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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?

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? By Philip J. Loree Jr.

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.

Reinsurance claims and legal professionals know there is a difference between a run-of-the-mill reinsurance claim and a fairly large dollar and potentially controversial claim arising out of a litigated and later, settled, declaratory judgment action. Correctly presenting complex claims requires more effort than presenting garden-variety ones. The cedent must ensure that the claims are presented in a way that is most likely to achieve prompt settlement, and to decrease the likelihood that its position on the merits will be compromised in the event of a dispute.

Correctly presenting a claim can take time and cause delays in presentation that, at least in retrospect, may seem unreasonable in the circumstances. And there are any number of other reasons why any claim’s presentation may be delayed, irrespective of how complex or straightforward the claim may be.

Delays in presentation do not necessarily postpone the running of the statute of limitations, which can begin to run even before a claim is actually presented, and even though the reinsurer has not had an opportunity to breach the contract. Suppose, two years passed between the dates on which the claims were settled and the dates on which C presented them to R. Is C’s lawsuit time barred?

The answer depends on whether the reinsurance contract expressly makes claims presentation a condition precedent to R’s duty to perform.[2] If it does, then Wendy’s conclusion about the statute of limitations may well be correct, even though her analysis was flawed. But that does not mean that Karen’s motion was baseless.

There is a general rule that a party must satisfy a statute-of-limitations-triggering condition within a “reasonable time,” and it is open to question whether that “reasonable time” is as short as the time by which a reasonable cedent should, in the ordinary course of business, have presented its claim; whether it is enough that the cedent presents a claim within the statute of limitations period as calculated from the date by which the cedent had the right to make the demand; or whether a “reasonable time” lies somewhere on the continuum between those two dates.[3] Thus, even if C’s contract expressly and unmistakably made claims presentation a condition precedent, R may nevertheless have a viable argument that the statute of limitations began to run more than six years before C commenced its action.

If the contract did not condition R’s obligation to pay on the formal presentation of a claim, then Karen’s motion would almost certainly succeed. In Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765, 771 (2012), the New York Court of Appeals, New York’s highest court, held that “the statute of limitations on [plaintiff’s claims] began to run when it acquired the right to demand payment of the various amounts owed under the [retrospectively-rated-premium contract].” Id. Because Cedent C acquired its right to demand payment at or shortly after settling each claim, and because more than six-years elapsed between the dates of settlement and the commencement of the litigation, C’s breach of contract claims would be time-barred.

The question when the statute of limitations begins to run on a reinsurance claim is one that has been, and perhaps still is, fraught with some confusion. Prior to Hahn the most instructive case on the subject was Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2nd Cir. 1996), a case which some apparently believe established a bright-line rule that the statute of limitations for a reinsurance claim begins to run at the time that the reinsurer refuses to pay the claim. But as we shall see in Part II of this post, Stronghold never purported to establish any such bright-line rule, and while the Court concluded the statute of limitations accrued upon the reinsurers’ refusal of the cedent’s claims, the case at best stands for the proposition that a reinsurance claim accrues upon the reinsurer’s refusal to pay the claim provided that the presentation of the claim is a condition precedent to the reinsurer’s obligation to perform. Furthermore, the outcome of the case was influenced by a party stipulation, and it is, in any event, questionable whether the New York Court of Appeals would agree that, under New York’s law governing express conditions,  the reinsurance contract conditioned the reinsurer’s obligation to pay on the presentation of a claim. In the absence of such a party stipulation, and in light of Hahn, the outcome of the case might well be that the cedent’s claims were time barred.

In Part II (and, if necessary, Part III) of this post, we’ll analyze Continental Casualty and Hahn in a little more detail so that the reader can understand better why that is so. We’ll also discuss how an agreement to arbitrate can affect the analysis.

For now, remember that ascertaining the statute of limitations accrual date of a claim on a reinsurance contract requires one to understand when the cedent settled the claim with its insured, what the contracts says about claims presentation, and what New York law has to say about conditions precedent and their relevance to the statute of limitations.

Links to Later Installments:

Part II

Part III.A

Part III.B

Part III.C

Part IV.A

Part IV.B

[2] John J. Kassner & Co. v City of New York, 46 N.Y.2d 544, 550 (1979); see MHR Capital Partners LP v Presstek, Inc., 12 N.Y.3d 640, 645-46 (2009); Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690-91 (1995).


[3] See Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16, 21 (2d Cir. 1996); U.S. v. Gordon, 78 F.3d 781, 786 (2nd Cir. 1996); Zysman v. Zysman, 141 Misc. 874, 874 (App. Term. 1st Dep’t 1930).

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