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

November 14th, 2014 New York Court of Appeals, 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? By Philip J. Loree Jr.

Part IV.C.2


Why Hahn Automotive v. American Zurich Ins. Co. is an Important Statute-of-Limitations Accrual Case (Cont’d)

Part IV.C.1 of our New York reinsurance-claim statute-of-limitations feature wrapped up our discussion about the likely influence of  Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012) on statute-of-limitations accrual in cases where a demand for payment is an express condition of the obligor’s duty to perform.  That brings us to the fourth reason (of the seven enumerated in Part IV.B) why Hahn is an important statute-of-limitations accrual case, namely, that Hahn 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.

As discussed in Parts III.A & III.B, the delayed-accrual outcome of Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996) could not be justified because the garden-variety notice provision which the Court characterized as an express condition was not an express condition under New York law as interpreted by the New York Court of Appeals. The only alternative theory that might arguably have supported the Court’s conclusion was that the contract contained an “implied” or “constructive” condition that the reinsurers had no obligation to indemnify the reinsurers until the ceding company presented a claim to them. (See Parts III.B & III.C.)

Implied conditions are “‘imposed by law to do justice.’” See Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995) ((quoting Calamari and Perillo, Contracts § 11-8, at 444 (3d ed.)). Thus, the rationale for implying a condition is that sometimes it is necessary to make an exception to the ordinary rules of contract law in circumstances where adhering to them would not adequately serve—or would frustrate— the purposes and objectives of contract law. See, generally, Unigard Sec. Ins. Co., Inc. v. North River Ins. Co., 79 N.Y.2d at 581-84; Oppenheimer, 86 N.Y.2d at 690.

Assuming the point the U.S. Court of Appeals for the Second Circuit was making or intended to make in Stronghold was that there are good, or even compelling, reasons for conferring limited implied- or constructive-condition status on reinsurance notice provisions for paid-loss purposes, the Court identified none. And from the standpoint of reinsurance law and practice, and New York’s statute-of-limitations law, there are none. If anything there are good-or even compelling reasons why conferring implied condition status on the notice provision was unwarranted. (See Part III.C.)

Associate Judge Susan Phillips Read’s dissenting opinion in Hahn did not expressly rely on an implied condition theory to support her argument for delayed accrual. Her argument instead relied principally on the general rule that the statute of limitations ordinarily does not begin to run until there is a breach of contract and on the presumed expectations of the parties evidenced by the terms and structure of the contracts.

Judge Read argued that the ”very nature and structure” of the contracts “conditioned payment on demand[,]” because the Insurer “was not in a position under the contracts to demand payment until it determined that [the Insured] owed additional moneys[,]” and that “determination” had to be made ”based on computations” “in conformity with the complex claims adjustment formulae specified in the contracts.” Hahn, 18 N.Y.3d at 773-74 (Read, J., dissenting). In Judge Read’s view, “the insurance contracts in this case essentially created a running tally of debits and credits, which remained open until such time as all claims or expenses for a particular policy year were resolved – or, in the words of [a provision in the Retro Premium Agreements], until [the Insurer] ‘designate[ d] an adjustment as being final.”‘ According to Judge Read, the only time the statute of limitations could begin to run in the “absence of a demand for payment” was at the point the Insurer declared an adjustment to be “final,” and thus “the final amount of a retrospective premium could be calculated.  .  .  .” 18 N.Y.3d at 774 (Read, J., dissenting).

Judge Read’s argument was thus not based on the need to imply a demand condition to “do justice,” but on the structure of the contracts, which she thought effectively conditioned payment on demand during the period from inception until the insurer declared a final adjustment. It was essentially an argument for: (a) adhering to the general rule that the statute of limitations does not accrue until breach; and (b) giving effect to party intent based on the contract as a whole, rather than focusing on express conditions and their attendant legal idiosyncrasies.

Judge Read made her argument quite wisely, partly because she did not dress it up with implied condition arguments. Had she made such arguments, then she would have had to explain why “justice” required the court to imply a condition. That would have been quite a feat, because for essentially the same reasons the Stronghold facts did not warrant imposing an implied condition, so too did not the Hahn facts. (See Part Part III.C.) 

We think the majority’s rejection of Judge Read’s delayed accrual argument—which did not rely on an implied condition theory, and thus did not require justification based on a purported need “to do justice”—strongly suggests that a court faithful to Hahn would reject an alternative theory based on implied condition, at least where, as in Hahn and Stronghold, the only purported justification for implying such a condition would be delayed accrual of the statute of limitations.  

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