Court Opinion

ID: 9773625
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:52:01.263241+00
Date Added: 2024-06-11T07:31:55.539998
License: Public Domain

Read, J. (dissenting).
Plaintiff Hahn Automotive Warehouse, Inc. (Hahn) does not contest the amount of the moneys that it *773owes defendants American Zurich Insurance Company and Zurich American Insurance Company (collectively, Zurich) under the various insurance contracts at issue in this case, which called for amounts owed to be adjusted upward or downward retrospectively, principally to reflect actual loss and cost experience. Instead, Hahn argues that Zurich may not recover this acknowledged debt, reflected in three invoices issued between April 2005 and March 2006, because of the expiration of CPLR 213 (2)’s six-year statute of limitations for breach of contract claims.
The majority agrees with Hahn, holding that Zurich’s claims are time-barred because it “possessed the legal right” under the insurance contracts “to demand payment” from Hahn more than six years before the invoices were actually sent (majority op at 767). But courts have heretofore uniformly concluded (as did the dissenter below) that the statute of limitations for a claim for unpaid premiums calculated on the basis of claims history does not accrue until the insured refuses payment after demand has been made by the insurer. A breach, if any, would only occur when a due date passes without payment being made. To hold otherwise, as the majority does, creates an illogical situation whereby a claim for breach of contract accrues before the insured knows whether it owes the insurer any money at all, much less how much. In other words, the claim for breach accrues before any breach can possibly occur. Accordingly, I respectfully dissent.
Under the policies at issue, Hahn paid premiums to Zurich and, when loss history became known, Zurich adjusted the various amounts owed under the policies to reflect actual losses and costs. In some cases, Hahn would owe additional moneys to Zurich. In others, a refund would be due Hahn. The majority is “unpersuaded by Zurich’s assertion that” in light of these contractual arrangements “its counterclaims could not have accrued until it sent the three invoices . . . because its right to payment under the policies was subject to a condition precedent—Zurich’s issuance of a demand for payment” (majority op at 771).
The source of the majority’s skepticism is the absence of “any contract language unambiguously conditioning [Zurich’s] right to payment on its own demand,” and the presence in the contracts of “specific references to the applicable time periods when Zurich was entitled to calculate adjustments and bill Hahn for the amounts owed” (id.). As to the first point, Zurich was *774not in a position under the contracts to demand payment until it determined that Hahn owed additional moneys. And this determination was based on computations carried out by Zurich in conformity with the complex claims adjustment formulae specified in the contracts. By their very nature and structure, then, these contracts conditioned payment upon demand; otherwise, there was no way for Hahn to know whether or how much additional moneys it owed.
Further, the Retrospective Premium Agreement, for example, explicitly provided that
“[b]ased upon the selection of the Annual Policy Period Option . . ., [Zurich] shall compute and [Hahn] shall pay to [Zurich] within ten (10) days of the receipt of its demand therefore, Earned Retrospective Premium based upon Incurred Losses valued as of a date six (6) months after the expiration of each such period, as soon as practicable after such valuation. Additional Earned Retrospective Premium Adjustments shall be computed by [Zurich] based upon Incurred Losses valued annually thereafter as soon as practicable after such valuation dates, payable within ten (10) days of receipt of its demand therefore, until such time as [Zurich] shall designate an adjustment as being final.”
The majority takes the position, as I understand it, that under this provision, Zurich had “the legal right to demand payment” for losses and expenses as they factored into the adjustment for the year in which the losses were paid and the expenses incurred; therefore, Zurich was foreclosed by the statute of limitations from recovering for such losses or expenses if it waited more than six years before taking them into account.
But 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 the above-cited provision, until Zurich “designated] an adjustment as being final.” It was only at this point, when the final amount of a retrospective premium could be calculated, that a claim would accrue under these policies in the absence of a demand for payment (see e.g. 6-35 Holmes’ Appleman on Insurance 2d § 35.3 [with respect to retrospective premiums, “(c)ourts hold that any statute of limitations does not begin to run until a final premium may be *775calculated under the express terms of the applicable agreement”], citing National Union Fire Ins. Co. of Pittsburgh, Pa. v LSB Indus., Inc., 296 F3d 940 [10th Cir 2002]). No other court considering the accrual of claims arising under insurance contracts that involve a retrospective premium or are otherwise adjustable has taken a position, under New York law or otherwise, comparable to the majority’s (see e.g. Continental Ins. Co. v Coyne Intl. Enter. Corp., 700 F Supp 2d 207 [ND NY 2010] [cause of action for recovery of unpaid retrospective insurance premium adjustment accrued when insured refused to pay invoice]; Reliance Ins. Co. v Griffin Dewatering Corp., 2007 WL 1165557, 2007 US Dist LEXIS 29110 [ND Ind 2007] [same]; Potomac Ins. Co. of Ill. v Richmond Home Needs Servs., Inc., 2006 WL 2521283, 2006 US Dist LEXIS 62224 [SD NY 2006] [same]; Liberty Mut. Ins. Co. v Precision Valve Corp., 402 F Supp 2d 481 [SD NY 2005] [same]; Transportation Ins. Co. v Star Indus., Inc., 2005 WL 1801671, 2005 US Dist LEXIS 43121 [ED NY 2005] [where workers’ compensation policy provided for payment of retrospective premium based on claims experience, cause of action for unpaid premiums accrued at time of adjustment]; Temploy, Inc. v Companion Prop. & Cos. Ins. Co., 2008 WL 4495782, 2008 US Dist LEXIS 78572 [SD Ala 2008] [in retrospective rated insurance policies, a cause of action for wrongful assessment of a premium accrues on the date the payment is due, but refused]; Brookshire Grocery Co. v Bomer, 959 SW2d 673 [Tex Ct App 1997] [where policy had a retrospective premium endorsement, cause of action accrued when final payment was demanded by the insurer]; cf. Continental Cas. Co. v Stronghold Ins. Co., Ltd., 77 F3d 16, 22 [2d Cir 1996] [where reinsured waited more than six years after settling last of claims before tendering claims to reinsurers, “(its) losses were due and payable, and its causes of action accrued, only after it reported the losses to the reinsurers, and the reinsurers denied coverage”]).
Notably, the majority did not cite a single decision to support its position except Travelers Ins. Co. v Jacob C. Mol, Inc. (898 F Supp 528, 531 [WD Mich 1995]). But that case addressed when a claim accrued under Michigan law against a corporation’s director for unlawfully dissolving the corporation and distributing its assets to shareholders without first paying a corporate debt; specifically, Travelers’ retrospective insurance premium. The court held that Travelers’ claim accrued on the date the director approved the unlawful distribution, noting that “the *776lawsuit against [the director] is for failure to provide for the obligation as distinguished from a suit on the obligation itself’ (id. at 531).
The majority seems troubled at the prospect that an insurer might unduly delay the running of the statute of limitations by failing to perform or bill for adjustments in a timely manner. In this case, Zurich undertook an extensive audit of accounts, which uncovered the previously unbilled losses and expenses accounted for in the three invoices. In addition, Hahn’s agent disputed, or at least said that he did not understand, some of the invoices that Zurich forwarded, which held up reconciliation and billing. But as Zurich points out, Hahn does not claim to have been injured by these delays and no longer questions the accuracy of the amounts computed; Hahn was well aware that it owed Zurich money, having been alerted by specific advice from its broker and his periodic reports, which compared paid loss billings to loss runs. For example, for several years these reports showed that Hahn had not been billed for losses under the general liability and automobile liability program for the period 9/30/95 to 9/30/96. As Zurich remarks, a ruling in its favor is unlikely to “encourage parties who are owed money to refrain from sending out bills in the hope of prolonging the statute of limitations.”
Finally, the majority cites Town of Brookhaven v MIC Prop. & Cas. Ins. Corp. (245 AD2d 365 [2d Dept 1997]) and State of New York v City of Binghamton (72 AD2d 870 [3d Dept 1979]) for the proposition that Zurich should not be permitted to prolong the statute of limitations by neglecting to make a demand for payment. But these are both construction cases where services were performed and payment was then due at a particular time, not a contractual relationship like this one, which contemplates ongoing reconciliation of credits and debits until such time as all the claims arising in the year covered by a policy have been resolved, and a final adjustment made.
Chief Judge Lippman and Judges Ciparick and Jones concur with Judge Graffeo; Judge Read dissents in a separate opinion in which Judges Smith and Pigott concur.
Order, insofar as appealed from, affirmed, etc.