statute-of-limitations feature started out by taking a closer look at Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012). (See Part IV.A.) Part IV.B enumerated the seven reasons Hahn is a very significant development in New York statute-of-limitations law, and discussed the first two reasons,  namely that Hahn:

  1. Creates a new general rule, which effectively extends to a larger universe of contracts a statute of limitations accrual principle that the New York Court of Appeals had applied only to certain specific types of contracts, including contracts of indemnity; and
  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.

Part IV.B. also set the stage for discussing the third reason, that is, Hahn suggests the New York Court of Appeals—if faced with an accrual question where the obligor’s obligation to perform is conditioned on the obligee’s demand for payment—may deem the statute of limitations to accrue: (a) once the obligee is legally entitled to demand payment; or (b) the earlier of (i) the date the obligee demands payment or (ii) the expiration of a commercially reasonable period measured from the date the obligee became legally entitled to demand payment.

This Part IV.C.1 wraps up our discussion about Hahn’s likely influence on how courts applying New York law will decide cases where—unlike Hahn—a demand for payment is an express condition of the obligor’s duty to perform, but—like Hahn—the obligee has, for whatever reason, delayed making a demand. The focus of the wrap-up is on why we think that courts will probably permit accrual to be delayed for no more than a brief, commercially reasonable period, and may simply conclude that the Hahn legally-entitled-to-demand-payment rule should govern such cases because the performance of the condition is within the obligee’s control,  the benefits of the Hahn rule far exceed its costs and the costs of a “commercially reasonable time” rule exceed its benefits. Continue Reading »

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?

Introduction

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 »

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

April 27th, 2014 Claims Handling, Contract Interpretation, New York Court of Appeals, New York State Courts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, 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 III.C

Does New York Law on Implied or Constructive Conditions

Provide a Basis for Stronghold’s Conclusion?

 

New York’s six-year statute of limitations for breach of contract does not begin to run until the obligee has satisfied all express conditions to the obligor’s duty to perform. (See Parts I and II.) Part III.B explained why we believe the Second Circuit in Continental Cas. Co. v. Stronghold Ins. Co. did not correctly interpret and apply New York law when it concluded that a garden-variety notice-of-loss provision in an excess-of-loss reinsurance contract was an express condition to the extent it required the cedent to notify reinsurers of paid-loss claims and demand payment. That (we believe) erroneous conclusion enabled the Second Circuit to hold that the cedent’s breach-of-contract claims were not barred by New York’s six-year statute of limitations, even though they were based on settlements the cedent had concluded with its insureds more than six-years before the cedent commenced its action. (See Part III.A.)

At the conclusion of Part III.B we raised the question whether Stronghold might make sense under the law of implied or constructive conditions, that is, if we were to interpret it as having construed the notice-of-loss provision as an implied or constructive condition. But Stronghold fails even if it is reconceptualized that way.  Continue Reading »

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

February 24th, 2014 Claims Handling, Contract Interpretation, Internal Controls, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, 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 I

Wendy “Bulldog” Worrylittle is a partner in a New York City law firm who has just landed her first reinsurance case. Her client, Cedent C, an insurance company domiciled and licensed to do business in New York, told her that the case involves a single excess-of-loss contract between C and participants in a reinsurance pool fronted by Reinsurer R, which is domiciled in Delaware and has its principal place of business in South Carolina. The reinsurance contract does not contain an arbitration agreement, but provides that “New York shall govern this contract,” and that R consents to personal jurisdiction in any court of competent jurisdiction in New York State.

The dispute concerns three reinsurance claims, which R has not paid. Each arose out of C’s settlements with three of  its insureds, each one of which had commenced a declaratory judgment action against C seeking a declaration of coverage for asbestos or environmental property damage or bodily injury claims brought by third parties. Cedent C tells Wendy that each of the claims was billed a month or so shy of six-years ago, the parties negotiated for a few years and R subsequently informed C in writing that it rejected the claims as presented.

Cedent C asks Wendy to commence an action against R in the United States District Court for the Southern District of New York. Wendy notes that a statute-of-limitations issue may be looming, as she recalls that New York’s statute of limitations for a breach of contract claim is six years and that it runs from the date of the breach. In light of the potential statute-of-limitations problem, she quickly confirms her understanding outline.

Based on what she remembers and has confirmed about the statute of limitations, and on her limited knowledge of the facts, she reasons that, because the reinsurance contract expressly contemplates that C will present claims through a reinsurance intermediary, the statute of limitations cannot have begun to run at any time prior to C billing R. She does not consider whether the statute of limitations might have begun to run at any earlier time, because R could not have breached the contract at any time prior to C presenting the claims, let alone giving R an opportunity to decide whether to pay them.

So Wendy files and serves C’s complaint within the six-year period as measured from the dates on which C presented the claims. Upon the deadline for responding to the complaint, Reinsurer R, represented by Karen “Cardozo” Iknowlaw, files not an answer but a motion to dismiss on the ground that C’s claims are time barred. Before reading the papers, Wendy’s all-to-quick temper flares and she vows to seek sanctions against Karen, who, in Wendy’s view, obviously knows nothing about the law, let alone the facts.

Is Reinsurer R’s Motion to Dismiss Well-founded?

Wendy quite correctly concluded that C’s suit is for breach of contract and that New York’s breach-of -contract statute of limitations is six years, which is ordinarily calculated from the date of breach.[1] But her analysis was off the mark because she did not ascertain and analyze all the potentially relevant facts and law.

Although as a general rule the contract statute of limitations begins to run at the time of the breach, there is an exception that is particularly pertinent in the reinsurance context, and which is somewhat counterintuitive. Recall that C billed R for the claims nearly six years ago. Wendy’s client did not mention, and Wendy did not ask about, the dates on which the claims were settled and the corresponding dates by which C could reasonably have been expected to present each claim to R. Wendy apparently did not consider this information relevant to the statute of limitations issue, but it can be outcome determinative of it. Continue Reading »